UK dividends

Many charities hold investments in the form of shares or other investments and receive income in the form of dividends. This income is exempt from income / corporation tax provided that the income is applied to charitable purposes. Capital expenditure on such investments may however be treated as non-qualifying expenditure

Foreign dividends

There is an exemption for foreign dividends which may give rise to tax liabilities.

No UK tax arises on the receipt of income from overseas securities, provided that the income is applied to charitable purposes. However, the UK tax system, while not seeking to tax foreign dividend income, will not give relief for foreign withholding taxes suffered by charities. Charities need to ensure that their investment advisers are instructed to monitor the level of overseas withholding taxes and to apply for reduced rates of withholding taxes offered under the terms of the double taxation treaties where applicable.

Other investment income

Other forms of investment income received by charities, such as interest income, income from authorised unit trusts and income from non-trading gains on intangible fixed assets are also exempt from tax, provided that the income is applied to charitable purposes.