Income Tax (Trading and Other Income) Act 2005 section 680A

Income treated as dividend income

Section 680A ensures that estate income which derives from dividends retains its character as dividend income when it reaches the beneficiary, so that it is taxed at dividend rates rather than general income rates.

• This section applies to estate income that is grossed up at the ordinary dividend rate under the rules for calculating basic amounts of estate income.
• It also applies to estate income that is treated as bearing income tax at 0% under the combined effect of the grossing-up rules and the special rules for dividends and loans to participators in close companies.
• In both cases, the income is treated as dividend income in the hands of the beneficiary, preserving the nature of the underlying income received by the estate.
• The practical effect is that beneficiaries pay tax on this income at dividend tax rates, not at the higher rates that apply to savings or other income.