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View the related Tax Guidance about Income splitting

Cash dividends

Cash dividendsIntroductionA dividend is a distribution of profit by a company to its shareholders.A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more detail, see the Non-cash dividends guidance note.This guidance note deals with cash dividends from UK resident companies. For more on dividends from non-UK resident companies, see the Foreign dividends guidance note.The taxation of dividends is discussed in the Taxation of dividend income guidance note.Cash dividends from UK resident companiesCash dividends paid by UK companies on or after 6 April 2016 have no dividend tax credit attached, meaning the amount received is the amount which is taxable. The company should issue the shareholder with a dividend voucher showing the number of shares held by the shareholder, the dividend paid and the date of payment.The amount reported in box 4 of the main tax return is the total dividends received from UK resident companies in the tax year (ie the arising basis of assessment). Dividends are reported on box 5.3 of the short tax return, see the Short tax return guidance note.The taxation of dividends is discussed in the Taxation of dividend income guidance note.Note that where certain conditions are met, dividends from non-UK incorporated close companies may be treated for UK tax purposes as if they were UK dividends irrespective of the residence status of the company. See the Foreign dividends guidance note. UK cash

Weekly tax highlights ― 2 September 2024

Weekly tax highlights ― 2 September 2024Direct taxesEU approves extension of EIS and VCTThe European Commission has approved the Government’s extension of the Enterprise Investment Scheme (EIS) and the Venture Capital Trust scheme (VCT) until 2035.The sunset dates for the EIS and VCT were extended by FA 2024 to 5 April 2035 from a date to be appointed. The Commission's approval for the extension is required under the Windsor Framework and this has now been granted as it has decided to raise no objections.See Simon’s Taxes E3.101, E3.201CIOT response: Abolition of furnished holiday lettings regime – draft legislation for consultationThe CIOT has published its response to the consultation on the draft legislation to abolish the furnished holiday lettings (FHL) tax regimeThe key points raised in the response include:•clarification is needed on the policy intent regarding the tax status of furnished holiday lettings going forward to provide certainty and avoid costly disputes in relation to claims for trading status•the draft legislation should clarify the position regarding business asset disposal relief (BADR) for disposals relating to pre-commencement FHL businesses, including whether there is a deemed cessation on 5 April 2025•guidance is needed on the application of the 50:50 income splitting rules in ITA 2007, s 836 to former FHL properties owned jointly from 6 April 2025, and the ability to backdate section 837 elections is suggested•confirmation is sought on various technical points, such as the treatment of the "relevant period" for new FHLs in 2024/25, eligibility for

Income shifting

Income shiftingThis guidance note considers how the settlements legislation can apply to income shifting, particularly as regards a family company.Overview of the settlement provisionsA popular tax planning approach is to transfer income-producing assets between spouses or civil partners. This may be done where one pays income tax at a lower marginal rate than the other, or to ensure that personal allowances are used in full. Such arrangements are also known as ‘income splitting’ or ‘income shifting’. They have long been the subject of HMRC scrutiny.The scope for tax saving is potentially greater with the introduction of the additional tax rate from 6 April 2010.Inter-spousal / civil partner tax planning is assisted by the fact that for capital gains tax purposes, the transfer of income-producing assets should be a no-gain no-loss transfer. See the Inter-spouse transfer guidance note.One aspect which has come under the spotlight is that such transfers may constitute a settlement. The settlement rules, as discussed below, are complex but they can result in income being taxed on the donor despite the transfer (see below).The advantages of income splitting are discussed further in the Utilising allowances and lower rate bands guidance note. For in-depth discussion of settlements, see Simon’s Taxes I5.1108.Settlement provisionsThe settlement provisions were originally introduced to prevent the settlor of a trust gaining a tax advantage in situations where they (or their spouse / civil partner) could give away an asset, while still receiving some benefit from the trust. The rules mean that if a settlor