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HMRC internal manual

International Manual

HM Revenue & Customs
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UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001 - dividends barred from on-shore pools

The legislation relating to onshore pooling was repealed for distributions paid on or after 1 July 2009.

INTM164270 explained that a dividend that has given rise to eligible unrelieved foreign tax will not be a qualifying foreign dividend. It cannot therefore join an on-shore pool and absorb eligible unrelieved foreign tax from other dividends.

Where low-taxed dividends have been mixed with high-taxed ones through a mixer, the resultant dividend cannot be split to enable the low-taxed elements to be a Qualifying Foreign Dividend. This is a particular problem where a relatively small amount of high taxed income is mixed with a large amount of low taxed income.

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FA01 amended ICTA88/S799 to provide that in such a circumstance a company may claim only part of the foreign tax paid in respect of the dividend. In the above example, the UK company would claim only 30 of the 31 tax paid on H. This means that the dividend will not give rise to EUFT and it can become a qualifying foreign dividend and join the onshore pool.

Tax that is not claimed for credit relief under S799 in this way cannot be claimed as a deduction. It is lost forever.

Under ICTA88/S795 the amount disclaimed must still be taken into account when calculating the total amount assessable to tax.

A dividend that is treated as interest for the purposes of UK tax by virtue of FA96/S91B is not eligible for the onshore pooling regime, as this regime is reserved for dividends taxed by virtue of ICTA88/S806A.

Underlying Tax Group, Nottingham will calculate the rates of underlying tax for both tax and credit purposes if a partial claim is made. Officers will need to ensure that any amounts of foreign tax claimed as a deduction have not been left out of account for credit under a partial claim.