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HMRC internal manual

International Manual

From
HM Revenue & Customs
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DT applications and claims: Types of income: Dividends: background

A dividend is a payment by a company to its shareholders in relation to the number of shares owned. Shareholders may hold ordinary and preference shares in a company. Shares are not debts and do not automatically entitle the holder to interest or to repayment of the amount invested when purchasing the shares.

There is no fixed date for a dividend payment and there is no fixed amount. The frequency of payment of dividends and the rate of payment per share by a company is related to its profits. If a company is wound up, shareholders are also entitled to a share of the available assets.

Dividends do not have income tax deducted but have an amount attached to them (not paid to the shareholder at the time of the dividend) called a tax credit. See CTA10/S1109. Some DTAs provide for payment of tax credit. You need to check the details of each DTA. There are two types of investor

  • portfolio investors (someone who owns less than 10% of the total number of issued shares in a UK company) - the dividend article usually provides that the investor is entitled to a tax credit equal to that to which a UK resident individual would be entitled had he received the dividend. Any excess of the tax credit above a deduction of 15% of the aggregate of the dividend and the tax credit is payable.
  • direct investors (where a company controls 10% or more of the voting power of the UK company paying the dividend) - the dividend articles of a small number of DTAs provide that the investor is entitled to a tax credit equal to one-half of that to which a UK resident individual would be entitled had he received the dividend. The relief allowable is a payment of that half tax credit minus 5% or 10% of the aggregate of the dividend plus the half tax credit.