Income Tax (Trading and Other Income) Act 2005 section 408A

Temporary non-residents

Section 408A deals with the tax treatment of certain foreign dividends received by individuals who leave the UK temporarily and then return, ensuring that dividends from close companies cannot escape UK tax through a short period of non-residence.

• Where an individual is temporarily non-resident, qualifying dividends received during the period of absence are treated as though they were received in the tax year of return to the UK
• The dividends must come from a company that would be a close company if it were UK resident, and the individual must have been a material participator (or associate of one) at a relevant time — being any time in the year of departure or in the three preceding tax years
• The section only catches dividends that would have been taxable had the individual remained UK resident; an exclusion applies for dividends paid out of post-departure trade profits, meaning profits arising from the company's trade after the individual left the UK
• If the individual is taxed on the remittance basis in the year of return, any qualifying dividends that were remitted to the UK during the temporary absence are treated as remitted in the period of return