Annex 1: Minor Changes in the Law Change 75: Investment income: foreign dividend coupons: charge on income treated as arising from foreign holdings: section 974
This change clarifies two points in rewriting section 18(3B) of ICTA. First, that a “bank in the United Kingdom” means a bank’s office in the United Kingdom, whether the bank is resident in the United Kingdom or abroad. Second, that a “dealer in coupons in the United Kingdom” means a coupon dealer carrying on business in the United Kingdom, whether the dealer is resident in the United Kingdom or abroad.
This change reproduces Change 103 in ITTOIA and so brings income tax and corporation tax back into line.
Section 18(3B) of ICTA provides that a charge under Schedule D Case V arises on the sale or other realisation of coupons for foreign dividends by a “…bank in the United Kingdom…” which pays over the proceeds or carries them to an account. This is interpreted by HMRC to mean the office in the United Kingdom of a bank, whether that bank is incorporated in the United Kingdom or abroad. Similarly, a sale of such coupons to a “… dealer in coupons in the United Kingdom …” is taken to mean a coupon dealer carrying on business in the United Kingdom, whether resident in the United Kingdom or abroad.
Section 974 is based principally on section 18(3) and (3B) of ICTA. It treats income as arising from foreign holdings where the proceeds of sale of a dividend coupon attached to the holding are (a) paid over or otherwise realised by a bank in the United Kingdom, or (b) arise from a sale to a coupon dealer in the United Kingdom by someone other than a bank or coupon dealer. So subsection (3) of the section refers to “… a bank’s office in the United Kingdom…” and subsection (4) refers to a person “… dealing in coupons in the United Kingdom …” in rewriting section 18(3B) of ICTA.
Where section 18(3B) of ICTA does not apply, then section 730 of ICTA may apply to charge the foreign dividends to corporation tax. An alternative interpretation to “in the United Kingdom” may, depending on circumstances, take a sale of coupons out of one of those ICTA provisions and into another. Whether or not more or less tax is paid as a result of being taxed under section 974 of this Act or section 730 of ICTA depends on the taxpayer’s own circumstances.
This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.