Income Tax (Trading and Other Income) Act 2005 section 401C

Temporary non-residents

Section 401C deals with the income tax treatment of certain distributions from close companies received by individuals during a temporary period of non-residence from the UK, where double taxation treaties would otherwise reduce the UK tax charge.

• Where a material participator (or associate) in a close company receives a distribution during a temporary period of non-residence and a double taxation treaty reduces the UK tax charge, the distribution amount is added to total income in the year the individual returns to the UK, with a credit given for any UK tax already paid on it
• If the distribution is received in the actual year of return, the tax charge is calculated as though no double taxation relief arrangements exist
• Cash dividends paid out of post-departure trade profits — that is, trading profits arising after the individual left the UK — are excluded from these rules
• All apportionments of profits and tax between periods, and the extent to which dividends relate to post-departure trade profits, must be determined on a just and reasonable basis