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HMRC internal manual

Savings and Investment Manual

Dividends and other company distributions: UK dividends taxed as trading income

Dividends taxed as trading incomeIn certain cases, dividends are taxed as trading income rather than as savings and investment income.

Financial tradersUnder the previous legislation at ICTA88/S20 (1), the charge to tax on all dividends and other distributions was subject to ICTA88/S95. This provided that a dealer in receipt of ‘relevant distribution’ was taxed under Schedule D Case I or II, rather than Schedule F. This provision is not explicitly rewritten in ITTOIA05, but its effect is replicated by ITTOIA05/S366 (1) which gives charging priority to ITTOIA05/CH2/PT5 for income which is a receipt of a trade. So a distribution made by a UK resident company which is a receipt of a trade is charged to tax under Part 2 of ITTOIA05 and not under Chapter 3 of Part 4.

Lloyd’sDistributions received by individual Lloyd’s underwriters are similarly treated as trade receipts – FA93/S171 (2). FA93/S171 (2) additionally provides that profits arising from assets in an ancillary trust fund are calculated as trade receipts. Again, the proviso in the previous legislation was not explicitly rewritten but the effect is replicated by ITTOIA05/S366 (1). See the Lloyd’s Manual (LLM1000) for more details (