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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001: onshore pooling

The legislation relating to onshore pooling was repealed for distributions paid on or after 1 July 2009.

Qualifying foreign dividends (‘QFDs’) received in the UK on or after 31 March 2001 can be pooled. These are defined in ICTA88/S806C as any Case V dividends except :

  • Those treated as trading income;
  • Those arising from ‘bought-in’ tax schemes caught by Section 801A;
  • Those limited by Section 803;
  • Where the foreign tax is treated as a deduction under Section 811;
  • ADP dividends paid by a CFC;
  • As much of any dividend which represents an ADP dividend paid by a CFC;
  • Those giving rise to EUFT.

The broad purpose is to pool low taxed dividends and then utilise excess unrelievable foreign tax arising on high tax dividends against these.

In many cases, low-taxed dividends will have been mixed with high-taxed ones through a mixer. When the mixer cap is applied, there will now be some UK tax liability - (see INTM164210). The dividend cannot be split to enable this part of it to be a QFD.

There are two sorts of QFD:

  • Related QFDs paid by a related company;
  • Unrelated QFDs from all other companies.

For the purposes of giving credit relief, four totals for the accounting period are calculated;

  1. Related QFDs;
  2. Unrelated QFDs;
  3. Underlying tax on related QFDs;
  4. Other taxes (i.e. withholding) on both related and unrelated QFDs.

Credit relief is then given as if each total above were only single dividends and single amounts of tax respectively. (c) is allowed against UK tax arising on (a) and (d) is allowed against UK tax arising on (a) or (b) or both.

A related company is defined in Section 806J. The UK recipient must be entitled to relief for underlying tax in respect of it: broadly this is where it controls 10% of the voting power. The companies must be related at the time the dividend is paid.


UK company receives the following dividends from overseas companies, all of whom are in different countries:

Company Details Dividend QFD?
A 100% sub 55 after 45 underlying tax No: EUFT will arise
B 100% sub 80 after 20 underlying tax. 8 w/h tax also paid Related QFD
C 20% sub 140, made up of dividends received of 60 (40 underlying) and 80 (20 underlying) No: EUFT will arise
D 100% sub CFC: ADP dividend 95, underlying tax 5 No: ADP dividend
E 100% sub 185, partly ADP dividend 95 with underlying tax 5, partly non-ADP dividend from trading subsidiary of 90 with underlying tax of 10 The residual dividend of 90 only is a related QFD.
F 1% holding 200, w/h tax 30 Unrelated QFD
G 1% holding 50, w/h tax 10 Unrelated QFD

Related QFDs are 80 from B plus 90 from E, making a single related QFD of 170.

  1. Unrelated QFDs are 200 from F and 50 from G making a single unrelated QFD of 250.
  2. Underlying tax from related QFDs is 20 from B plus 10 from E making 30 in total that can be treated as if it has arisen in respect of (a)
  3. Other taxes are 8 from B, 30 from F and 10 from G making aggregated withholding tax of 50 that can be treated as if it has arisen in respect of (a) or (b) or both.

The object is to keep separate dividends that can obtain credit for underlying tax from those that cannot. Whilst withholding tax may be credited against either pool, underlying tax may only be credited against the Single Related Qualifying Dividend.