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HM Revenue and Customs Brief 38/10

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HM Revenue and Customs -Tax Authorities

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Issued 2 September 2010

Finnish Greek and Irish dividends

Claims by individuals for dividend tax credits in respect of dividends received before 5 April 2008.

This is a re-issued version of Revenue & Customs Brief 73/09.

If you receive dividends from a foreign company, for the 2008-09 tax year and subsequent tax years the law entitles you to a dividend tax credit equal to one ninth of the amount of the dividend in certain prescribed circumstances.

Some taxpayers have claimed dividend tax credits for earlier years in respect of their foreign dividend income. They say that judgements of the European Court of Justice in relation to the systems of dividend taxation in some other Member States indicate that the UK system was unlawful under the EC Treaty because it treats UK and foreign dividends differently.

HM Revenue & Customs (HMRC) does not accept this argument in general. However, based on legal advice, HMRC will accept claims for some earlier years in relation to dividends from Finland and Greece, and certain Irish dividends. In these cases a form of Corporation Tax is paid in the other country and there is no withholding tax on outbound dividends.

If you received such dividends, you suffered potential double taxation from the underlying tax on profits payable by the company and then again from the UK Income Tax you paid on the dividend. However, unlike UK dividends there was no dividend tax credit to give you partial relief from the double taxation. Also, there was no foreign withholding tax which, after credit for foreign tax credit relief is given, has the effect of removing or significantly reducing any liability you might have to UK Income Tax.

This guidance tells you whether and how the change of approach will affect you.

How the change takes effect

If you received dividends from a company resident in Finland, Greece or Ireland prior to 6 April 2008, you may claim a dividend tax credit equal to one ninth of the amount of the dividend for the 2007-08 and earlier tax years, back to 2003-04.

This does not apply, however, to dividends from Irish investment funds which are not chargeable to Irish tax on their relevant income or gains. These include Irish International Financial Services Centre funds. Ask your financial advisor or broker if you are not sure whether the Irish shares you hold are in this type of fund, or check the information about taxation in the fund's prospectus.

Illustration

If you are a basic rate taxpayer, your dividend income is chargeable at the dividend ordinary rate of 10 per cent. After the change the availability of the dividend tax credit reduces the effective rate to nil.

If you are a higher rate taxpayer, your dividend income is chargeable at the dividend upper rate of 32.5 per cent. After the change the availability of the dividend tax credit reduces the effective rate to 25 per cent.

Worked example

Foreign dividend income 9,000
Tax credit 1,000
Taxable 10,000

10% on 10,000 = 1,000
Less tax credit 1,000
Total tax due = Nil

Foreign dividend income 90,000
Tax credit 10,000
Taxable 100,000

32.5% on 100,000 = 32,500
Less tax credit 10,000
Total tax due = 22,500

How to make a claim

You can take some simple steps to claim back the tax you have overpaid:

If you have any queries in relation to this, please contact Andrea Pierce on Tel 020 7147 2591.


About the Author

Crown Copyright 2010.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



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Article Published/Sorted/Amended on Scopulus 2010-09-06 15:19:04 in Tax Articles

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