Income Tax (Trading and Other Income) Act 2005 section 413A

Temporary non-residents

Section 413A addresses the tax treatment of stock dividend income received by individuals from close companies during a temporary period of non-UK residence, ensuring that such income does not escape UK tax through the use of double taxation relief arrangements.

• Stock dividend income from a UK-resident close company received during a temporary period of non-residence may be taxed in the year the individual returns to the UK, disregarding any double taxation relief arrangements that would otherwise reduce the tax charge.
• The rules apply where the individual was a material participator in the close company (or an associate of one) at a relevant time before departure, and the income tax actually charged is less than it would be without double taxation relief.
• Where the income arises in a tax year before the year of return, the individual's total income for the year of return is increased by the amount that would have been taxable ignoring double taxation relief, but a credit is given for any UK tax already paid on that income in the earlier year.
• Stock dividend income is excluded from these rules to the extent that the share capital was issued in respect of trade profits of the close company that arose after the individual's departure from the UK.