Non-resident dividends

[tippling]

As a non-resident in a country with a double taxation treaty with the UK I would like to know how the changes to dividend taxation in April 2016 may affect me.

I receive dividends from a UK company. In my country of residence all income is taxed at 15%. Previously when I got a dividend it was treated as having been grossed up (each £1.00 was grossed to £1.11) and treated as if 10% tax has been applied. I then paid 5% tax on the amount of dividend in my country of residence. I file a Self Assessment tax return in the UK to declare and pay income tax on a buy to let property. Other than that I pay no UK income tax and all my other income is taxable in my country of residence.

One source of information quotes HMRC as saying that the way in which non-UK residents are taxed on dividend income will not be changing and Section 399 ITTOIA 2005 will continue to treat tax as paid at the dividend ordinary rate for non-UK residents. Another source says that non-resident taxpayers keep the tax credits. A £90 dividend is thus grossed up to £100.

1. If the UK company declares another dividend, does the UK company need to put the tax credit on dividend vouchers for non-resident shareholders?
2. Do I still treat my dividend income as if it has been subject to 10% tax in the UK and pay 5% in my country of residence?

[maths]

Dividend tax credits are no longer granted.

The dividend income is simply the amount paid. This is the amount you would be liable on in your territory of residence with no offsetting UK tax credit (as there isn't any credit).

EG 90 dividend paid you declare and you receive 90 in your residence country. Full local tax would then be payable on the 90.

In the past: 90 net dividend but 1/9th attaching tax credit giving gross of 100 in your overseas country. Tax at 15% on 100 (ie 15) less UK tax credit of 10 gives net local tax of 5; net receipt 85.

Today you pay 15% on dividend of 90 ie 13.5; net receipt 76.5.

ITTOIA 2005 s.399 is merely the mechanism whereby under the new provisions a non-resident is not exposed to a greater UK tax charge.

[tippling]

Thank you maths. So a bit worse off now. 90 net dividend was net receipt 85, is now 90 net dividend 76.5 net receipt.
Thank you for your reply

[maths]

Forgot to mention the current £5,000 dividend allowance under which £5,000 of dividends are taxed at the dividend nil rate (i.e. 0%) for which you may be eligible.

[Stats]

In 2017, on behalf of a relative who emigrated, I raised this question with an accountant in Australia and was told that the former 10% tax credit on UK Dividends had been replaced by a 7.5% "deemed" tax credit for non-UK residents under the amended Double Taxation Agreement.

Anyone with knowledge ?

[maths]

The historic tax credit attached to a UK source dividend has been abolished ie no tax credit attaches to a dividend payment. This also applies to non-residents.

The UK does not levy a dividend withholding tax.

Under UK domestic tax law (not the double tax agreement) when a non-resident receives a UK source dividend the non-resident is treated for UK tax purposes as having paid income tax at the dividend ordinary rate on the amount of the dividend.

The treatment for an Australian resident on receipt of the UK source dividend is a matter for Australian domestic tax purposes ie whether the Australian tax code will treat the income tax at the dividend ordinary rate on the amount of the dividend treated as paid in the UK for UK tax purposes is creditable against any Australian tax charge.

[GaryArthur]

Hi, I am new to this forum. However, reading this post I would like to add my recent experience as a non resident (for over 15 years). I have just received a letter and cheque from HMRC completely unprompted for a tax refund due to this 7.5% Tax Dividend.

I now have on my annual self assessment tax calculation letter for year ended 5 Apr 2017 a tax rebate.

Under income tax previously charged it now states ...

minus 7.5% tax treated as paid on dividends from UK compaies (not repayable). Note 1: This is 7.5% multipled by my total dividends from UK companies.

It then at the bottom states

UK resident incme tax liability (A)
Non-UK resident income tax liability upper limit (B)

B is greater that A. Although it makes no explanation for the calcuation of B. Whereas A is based on my previous self assessment with the deduction for the Note 1.

If anyone can explain what tghe B means and how it is calculated it would be appreciated. As I am trying to see how much more dividend in a year I could recveive without increasing any liability.

Thank you in advance forum freiends.

G

[maths]

The legislative reference which is relevant is ITA 2007 s.811. This section is designed to limit the income tax liability of a non-resident on UK source income.

A and B are referred to and defined in s.811.

Whether a limit is actually applicable depends upon the mix of UK source income.

What was your mix?

[jason13]

Under UK domestic tax law (not the double tax agreement) when a non-resident receives a UK source dividend the non-resident is treated for UK tax purposes as having paid income tax at the dividend ordinary rate on the amount of the dividend.

The legislation says "includes a distribution of a company". How is that defined? Does that include dividends from UK-based OEICs and similar funds which are put in box 5 (other dividends) rather than box 4 (Dividends from UK companies)?

Also, does anyone here use SelfTax? As a test, I chose non-resident on SA109, entered £35,000 UK employment income on SA102, £6,000 dividends from UK companies (box 4) on SA100 and it calculated "£1,000.00 @ 7.5% = £75.00". This is incorrect (for 2017-18), right? Or did I misunderstand what maths was saying? Does that notional tax paid have to be entered somewhere or should that be done automatically by the software/SA?

[maths]

Dividend allowance £5,000.

Hence income tax at 7.5% on [6,000 - 5,000].