Income Tax Act 2007 section 573

Manufactured dividends on UK shares

Section 573 defines what a "manufactured dividend" is and explains how it is treated for income tax purposes when someone pays a substitute dividend to another person in connection with UK shares.

• A manufactured dividend arises when a person pays another person an amount representative of a dividend on UK shares — for example, under a stock lending or repo arrangement where the borrower compensates the lender for dividends received during the borrowing period.
• The recipient (or the person who owns the entitlement to the manufactured dividend, if different) is treated for income tax purposes as though they had received a real dividend on those UK shares.
• This treatment applies even where the immediate recipient is not themselves an income tax payer — for instance, where a nominee receives the manufactured dividend on behalf of an income tax payer, the income tax payer is still treated as receiving a real dividend.
• The position of the person making the manufactured dividend payment is dealt with separately, and any deduction they may claim is subject to the further rules in sections 574 and 575 concerning allowable deductions.