Income Tax (Trading and Other Income) Act 2005 section 404

Person liable

Section 404 identifies who is liable to pay tax on dividends and sets out two exceptions relating to Share Incentive Plans (SIPs).

• The person who receives or is entitled to receive dividends is liable for any tax charged on those dividends.
• An exception applies where cash dividends retained within a Share Incentive Plan (SIP) are later paid out to the participant, in which case a later tax charge may arise.
• A further exception applies where dividend shares cease to be subject to a SIP and a dividend payment is made at that point.
• Apart from these two SIP-related exceptions, the general rule is straightforward: liability follows the recipient of the dividend.