Postby MarquisBill » Sun Jan 14, 2018 1:36 pm
the HMRC form no longer automatically calculates the Foreign Dividend Tax credit value and sets it to zero. It then asks you if you are happy with the value of zero and if not provides access to a calculation form so that you can calculate it yourself. TaxCalc does this for you automatically.
When I calculate the FTCR value and enter it into the HMRC form, it gives the same answer as TaxCalc.
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The USA deducts 30% tax from dividends. 15% if you signed a W-8 BEN form (DTA) - I assume you did. The UK wants to take 7.5% Income Tax.
You are allowed to claim the lower of... what the USA took, or, what the UK would take. You lose the rest.
So in this case you can claim what the UK would take. As it happens 7.5% is half 15%...
So you can claim half what the USA took, as FTCR. Simple. Finished.
But.. that's if your income falls in the basic band. And if the dividends fall above £5,000 zero rate.
It is possible foreign dividends could fall in another band. Or across bands.
Or across the £5,000 zero rate band for dividends. Hence, HMRC says FTCR is £0 - almost certainly not true.
But, they say, you can work it out for yourself! Just like CGT, then. "we work it out for you", so long as you tell us what it is!
However, the basics are pretty simple. HMRC says your foreign dividends are your top slice of income.
That's a useful start.
It could be pretty clear if... all your dividend income is under £5,000 in total or... you have at least £5,000 in UK dividends too, and... you are not within £5,000 (up or down) of a tax band threshold. In that position your dividend rate should be obvious.
Typically you will be comparing... 0%, 7.5%, 32.5% or 38.1% for UK tax with 15% or 30% for the USA. You can claim the lower of the UK and US rates/amounts as FTCR. Many people will be able to work on just that basis.
Otherwise, you need to cut your income into slices. As HMRC says, use the highest-taxing foreign country first.
For the first foreign country, take... whatever amount of dividend income reduces you to £5,000 of dividend income, or... reduces you down a tax band (i.e. takes you to the threshold). Its whichever of those you hit first.
For that amount, this slice, decide... whether it is 0% rated for dividend income.
If not, decide the tax band it falls in - so you know which UK dividend tax rate applies.
Decide which is lower, the UK tax or the foreign tax? You can claim the lower as FTCR.
OK, that slice is dealt with. So, reduce your foreign dividends and gross income by that amount.
Now repeat for the next slice of foreign dividends. And so on.
You claim FTCR for each page/line of foreign dividends. HMRC will tell you its zero and ask if you agree. Say no, and you will get a very complicated page. Usually you can ignore that and just click next. You will see a box where you can just key in the amount. Done! Tax saved.
There might be other issues, such as whether there is DTA, and whether that DTA has special provisions. But most people need not bother with that.