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Introduction

A distribution from a company is anything that the company gives to one of its shareholders without the shareholder giving full payment in return. »Ê¹ÚÌåÓýapp most common type of distribution is a dividend, a distribution of the company’s profits usually in cash but which may also be in kind. This chapter of the Savings and Investment Manual (SAIM) explains the tax treatment of dividends and other types of distribution, including distributions by Real Estate Investment Trusts (REITs), in the hands of the individual investor.

»Ê¹ÚÌåÓýapp Company Taxation Manual (CTM15000 onwards) describes the tax treatment of distributions from the point of view of the company paying or receiving distributions, and explains in detail what is meant by a CT distribution.

»Ê¹ÚÌåÓýapp SAIM does not deal with the tax treatment of stock lending or manufactured dividends. »Ê¹ÚÌåÓýapp legislation on these topics for both individuals and companies is explained in the Corporate Finance Manual (CFM74100 onwards for stock lending and CFM74300 onwards for manufactured dividends). »Ê¹ÚÌåÓýapp rules for sale and repurchase agreements (‘reposâ€�) are different for individuals and companies. »Ê¹ÚÌåÓýapp legislation for individuals is in ITA07/Part 11 and the treatment of price differences under repos as interest is explained at SAIM2200.

Dividends and other distributions are Savings and Investment income

Dividends and other company distributions are chargeable to income tax as Savings and Investment income under Part 4 of the Income Tax (Trading and Other Income) Act 2005. »Ê¹ÚÌåÓýapp legislation was rewritten under Tax Law Rewrite and applies for 2005-06 onwards. Previously dividends and other distributions were taxable as Schedule F income under ICTA88/S20. »Ê¹ÚÌåÓýapp charge under Part 4 of ITTOIA05 includes the following.

• Dividends and other distributions from UK companies (chapter 3). See SAIM5020.
• Dividends from non-UK resident companies (chapter 4). See SAIM5210, which also deals with ‘foreign dividend couponsâ€� taxable under Chapter 13 of Part 4.
• ‘Stock dividendsâ€� (chapter 5). See SAIM5150.
• Amounts released from loans from a close company to its participators (chapter 6). ‘Distributionâ€� here has an extended meaning (SAIM5200).

‘Dividend income�

For income tax purposes, ITA07/S19 defines ‘dividend incomeâ€� to include amounts chargeable under Chapters 3, 4, 5, and 6 of Part 4 of ITTOIA05, the items listed above. It also includes ‘relevant foreign distributionsâ€� (a distribution of a non-UK resident company taxable under Chapter 8 of Part 5 of ITTOIA05 as income not otherwise charged - see SAIM5210). »Ê¹ÚÌåÓýapp tax rates applicable to such amounts are the dividend ordinary and dividend upper rates (ITA07/S13), or dividend trust rates, as appropriate (SAIM1080).

Building society ‘dividends�

Holders of certain types of building society accounts receive ‘dividendsâ€�. »Ê¹ÚÌåÓýappse are taxed as interest. See SAIM2200.

Dividends etc. from collective investment schemes

Particular rules apply to amounts treated as dividends etc. received by investors in collective investment schemes (see SAIM6000 onwards), and as part of share incentive plans (SIPs - see SSM1.0).

UK Real Estate Investment Trusts

»Ê¹ÚÌåÓýapp rules in ITTOIA05/PART4 do not apply to distributions from the tax exempt income of a UK Real Estate Investment Trust (SAIM5300).