Income Tax (Trading and Other Income) Act 2005

Chapter 4 U.K. Dividends from non-UK resident companies

Charge to tax on dividends from non-UK resident companies U.K.

402 Charge to tax on dividends from non-UK resident companies U.K.

(1) Income tax is charged on dividends of a non-UK resident company.

(2) For exemptions, see in particular section 770 (amounts applied by SIP trustees acquiring dividend shares or retained for reinvestment).

(3) Subsection (1) is also subject to section 498 of ITEPA 2003 (no charge on shares ceasing to be subject to SIP in certain circumstances).

(4) In this Chapter “dividends” does not include dividends of a capital nature.

403 Income charged U.K.

(1) Tax is charged under this Chapter on the F1 ... amount of the dividends arising in the tax year.

(2) Subsection (1) is subject to—

• section 406(2) and (3) (later charge where cash dividends retained in SIPs are paid over),

• section 407(3) (dividend payment when dividend shares cease to be subject to SIP), and

• Part 8 (foreign income: special rules).

Textual Amendments

F1 Word in s. 403(1) omitted (with effect in accordance with s. 34(2) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 12 para. 18

404 Person liable U.K.

(1) The person liable for any tax charged under this Chapter is the person receiving or entitled to the dividends.

(2) Subsection (1) is subject to—

• section 406(4) (later charge where cash dividends retained in SIPs are paid over), and

• section 407(4) (dividend payment when dividend shares cease to be subject to SIP).

Shares in approved share incentive plans (“SIPs”) U.K.

405 SIP shares: introduction U.K.

(1) Sections 406 to 408 contain special rules about the charge under this Chapter in respect of shares awarded to an individual under an approved share incentive plan.

(2) Those sections only apply if the condition in section 392(3) or (5) was met at the time the shares in question were so awarded (earnings within ITEPA 2003).

(3) This section and sections 406 to 408 form part of the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

(4) Accordingly, expressions used in this section or those sections and contained in the index in paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have the meaning indicated by that index.

(5) In particular—

(a) for the meaning of “award of shares” see paragraph 5(1) of that Schedule,

(b) for the meaning of “ceasing to be subject to plan” see paragraph 97 of that Schedule,

(c) for the meaning of “dividend shares” see paragraph 62(3)(b) of that Schedule,

(d) for the meaning of “participant” see paragraph 5(4) of that Schedule,

(e) for the meaning of “plan shares” see paragraphs 86 to 88 and 99(1) of that Schedule, and

(f) for the meaning of “shares” see paragraphs 87(6) and 99(2) of that Schedule.

406 Later charge where cash dividends retained in SIPs are paid over U.K.

(1) This section applies if a cash dividend is paid over to a participant under paragraph 68(4) of Schedule 2 to ITEPA 2003 (cash dividend paid over if not reinvested etc.).

(2) Tax charged under this Chapter is charged for the tax year in which the cash dividend is paid over instead of the tax year in which in which it was originally paid.

(3) Tax so charged is charged on the amount of the cash dividend paid over.

(4) The person liable for any tax so charged is the participant.

[F2 (4A) For the purposes of determining—

(a) whether the participant is entitled to a tax credit under section 397A in respect of a cash dividend so charged, and

(b) the amount of that tax credit,

that section applies as it has effect for the tax year in which the cash dividend is paid over.]

(5) For the purposes of this Chapter, the question whether a cash dividend so paid over is a dividend paid by a company that is non-UK resident is determined by reference to the tax year in which the dividend was originally paid.

Textual Amendments

F2 S. 406(4A) inserted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 19

407 Dividend payment when dividend shares cease to be subject to SIP U.K.

(1) This section applies if dividend shares cease to be subject to an approved share incentive plan before the end of the period of 3 years beginning with the date on which the shares were acquired on the participant's behalf.

(2) For income tax purposes a dividend is treated as paid to the participant in the tax year in which the shares cease to be subject to the plan.

(3) The amount of the dividend treated as paid is the amount of the cash dividend applied to acquire the shares on the participant's behalf, so far as it represents a cash dividend paid in respect of plan shares in a non-UK resident company.

(4) The person liable for any tax charged as a result of this section is the participant.

[F3 (4A) For the purposes of determining—

(a) whether the participant is entitled to a tax credit under section 397A in respect of a dividend so charged, and

(b) the amount of that tax credit,

that section applies as it has effect for the tax year in which the shares cease to be subject to the plan.]

(5) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

Textual Amendments

F3 S. 407(4A) inserted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 20

408 Reduction in tax due in cases within section 407 U.K.

(1) This section applies if—

(a) a person is liable for tax as a result of section 407, and

(b) any tax is paid on any capital receipts under section 501 of ITEPA 2003 (charge on capital receipts in respect of plan shares) in respect of the shares that cease to be subject to the approved share incentive plan.

(2) The tax due as a result of section 407 is to be reduced by an amount equal to the total tax so paid.

[F4 (2A) In subsection (2) “the tax due” means the amount of tax due as a result of section 407 after deduction of the tax credit determined in accordance with section 407(4A).]

(3) For rules identifying shares ceasing to be subject to approved share incentive plans, see section 508 of ITEPA 2003.

Textual Amendments

F4 S. 408(2A) inserted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 21