Finnish, Greek and Irish dividends to UK Residents
Claims by individuals for dividend tax credits in respect of dividends received before 5 April 2008
Finnish, Greek and Irish dividends
If you receive dividends from a foreign company and your shareholding is less than 10 per cent, for the 2008 – 09 tax year, the law entitles you to a dividend tax credit equal to one ninth of the amount of the dividend provided that the foreign company is not an offshore fund. (Dividends paid in respect of shareholdings of 10 per cent or more do not qualify for the credit.)
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.
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.
- Our internet information about Tax refunds and reclaiming overpaid tax outlines the steps you need to take.
- You can contact your accountant or tax adviser if you have one.
- Write to your Tax Office to explain the situation.
If you are a self assessment taxpayer who wants to claim for the years 2003 – 04 and 2004 – 05, you need to make your claim by 31 May 2010.
If you pay all your tax through PAYE and you do not normally file a tax return, you need to make your claim for 2003 – 2004 and 2004 – 05 by 31 January 2011.
