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HMRC internal manual

Savings and Investment Manual

Dividends and other company distributions: tax credits on qualifying distributions: example

Example of tax credit on qualifying distribution

ITTOIA05/S397 (1) states that the amount of the tax credit to which a UK resident or eligible non-UK resident is entitled is equal to one-ninth of the amount or value of the distribution paid by a UK company.

So a distribution of £9000 will carry a tax credit of £1000.

ITTOIA05/S397 (3) reduces the amount of the tax credit where a person’s total income is reduced by deductions. So a person who receives a distribution of £9000 in 2006-07 and has no other income, has total income of £10000, less personal allowances £5035. The taxable amount:

4965 x 10% = 497

The tax credit is correspondingly reduced to 1000 x 4965/10000 = 497.

See the example at SAIM1110 for how the distribution is taxed as the highest part of a person’s total income.