ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 122: Limit on liability to income tax of non‑UK residents: inclusion of stock dividends from UK resident companies as an additional category of disregarded savings and investment income: section 825
This change adds stock dividends chargeable to income tax under Chapter 5 of Part 4 of ITTOIA to the list of savings and investment income which is disregarded income under section 813 or disregarded company income under section 816.
As described in Change 1, section 1B of ICTA, as amended by paragraph 4 of Schedule 1 to ITTOIA, applies the dividend upper rate to an individual’s income within Chapters 3 and 4 of Part 4 of ITTOIA (UK and foreign dividend income) that would otherwise have been taxed at the higher rate. It does not apply the dividend upper rate to income within Chapter 5 of Part 4 of ITTOIA (stock dividends from UK resident companies). But the established practice has been to treat such income as if it fell within section 1B of ICTA.
This established practice has been recognised in the rewrite of section 1B of ICTA. Section 13(2) of this Act applies the dividend upper rate instead of the higher rate to “dividend income”. This term is defined in section 19 to include income under Chapter 5 of Part 4 of ITTOIA. Accordingly, stock dividends from UK resident companies will be taxed at the same rates as apply to ordinary dividends.
In the light of this change, it is not appropriate that any distinction should continue to be made between the status as disregarded income or disregarded company income of dividends from UK resident companies chargeable under Chapter 3 of Part 4 of ITTOIA and stock dividends from such companies chargeable under Chapter 5 of that Part. Such stock dividends have, accordingly, been added in section 825(1)(a).