income Tax Treatment Overseas Dividends w/H Tax

[robbob]

The 15% foreign tax withheld on gross foreign dividends of £7548 is £1,133
I also have UK dividends received of £971

Therefore being taxed £5,000 at 0% and £3,519 at 32.5% tax is £1,143

Can I offset the foreign tax of £1,133 in full against the £1,143

You should follow the procedure laid down in H263 - details below i could easily imagine that other sources of income MAY affect the results under some circumstances.

https://www.gov.uk/government/publicati ... ncome-2017

How much you can claim
You can claim the smaller of:
foreign tax paid (or allowed by treaty)
UK tax due
Example 1
Elinor had £15 foreign tax taken off £100 foreign interest. She works out that the UK tax due (on the same item) is £20.
Elinor claims FTCR of £15 because the foreign tax paid is less than the UK tax due (£20).
If the UK tax had been £10, Elinor’s FTCR would also be £10, because the UK tax due is less than the foreign tax paid.
How to work out the UK tax due
The amount due is the difference between the:
UK tax due on your total income, plus the item with foreign tax taken off
UK tax due on your total income, without the item with foreign tax taken off
Example 2
Greg’s total income is £18,000, the tax due on this amount is £2,400.
He claims FTCR on a £200 item of foreign interest.
Total income £18,000 less foreign income £200 = £17,800.
The tax due on £17,800 = £2,360.
£2,400 less £2,360 = £40.
The UK tax due on £200 foreign interest is £40.

[maths]

Can I offset the foreign tax of £1,133 in full against the £1,143

The foreign tax can only be offset aginst the UK income tax charge on the foreign dividend, not against UK tax on UK dividend.

Offsetting in the most tax efficient manner means:
offset 5,000 against the 971 leaving 4,029.
offset 4,029 against 7,548 giving 3,519.

Tax at 32.5% on 3,519 gives 1,144 less 1,144 for foreign tax credit gives net liability of nil (excess 1,133 - 1,144 is lost).

[Sejanus]

Thank you for your replies, which have been extremely helpful.

I have updated my self assessment tax return and also submitted to HMRC today,

Thanks again for your guidance

Regards

[darthblingbling]

Can I offset the foreign tax of £1,133 in full against the £1,143

The foreign tax can only be offset aginst the UK income tax charge on the foreign dividend, not against UK tax on UK dividend.

Offsetting in the most tax efficient manner means:
offset 5,000 against the 971 leaving 4,029.
offset 4,029 against 7,548 giving 3,519.

Tax at 32.5% on 3,519 gives 1,144 less 1,144 for foreign tax credit gives net liability of nil (excess 1,133 - 1,144 is lost).

I'd assume this is automatic as foreign income is treated as top slice income (taxed after UK dividends)?

[maths]

The effect of the legislation re DTR computation (TIOPA 2010 ss 36 & 41) is that foreign income is treated as the top slice of income and where there is more than one foreign source the highest slice is that foreign income which has been subject to the highest foreign tax. This maximises any foreign tax credit.

Somewhat unusually, the legislation re DTR works in the taxpayer's favour.