Income Tax Act 2007

Manufactured dividends on UK shares

573 Manufactured dividends on UK shares

(1) This section applies if a person—

(a) pays another person an amount (a “manufactured dividend”) which is representative of a dividend on UK shares, and

(b) does so under a requirement of an arrangement between them for the transfer of the shares.

(2) The Income Tax Acts apply in relation to the recipient, and persons claiming title through or under the recipient, as if the manufactured dividend were a dividend on the shares.

(3) If the payer is a UK resident company, the Income Tax Acts apply in relation to the payer as if the manufactured dividend were a dividend of the company.

(4) If the payer is UK resident and is not a company, the Income Tax Acts apply in relation to the payer subject to sections 574 and 575 (allowable deductions).

(5) This section is subject to—

(a) section 576 (manufactured dividends on UK shares: Real Estate Investment Trusts),

(b) section 583 (manufactured payments exceeding underlying payments), and

(c) section 585 (power to deal with other special cases).

574 Allowable deductions: matching

(1) This section applies if a person who pays a manufactured dividend as mentioned in section 573(1) is UK resident and is not a company.

(2) An amount equal to the lesser of—

(a) the amount of the manufactured dividend, and

(b) the amount of the dividend of which the manufactured dividend is representative,

is allowable as a deduction for income tax purposes, subject to subsection (3).

(3) It is allowable only so far as—

(a) it is not otherwise deductible, and

(b) it falls within subsection (4) or (7).

(4) An amount falls within this subsection so far as the payer—

(a) receives either the dividend which is represented by the manufactured dividend or a payment which is representative of that dividend, and

(b) is chargeable to income tax on the dividend or payment received.

(5) An amount falls within subsection (4) only if the amount of the dividend or payment received is received by the payer in—

(a) the tax year in which the payer pays the manufactured dividend, or

(b) the tax year immediately before, or immediately after, that year.

(6) An amount which falls within subsection (4) is allowable as a deduction only from the amount of the dividend or payment received on which the payer is chargeable to income tax.

(7) An amount falls within this subsection so far as the payer—

(a) is treated under section 607 (treatment of price differences under repos) as receiving a payment of interest in respect of the shares, and

(b) is chargeable to income tax on the payment.

(8) An amount which falls within subsection (7) is allowable as a deduction in calculating the net income of the payer (see Step 2 of the calculation in section 23).

(9) See section 575 for a further qualification to the rule in subsection (2).

(10) For the purposes of subsection (3)(a) an amount is deductible if it is—

(a) deductible in calculating any of the payer’s profits or gains for income tax purposes, or

(b) deductible for those purposes in calculating the net income of the payer.

575 Allowable deductions: restriction on double-counting

(1) This section applies if an amount has been allowed as a deduction under section 574(2) by reference to the whole or part of—

(a) the dividend or payment mentioned in section 574(4)(a), or

(b) the deemed payment of interest mentioned in section 574(7)(a).

(2) No further deduction is allowable by reference to all or part of the matched portion of the dividend, payment or deemed payment.

(3) The “matched portion” of the dividend, payment or deemed payment means—

(a) the whole of it, if the amount has been allowed as a deduction by reference to the whole of it, or

(b) the part of it by reference to which the amount has been allowed as a deduction, in any other case.

576 Manufactured dividends on UK shares: Real Estate Investment Trusts

(1) This section applies (instead of section 573(2) and (3)) if—

(a) a person pays a manufactured dividend as mentioned in section 573(1), and

(b) the manufactured dividend is representative of a dividend which is—

(i) paid by a company to which Part 4 of FA 2006 applies (Real Estate Investment Trusts) in respect of profits of C (tax-exempt), or

(ii) paid by the principal company of a group to which that Part applies in respect of profits of G (property rental business).

(2) This section applies only so far as the manufactured dividend is representative of such a dividend.

(3) The Income Tax Acts apply in relation to the recipient, and persons claiming title through or under the recipient, as if the manufactured dividend were a dividend to which section 121 of FA 2006 applied (distributions treated as UK property business profits).

(4) This section is subject to—

(a) section 583 (manufactured payments exceeding underlying payments), and

(b) section 585 (power to deal with other special cases).

577 Statements about manufactured dividends

(1) Subsections (3) to (7) apply to a person who—

(a) pays a manufactured dividend as mentioned in section 573(1), and

(b) is not within the charge to corporation tax.

(2) But those subsections do not apply so far as the manufactured dividend is representative of a dividend which is—

(a) paid by a company to which Part 4 of FA 2006 applies (Real Estate Investment Trusts) in respect of profits of C (tax-exempt), or

(b) paid by the principal company of a group to which that Part applies in respect of profits of G (property rental business).

(3) The person must, at the same time as paying the manufactured dividend, give the recipient a statement.

(4) The statement must set out—

(a) the amount of the manufactured dividend,

(b) the date of its payment, and

(c) the amount of associated tax credit.

(5) The statement must be in writing.

(6) The amount of associated tax credit is the amount of tax credit to which the recipient, or a person claiming title through or under the recipient—

(a) is entitled in respect of the manufactured dividend as a result of section 573(2) of this Act or paragraph 2(3)(b) of Schedule 23A to ICTA (manufactured dividend treated as dividend), or

(b) would be so entitled if all the conditions for a tax credit had been met in the case of the deemed dividend and the recipient or that person.

(7) The duty under subsection (3) to give a statement is enforceable by the recipient.

(8) For provisions corresponding to subsections (3) to (7) which apply if the payer of a manufactured dividend is within the charge to corporation tax see—

(a) section 234A of ICTA (by virtue of paragraph 2(2)(b) of Schedule 23A to ICTA), if the payer is a UK resident company, and

(b) paragraph 2(6) to (8) of Schedule 23A to ICTA, if the payer is a non-UK resident company within the charge to corporation tax.

(9) For a power for regulations to make provision corresponding to subsections (3) to (7) for a case within subsection (2), see section 973 as applied by section 918(3) (and in particular section 974(1)(k)).