The Operation of the United Kingdom Dividend (U.K. Dividend Plan)

Participating in the U.K. Dividend Plan may enable shareholders resident in the United Kingdom to obtain the benefit of a tax credit as a result of that country’s tax system. You still receive cash dividends but these are paid to you by one of the National’s United Kingdom subsidiaries (National Australia Group Europe Limited) and accordingly you receive United Kingdom sourced dividends.

Generally, Australian resident shareholders do not benefit from participating in the U.K. Dividend Plan.

Eligibility

All shareholders are eligible to participate in the U.K. Dividend Plan.

As with the DRP, shareholders in some countries may not be able to participate because of legal and administrative requirements in their country. The Directors of the National have discretion to determine whether any such shareholders are excluded from the U.K. Dividend Plan. For example, as with the DRP, the Directors have determined that United States shareholders are not currently able to participate in the U.K. Dividend Plan.

Dividend Nomination Advice

To apply to participate in the U.K. Dividend Plan, you need to complete a U.K. Dividend Plan Nomination Advice and return it to the Share Registry.

However, you do not need to complete and return a U.K. Dividend Plan Nomination Advice for each dividend. Your participation will remain in force until you choose to withdraw from the U.K. Dividend Plan or you vary your participation.

Types of Participation
There are two types of participation.

Full Participation
This means that you participate in respect of all of the shares registered in your name as at each record date for a dividend.

Partial Participation
Partial participation is only available to Qualifying Trustees. If you are not a Qualifying Trustee, you can only participate in respect of all of the shares registered in your name although you can split your holding (ie by establishing a No. 2 Account) and only seek to participate in the U.K. Dividend Plan in respect of one of your accounts.

Partial participation means that you participate in respect of some but not all of the shares registered in your name as at each record date for a dividend. Accordingly, you need to specify the exact number of shares you wish to participate in the U.K. Dividend Plan when applying to participate.

Dividends on the part of your shareholding (if any) that does not participate in the U.K. Dividend Plan will be paid to you in Australian Dollars, unless you choose to participate in the DRP in respect of some or all of that shareholding.

Participation by additional shares

Full participants
If you are a full participant, any other shares you acquire (for example by buying them on the market) will automatically be added to that shareholding already participating in the U.K. Dividend Plan unless you change your participation.

Partial participants
If you are a partial participant, any other shares you acquire will not participate in the U.K. Dividend Plan unless you direct them to do so.

Participation in the U.K. Dividend Plan and the DRP

The cash dividends you receive under the U.K Dividend Plan can also be reinvested in shares through the DRP.

Payments of Dividends

Dividends provided to you under the U.K. Dividend Plan are paid in pounds sterling (either by cheque or direct credit), unless you have chosen to reinvest some or all of those dividends in National shares by also participating in the DRP.

The advantages of the direct credit facility for cash dividends are discussed on page 6 of this booklet.

The dividends are converted from Australian dollars at a rate determined by the Directors of the National in respect of each dividend and is notified to you on your dividend statement.

No guarantee of United Kingdom Sourced Dividends

You are not guaranteed of receiving United Kingdom sourced dividends by participating in the U.K. Dividend Plan. This is because the payment of these dividends by the National’s United Kingdom subsidiary is discretionary and depends on a number of factors including the National’s financial strategy, the availability of distributable profits from United Kingdom operations and the number of participants in the U.K. Dividend Plan.
However, if the National’s United Kingdom subsidiary does not pay a dividend on your participating shares for any reason (or if you are paid less than the cash dividend paid to other shareholders), you will receive the whole or balance of that dividend entitlement from the National, paid in Australian dollars.

Statements

Following each dividend payment, you will be sent a statement that sets out the dividends paid to you under the U.K. Dividend Plan.

Operation of the U.K. Dividend Plan

The National may vary, suspend or terminate the U.K. Dividend Plan at any time. The terms and conditions of the U.K. Dividend Plan are set out on page 19 onwards.

Tax

United Kingdom shareholders
The comments below are of a general nature and may not apply to certain categories of person, for example, dealers in shares and/or securities.
Clearance has been obtained from HM Revenue & Customs under Section 707 of the Income and Corporation Taxes Act 1988 in respect of the U.K. Dividend Plan. This clearance confirms that HM Revenue & Customs will not seek to challenge the U.K. Dividend Plan on the grounds that it provides an improper tax advantage to shareholders.
An election to participate in, or withdraw from, the U.K. Dividend Plan may result in a part disposal for capital gains tax purposes of an interest in the trustee’s share in the National’s United Kingdom subsidiary. However, as the interest disposed of would have only a minimal value, it is anticipated that no charge to capital gains tax or corporation tax will arise. By electing to receive a dividend from the National’s United Kingdom subsidiary, U.K. tax resident individuals obtain the benefit of the notional 10% tax credit. For United Kingdom tax resident individuals who are not higher rate tax payers, the notional 10% tax credit satisfies the United Kingdom tax liability on the dividend in full.
Tax exempt institutional shareholders, such as United Kingdom pension funds, are not able to claim payment of tax credits attaching to dividends paid by United Kingdom companies.
You should be aware that the HM Revenue & Customs’ interpretation, and application of the rules indicated to the National, is not conclusive and binding on shareholders.
You should seek your own professional advice if you wish to consider the HM Revenue & Customs’ interpretation of, or practical application by HM Revenue & Customs of the rules relating to your tax position.

Australian shareholders
Australian resident corporate shareholders obtain no tax credit on a dividend paid by the National’s United Kingdom subsidiary. Dividends received from the National on ordinary shares which do not participate in the U.K. Dividend Plan carry an Australian franking credit to the extent those dividends are franked.
It is not anticipated that you will derive Australian income as a result of your participation in the U.K. Dividend Plan. In addition, you should not suffer capital gains tax due solely to your participation in, or withdrawal from, the U.K. Dividend Plan. The National has received confirmation from the Australian Taxation Office in respect of these taxation consequences.

Shareholders in other countries
At present, overseas shareholders cannot use the Australian franking credit attaching to franked dividends paid by the National.
Some jurisdictions have completed double taxation conventions or agreements with the United Kingdom which give entitlement to obtain payment of part of the tax credit attaching to dividends paid by United Kingdom companies, however, in most cases no payment would be due. Where any payment was due, such payment would be negligible. You should seek independent tax advice in your country of residence in respect of the tax treatment of participating in the U.K. Dividend Plan.

Terms and Conditions of the Plans comprising the National's Dividend Package