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HMRC internal manual

International Manual

UK residents with foreign income or gains: income arising abroad: Dividends

The UK measure of a dividend is normally the same as the foreign measure so that the whole of the income is doubly taxed. However, there may be cases where a taxpayer incurs expenses that are directly attributable to the receipt of dividends, for example where he pays a sum of money for the right to receive dividends (usufruct) without acquiring the underlying shares.                          CSTD Business, Assets &  International, Base Protection Policy team would like to see such cases before a claim to credit relief is agreed. In certain circumstances, where the dividend income carries entitlement to relief for underlying tax, credit may be restricted under the rules of TIOPA10/S37.

Although dividends from the same foreign company are added together for assessment purposes for a particular year or accounting period, the foreign tax on those dividends for which credit is due may be at differing rates. For dividends received before 31 March 2001, each dividend has to be looked at separately for the purposes of determining the limit of credit. Certain dividends received by companies after this date may be pooled (see INTM164270 onwards).


A UK company has two dividends from the same foreign company of £600 each arising in its accounting period ended 31st March 2000. The company is entitled to relief for the underlying tax on those dividends (see INTM167370 onwards). The first dividend is paid out of the foreign company’s profits of the year ended 31 December 1999 and the underlying rate of tax is 40 per cent. The second dividend is an interim dividend for the year ended 31 December 2000 and the underlying rate of tax is 25 per cent. The UK computation and credit relief is

Dividend 1. £600 grossed at 40% (Foreign tax £400) 1,000  
Dividend 2. £600 grossed at 25% (Foreign tax £200) 800  
UK tax £1,800 at 30%   540
Less credit    
Dividend 1. (restricted to £1,000 at 30%) 300  
Dividend 2. 200 500
Corporation Tax payable   40