Foreign Dividends received by Trusts
HMRC have issued revised guidance on foreign dividends received by trusts. This guidance follows some confusion in previous guidance for trustees of interest in possession trusts and settlor-interested trusts.
The guidance given on page TFN5 of the SA904 Notes (notes on the Trust and Estate foreign pages) does not follow the usual approach taken by HMRC and has been withdrawn. A revised version of the guidance for the treatment of foreign dividends will be available shortly online. However, the paper version will not be changed until the 2009-10 version is printed.
The change in guidance follows the introduction of UK tax credits on foreign dividends. One interpretation of the relevant legislation can be understood to mean that trustees of an interest in possession trust or of a settlor-interested trust are not entitled to these tax credits. In practice HMRC have allowed qualifying foreign dividends to be treated as UK dividends. This means that trustees are given the benefit of the tax credit and this is passed on to the beneficiaries.
Trustees who have already submitted an SA904 for 2008-09 are not required to contact HMRC. These returns can be identified by HMRC and revised to take account of the foreign dividend position.