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Where Taxpayers and Advisers Meet

FTCR for US withholding tax

bigprize
Posts:2
Joined:Fri Sep 01, 2017 9:25 am
FTCR for US withholding tax

Postby bigprize » Mon Jan 21, 2019 7:34 pm

Hello,

I have the following situation:

UK resident has an investment, via an UK based broker, in an US registered ETF (hence an offshore fund). The fund is classified as a reporting fund by the HMRC. The ETF pays dividends/distributions every month and the broker retains 15% of withholding tax (favourable rate under the US/UK DTA, rather than the usual 30% for US non-resident aliens). However the ETF holds mostly bonds (>60% of interest bearing instruments) and hence I believe that those "dividends" would be considered interest for UK tax purposes rather than dividends.

This distributions are in excess of the savings allowance and would be taxed at the marginal rate of 40%. Is it possible to claim the 15% withholding tax applied as FTCR in that situation and reduce the UK tax to 25%?

Dividends would normally be covered under the DTA for FTCR but as have they been reclassified, in the UK side, as interest I am not sure if the FTCR would apply as, technically, no tax should have been paid in the US side.

Keen to see if anyone has faced this before.
Cheers

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