HMRC internal manual

Savings and Investment Manual

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

Dividends taxed as trading income

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

Financial traders

ITTOIA05/S366 (1) gives charging priority to ITTOIA05/PART2/CHAPTER2  (income taxed as trade profits) where it is also savings and investment income falling within ITTOIA05/PART4, including dividends and other distributions from UK companies within CHAPTER3. These are accordingly taxed as trading receipts.

This approach replicates that before tax law rewrite, although it was expressed differently. Under 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.

Lloyd’s underwriters

Distributions 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.