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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Dividend stripping

Double taxation agreements negotiated since the passing of FA72, together with a number of existing agreements which have subsequently been amended by a Protocol, often include provisions for conferring on certain persons resident in the other country the right to a tax credit in respect of dividends from UK companies. To prevent excessive tax credits being obtained through dividend-stripping operations, such agreements usually contain a provision restricting or denying credit where a dividend is paid out of pre-acquisition profits.

The precise circumstances in which a restriction will operate depends upon the terms of the agreement, for example, Article 11(5) of the agreement with the Irish Republic (SI1976/2151).