Hi,
I've seen this being explained in two different ways with some people suggesting 1) and some people suggesting 2) as the correct way of doing it. Can someone please confirm which one is correct.
Higher rate tax payer
No UK dividend income
Foreign dividend income, £8000 (with £2000 in countries with withholding tax of 15% and £6000 in countries with withholding tax of 5%).
Option 1)
Foreign tax credit relief can only be given on the part exceeding the dividend allowance, i.e. starting with the slice taxed at 15% the maximum relief would be
2000*0.15 + 1000*0.05 = £350
Option 2)
Foreign tax credit relief can be given on all the foreign tax paid, i.e.
2000*0.15 + 6000*0.05 = £600
With the UK tax being 3000*0.325 = £975 you would then be allowed to either claim £350 or £600 back as they are both lower than the UK tax.
The way I interpret the HMRC instructions I am only allowed to claim the £350 back on the part of the dividend income exceeding the allowance (as there is de facto no UK tax on the other part) but I have seen many people suggesting otherwise so I thought it would be worth asking here.
Many thanks!
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