Annex 1: Minor changes in the law made by the Act: Change 80: Building society dividends: payment of dividends treated as interest: section 372
This change provides for building society dividends (whether paid gross or net) to be charged to tax as interest and not as dividends.
A building society dividend paid in respect of a shareholding in the society does not strictly constitute interest. However, building society shares are more similar in nature to interest-bearing deposits than to normal company shares and this is reflected in their tax treatment.
Section 477A(9) of ICTA provides that building society dividends paid without deduction of tax are regarded as paid by way of interest for the purpose of Schedule D. The implication appears to be that they are accordingly charged to tax as interest.
However, where building society dividends are paid under deduction of tax, either by virtue of section 349(3A) or section 477A(1) of ICTA, the source legislation does not specifically charge the dividends to tax as interest. Section 349(3A) of ICTA simply requires that tax be deducted from building society dividends paid on quoted securities. Section 477A(5) of ICTA appears to bring dividends that fall within section 477A(1) of ICTA into Schedule D Case III, but falls short of specifically charging the dividends to tax as interest.
So, apart from dividends paid gross, the source legislation does not specifically charge building society dividends to tax as interest, although in practice that is how dividends paid under deduction of tax are dealt with. In practice, all building society dividends within those sections of ICTA are charged to tax as interest.
Accordingly, section 372(1) provides that “Any dividend paid by a building society is treated as interest for the purposes of this Act” without distinguishing between dividends paid gross or net.
This change has no implications for the amount of tax paid, who pays it or when.