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HMRC internal manual

International Manual

DT applications and claims: Non-resident beneficiaries of UK trusts

ESC/B18 and dividends taxed at the dividend trust rate

When the Schedule F trust rate (now the dividend trust rate) was introduced in 1999/2000 at 25%, the wording of ESC/B18 was revised to exclude the element of tax credit included in that tax. For example, where trustees receive a dividend of £90, with a tax credit of £10, their liability is £15 (that is, £25 less £10 tax credit). However, when applying a beneficiary’s share of dividends to a dividend article of a treaty, the tax credit is excluded from the calculation. Therefore for the purposes of ESC/B18, the ‘gross’ to which the restriction in the dividend article is applied is £90, the tax £15, and the net £75.

A dividend article with a 15% restriction would apply to the dividend element underlying a beneficiary’s distribution as follows:

  • Restriction: £90 x 15% = £13.50
  • Tax £15 less restriction £13.50 = £1.50