Withholding tax on foreign dividends and foreign tax credit

[Tim182]

I am trying to understand how withholding tax on foreign dividends is treated and credited for someone making a self-assessment.

For simplicity sake, let's assume an income of £100,000 of dividends and no other income. The tax payer is a UK domicile and the numbers are made up to understand the concept:
- £50,000 of foreign dividends subject to 15% withholding tax at origin, i.e. £7,500 withheld and £42,500 received
- A further £50,000 of foreign dividends subject to 10% withholding tax at origin, i.e. £5,000 withheld and £45,000 received
- I will also assume both companies have a double tax treaty and all withholding tax is eligible at the full rate paid

Question 1:
What is UK tax calculated on? Is it the full £100,000, or the £87,500 received? I believe previously one would have taken £87,500 / 0.9 = £97,222 but this no longer applies

Question 2:
How do I receive tax credit for the withholding tax paid (assuming all withholding tax is eligible at the full rate paid)? Is this via the foreign tax relief? And if so, can the full £12,500 be claimed?

It would be really useful if someone could explain the calculations to get to tax payable using the simple example

[maths]

Question 1:
What is UK tax calculated on? Is it the full £100,000, or the £87,500 received? I believe previously one would have taken £87,500 / 0.9 = £97,222 but this no longer applies

Starting point is the "gross" (ie pre foreign w/tax amount) ie 100,000.

Question 2:
How do I receive tax credit for the withholding tax paid (assuming all withholding tax is eligible at the full rate paid)? Is this via the foreign tax relief? And if so, can the full £12,500 be claimed?

In principle any foreign w/tax is creditable against any UK income tax levied on the "gross" amount.However, in your example there would be two separate computations for each source of foreign dividend.

The claim for foreign tax credit is made in the Tax Return on the Foreign Pages.