Revenue Note for Guidance

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Revenue Note for Guidance

753C Payment and receipt of dividends or interest and manufactured payments under a stock borrowing or repurchase agreement

Summary

This section sets out the tax treatment of dividend/interest payments made to stock buyers under financial transactions across dividend/coupon payment dates and their corresponding manufactured payments.

Details

(1) A ‘specified amount’ for the purposes of this section is

“an amount of interest or a distribution arising or accruing to a stock buyer in respect of qualifying securities, or equivalent stock held by the stock buyer as a result of a financial transaction”.

Subsections (2) and (3) set out the tax treatment of manufactured payments under a qualifying financial transaction:

(2) In charging a specified amount to tax the stock buyer may deduct from that amount any corresponding manufactured payment made to the stock seller, but the deduction available may not exceed the dividend received by the stock buyer-

  • after the application of any foreign tax relief, but
  • before the application of encashment tax.

(3) No deduction is available at all to the stock buyer in respect of a manufactured payment where:

  • the stock buyer is exempt from tax in respect of the specified dividend or interest, or
  • no amount of tax payable would arise in respect of the dividend or interest under self-assessment after the application of any foreign tax credits.

A manufactured payment is not deductible against anything but the interest or dividend to which it relates

(4) Where the manufactured payment is lower than the dividend or interest received by the stock buyer, the excess dividend or interest shall be taxable as interest income in the hands of the stock buyer.

(5) and (6) Manufactured payments shall generally be treated as if they were dividends/interest received directly by the stock seller unless the manufactured payment is greater than the corresponding dividend/interest received by the stock buyer (net of any foreign withholding tax but prior to the application of encashment tax). Where this occurs, the stock seller shall be chargeable to tax under Case IV of Schedule D in respect of that excess amount.

Relevant Date: Finance Act 2019