INTM164480 - UK residents with foreign income or gains: dividends: Determination of rates of foreign underlying tax - Case V computations - dividends received on or after 31 March 2001 with withholding tax

The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009.

Example

An Officer has referred a dividend to the Underlying Tax Group (UTG) under INTM164440. The cash dividend received was 90, as 10% withholding tax was deducted on payment. The rate of corporation tax for the year is 30% and the “upper rate percentage” is 45%. In accordance with INTM164460 the UTG supplies the following:

Dividend	100
Actual rate of underlying tax	42%
Capped rate of underlying tax	27%
Amount of Eligible Unrelieved Foreign Tax	18

Foreign Income computation:	Dividend (90 + 10)	100.00
-	plus underlying tax: 100/58 x 42	72.00
-	-	172.00
-	Tax at 30%	51.60
-	To calculate the foreign tax credit, apply the capped rate to the dividend: 100/73 x 27	36.99
-	Net UK liability	14.61

The Case B EUFT notified by the UTG of 18 is all underlying tax.

But there is also a further amount of Case A EUFT (see INTM164250) of 10 in respect of the withholding tax:

CT due if the CT rate were 45%, the ‘upper percentage’ - 172 x 45%	77.40
Credit available:	-
Underlying tax as capped	36.99
Withholding tax	10.00
Amount that would be creditable	46.99
Amount actually credited	36.99
Case A EUFT	10.00

The total of 28 EUFT can be used against pooled dividends (see INTM164270)

The underlying tax element can be used only against the Single Related Qualifying Dividend: the withholding tax element can be used against either of the Single Related or Unrelated Dividend.