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HMRC internal manual

International Manual

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HM Revenue & Customs
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DT applications and claims: Non-resident beneficiaries of UK trusts

Example of a manual calculation under ESC/B18

In the tax year 2004-200 a trust had income from the sources shown below (gross except for dividends paid). The trustees made net distributions of £1000 each to one beneficiary in Canada (who has made a claim to us) and to one beneficiary inthe UK.

  • UK dividends paid £1292
  • UK interest £1000
  • Rents £500
  • Foreign dividends £880
  • Foreign interest £1000

Trustees net management expenses were £500

First, deduct trust management expenses from dividends: 1292 less 500 = 792

Then calculate income available for distribution:

Dividends 792 plus (tax credit at one ninth of the dividend) 88 = 880, less (dividend trust rate 25%) 220 = 660
     
Interest 1000 less (tax at rate applicable to trusts 34%) 340 = 660
Rents 500 less (tax at rate applicable to trusts 34%) 170 = 330
Foreign dividends    
880 less (tax at dividend trust rate 25%) 220 = 660
Foreign interest    
1000 less (tax at rate applicable to trusts 34%) 340 = 660
Total available    
for distribution:   2970

 

Distribution: (2 x 1000) = 2000; this is less than the total available for distribution, so no spreadback required

Allocation to beneficiary:

Dividends:

(660 ÷ 2970) x 1000 = 222.22

Interest:

(660 ÷ 2970) x 1000 = 222.22

Rents:

(330 ÷ 2970) x 1000 = 111.11

Foreign dividends:

(660 ÷ 2970) x 1000 = 222.22

Foreign interest:

(660 ÷ 2970) x 1000 = 222.22

Grossing up and deducting net to find tax attributable under ESC/B18:

Dividends:

(222.22 ÷ 75) x 90 = 266.66 - 222.22 = tax 44.44

Interest:

(222.22 ÷ 66) x 100 = 336.70 - 222.22 = tax 114.48

Rents: (there is actually no need to calculate this, as there is no relief, but the calculation would be as follows)

(111.11 ÷ 66) x 100 = 168.35 - 111.11 = tax 57.24

Foreign dividends:

(222.22 ÷ 66) x 100 = 336.70 - 222.22 = tax 114.48

Foreign interest:

(222.22 ÷ 66) x 100 = 336.70 - 222.22 = tax 114.48

Calculating the repayment due

In this example the claimant is claiming under the Double Taxation Convention with Canada on dividends and interest, and under UK legislation applying to non-residents on foreign income. Under the treaty there is a 15% restriction on dividends and a 10% restriction on interest.

Dividends:

Gross 266.64 x 15% = 40 restriction Tax 44.44 less 40 = 4.44 (a)
   

 

Interest:

Gross 336.70 x 10% = 33.67 restriction Tax 114.48 less 33.67 = 81.21 (b)
   

 

Foreign dividends:

Gross 336.70 Tax 114.48 (c)
   

 

Foreign interest:

Gross 336.70 Tax 114.48 (d)
   

 

Total repayment (a + b + c + d) 314.61
   

 

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)