Foreign dividends ― 10% tax credit

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Foreign dividends ― 10% tax credit
  • Notional tax credits before 2008/09
  • Notional tax credits 6 April 2008 to 21 April 2009
  • Notional tax credits 22 April 2009 to 5 April 2016
  • The CJEU judgment in the FII GLO case
  • If protective claims have already been made
  • If no protective claim has been made
  • Prevailing practice and claims for recovering tax
  • Calculation of the credit and Tax Return entries

The taxation of overseas dividends generally is explained in the Foreign dividends guidance note.

This guidance note looks specifically at whether, and if so to what extent, a 10% tax credit was available in the UK on dividends.

As dividend tax credits were abolished with effect from 6 April 2016, this guidance note considers the position for foreign dividends received in the years up to and including 2015/16. For the interaction between the dividend tax credit and the remittance basis of taxation where the foreign dividends were received before 6 April 2016 but remitted to the UK on or after 6 April 2016, see the Foreign dividends guidance note.

Note that the contents of this note may be affected by the UK’s vote to leave the EU, however at the time of writing it is too early to speculate on the impact this may have on prior year protective claims.

Notional tax credits before 2008/09

For many years, dividends paid by UK resident companies were entitled to a tax credit. The amount of the credit has varied, but in recent years it has been 10%. As noted above, for dividends received from 6 April 2016 onwards, dividend tax credits have been abolished. See the Cash dividends guidance note.

FA 2016, Sch 1

Under UK statutory provisions, dividends from overseas companies were not entitled to the credit. However, as a result of a ruling from the European Court of Justice on a Finnish tax case, Manninen, the law was changed with effect from 2008/09 to allow UK notional tax credits to be attached to dividends paid by some overseas companies.

Proceedings brought by Manninen [2004] STC 1444 (subscription sensitive)

The statute was then changed again the following year, to broaden the category of dividends entitled to the tax credit.

However, the judgment in

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