Income Tax (Trading and Other Income) Act 2005

397 Tax credits for qualifying distributions: UK residents and eligible non-UK residents

(1) A UK resident or eligible non-UK resident receiving a qualifying distribution made by a UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the distribution (but see subsections (3) and (6)).

(2) Such a person may claim to deduct the tax credit from—

(a) the income tax charged on the person’s total income for the tax year in which the distribution is made, or

(b) the income tax charged on the person’s income under section 3 of ICTA (certain income charged at basic rate) for that year.

(3) Subsection (1) only applies so far as the distribution is brought into charge to tax, and accordingly if the person’s total income is reduced by any deductions which fall to be made from the distribution, the tax credit for the distribution is reduced in the same proportion as the distribution.

(4) For the purposes of this section “eligible non-UK resident”, in relation to a qualifying distribution, means an individual who at any time in the tax year in which it is received is a non-UK resident within section 278(2) of ICTA (Commonwealth citizens, EEA nationals etc.).

(5) If a distribution is, or is treated under any provision of the Tax Acts as, the income of a person (“P”) other than the recipient (“R”), P (not R) is treated as receiving it for the purposes of this section (and so P (not R) is entitled to a tax credit if P falls within subsection (1)).

(6) This section is subject to the following provisions—

• section 231AA of ICTA (no tax credit for borrower under stock lending arrangement or interim holder under repurchase agreement),

• section 231AB of ICTA (no tax credit for original owner under repurchase agreement in respect of certain manufactured dividends),

• section 469(2A) of ICTA (no tax credit for trustees of a unit trust scheme that is neither an authorised unit trust nor an umbrella scheme), and

• section 171(2B) of FA 1993 (no tax credit for distributions in respect of assets in Lloyd’s member’s premium trust fund).