s.399 ITTOIA 2005 - tax treated as paid on distributions received by non-resident persons

(Maxine Higgins) #1

I understand that advice is circulating among some non-UK resident trustees to the effect that they may be able to use this section to avoid returning UK dividend income to HMRC and thereby do not have to pay the 7.5% dividend tax, following the removal of the notional 10% tax credit, where the income has not been mandated to the UK-resident life-interest beneficiaries.

Are others aware of this advice?
What is the general consensus about its efficacy, especially given that some of these UK-resident beneficiaries may wish to claim repayment of the dividend tax, provided their individual circumstances allow.

Maxine Higgins
Citroen Wells

(kessler) #2

I have not seen the advice which this question refers to, but I suggest there are two distinct questions here.

  1. Do non-resident trustees qualify for a tax credit on UK dividends? Section 399 ITTOIA provides:

(1) This section applies if—
(a) a person’s income for a tax year includes a distribution of a company, and
(b) the person is non-UK resident.
(2) The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution.

So it seems the answer should be yes. And why not!

  1. Does a UK resident life tenant obtain the benefit of the tax credit (including reclaiming the tax if appropriate)?

There is no provision to that effect. It is often the case that a life tenant should obtain credit for tax paid by the trustees, but that is not a statutory rule. In the present case it would not make sense for the beneficiary to have the tax credit so the answer should be no.

That would lead to a sensible result. But the point is not altogether easy. In Shirley v HMRC [2014] UKFTT 1023 (TC) at [108].the Tribunal said:

	it is not possible to ascertain a consistent and logical basis in the legislation for the taxation of dividends. ... There are no logically consistent principles (as it were) underpinning the taxation of dividends, against which the result of a literal interpretation can be compared—in order to reach a judgment that a literal interpretation results in an anomaly or absurdity.

There has subsequently been another round of reform, introduced in breach of the Tax Consultation Framework, but I think this gloomy assessment is still valid.

James Kessler QC

15 Old Square
Lincoln’s Inn