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HMRC internal manual

International Manual

HM Revenue & Customs
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DT applications and claims: manufactured payments

Manufactured UK dividends

A manufactured dividend is any payment made as part of a transfer of ownership of shares in a company which represents a dividend. Circumstances in which this might happen include

  • A loan of UK equities is outstanding over a dividend date. The stock lender does not receive the real dividend to which he would have been entitled had the shares not been lent.
  • A contract to buy shares might be on terms that include the right to a dividend payment (cum-dividend) but the transfer is settled on what is called ‘short’ terms. That means that the seller retains the right to the next dividend that is paid by the UK company (ex-dividend).

In each case the purchaser will receive an additional ‘manufactured’ dividend.

A sale and repurchase transaction (a repo) might also result in a situation where an additional amount that is representative of the original dividend is due to the seller of the stock.

In the same way that an original dividend that is paid by a UK company carries an entitlement to a tax credit so does a manufactured payment. Where the recipient of the manufactured dividend is resident in a country with which the UK has a DTA that provides for payment of part of the tax credit it may be possible for the beneficial owner to make a claim to CAR Residency for payment of the part tax credit.

However, also in exactly the same way as with an original dividend, because of the reduction in the rate of tax credit that took place on 6 April 1999, there is no amount available to pay. See INTM343500.

It is possible for manufactured payments to be used as a method of avoiding UK tax. LBS Financial London wishes to see all such claims before they are paid. Please refer all claims for payment of tax credit on a manufactured UK dividend to Technical Advice Group before you take any other action.