HM Revenue and Customs Brief 38/10
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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
