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HMRC internal manual

International Manual

UK residents with foreign income or gains: corporation tax: Dividends: extension of relief - UK subsidiaries

The chain of companies can include a company which is resident in the UK. TIOPA10/S66 (2) limits the tax to be taken into account to an amount which must not exceed the UK Corporation Tax paid by it plus the tax credit relief given to it.

Any `tax credit’ paid by the foreign country in respect of the dividend is deducted from the underlying tax in calculating the amount of tax credit relief due (see INTM164190).

For dividends paid to the UK on or after 31st March 2001 and on or before 1 December 2004, there is a further adjustment. The amount of tax attributable to a subsidiary dividend from a UK company will be adjusted so that there is neither:

  • additional foreign income liability; nor
  • Any eligible unrelieved foreign tax (EUFT) (see INTM164240) arising.

This is achieved by calculating the actual rate of underlying tax arising on the dividend from the UK company and then either adding a credit to bring the rate up to the rate of corporation tax or taking an amount out of the EUFT calculation made.