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7.5% tax credit for non-residents on UK dividends

7.5% tax credit for non-residents on UK dividends

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 7.5% tax credit for non-residents on UK dividends - can one get Taxfiler to reflect this if one is not electing for a disregard?

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By Wanderer
23rd Nov 2020 17:07

BTC does it automatically and will be part of standard HMRC calculations.
Are you sure you've got all the correct boxes ticked?

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Replying to Wanderer:
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By nick farrow
23rd Nov 2020 20:27

thanks W - i will double check

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By nick farrow
23rd Nov 2020 20:27

thanks W - i will double check

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By richard thomas
23rd Nov 2020 21:43

Can you explain what you mean by "electing for disregard"?

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By nick farrow
24th Nov 2020 08:48

I may have the language wrong but my understanding is that a non-UK resident individual in receipt of UK dividends has the choice not to be taxed in the UK on those dividends (the disregard) at the cost of losing their personal allowance. If they don't so elect then the dividends are taxable in the UK albeit with a PA and 7.5% notional tax credit.

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By nick farrow
24th Nov 2020 08:48

I may have the language wrong but my understanding is that a non-UK resident individual in receipt of UK dividends has the choice not to be taxed in the UK on those dividends (the disregard) at the cost of losing their personal allowance. If they don't so elect then the dividends are taxable in the UK albeit with a PA and 7.5% notional tax credit.

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By richard thomas
24th Nov 2020 09:08

I'm interested to know where your understanding came from, because a very similar claim was made by Anonymous, later revealed as davexyz, in a thread they started on 29 October called "Dividend Tax for Non-Res". I pointed out that there is nothing in law or even HMRC manuals about an election or option to disregard at the cost of losing PA, and asked davexyz for their source - but I received no answer.

It is worrying that this fake news seems to have reached the consciousness of more than one person on this site, so I am trying to track down the source of it.

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By nick farrow
24th Nov 2020 09:12

i will get back to you v soon

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By nick farrow
24th Nov 2020 09:12

i will get back to you v soon

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Replying to richard thomas:
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By Wanderer
24th Nov 2020 09:39

richard thomas wrote:

I pointed out that there is nothing in law or even HMRC manuals about an election or option to disregard at the cost of losing PA, and asked davexyz for their source - but I received no answer.


This?
https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/s...
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Replying to Wanderer:
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By richard thomas
24th Nov 2020 09:54

Where in that page does it refer to an election or option or to losing PA?

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By Wanderer
24th Nov 2020 11:33

richard thomas wrote:

Where in that page does it refer to an election or option or to losing PA?

Well it doesn't refer to an election or option, does it? Hence the question mark after This? I was offering it as an answer to your question as to what the OP of davexyz might be referring to.

Regarding 'or to losing PA' it's this sentence that is being referred to
"o the tax liability leaving out the disregarded income and with no personal allowances or double taxation relief taken into account."

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By cathygrimmer
24th Nov 2020 09:41

I'm sure Nick means Section 811 disregarded income. You are correct, of course, that there is no 'election' as such because the tax due is automatically restricted. Loose terminology rather than a fundamental misunderstanding of the rules. I imagine he meant 'if disregard is not beneficial'.

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Replying to cathygrimmer:
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By richard thomas
24th Nov 2020 09:56

I know he meant s 811, but my query was precisely because s 811 does not mention an election or option or losing PA.

I've now got another question. How can the disregard not be beneficial?

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Replying to richard thomas:
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By Wanderer
24th Nov 2020 11:46

richard thomas wrote:

I know he meant s 811, but my query was precisely because s 811 does not mention .............. losing PA.

Isn't this 811(5)(b) & 6(a)?
richard thomas wrote:

How can the disregard not be beneficial?

Because they lose the PA which they may be using to reduce the lability on other, e.g. rental, income.
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Replying to Wanderer:
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By richard thomas
24th Nov 2020 12:14

First point. I was less than clear. I meant that it does not deprive you of a PA when computing the tax on your income for the purposes of deciding what your actual tax bill is absent s 811. Section 811(5) relates to finding amount B, one of the components of the ceiling which you compare with the actual tax bill.

Second point. If you don't in fact lose PA (as I maintain) or you do not get a PA ( whether because you are not entitled or because your income is too high) the disregard is always beneficial, isn't it.

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Replying to nick farrow:
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By richard thomas
24th Nov 2020 09:59

Thank you. That is interesting about PA, so more research is needed at my end. But it still doesn't refer to any choice in the matter. Section 811 does not involve a claim or section not to disregard.

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Replying to richard thomas:
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By Wanderer
24th Nov 2020 11:50

Nope, but doesn't the PA have to be claimed for a non res? It's not given automatically unless one of the two boxes is ticked on the non-res pages. Also the RRN notes refer to a claim for the PA.

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Replying to Wanderer:
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By Wanderer
24th Nov 2020 11:57

ITA 2007 Part 3 Chapter 2 Section 35

"An individual who makes a claim is entitled to a personal allowance ...."

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Replying to richard thomas:
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By richard thomas
24th Nov 2020 11:50

My view is that the Helpsheet is wrong about personal allowances. You exclude the PA under s 811(5) to find the upper limit of the tax which is payable, not the minimum amount of tax payable. Some non-residents are not entitled to PAs anyway so it makes no difference to them, or to those whose level of income disentitles them to PAs.

The Working sheet with the Helpsheet seems to correctly show the s 811 calculation as a maximum.

But still no reference to an election out of disregard.

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By nick farrow
24th Nov 2020 11:46

the client is NZ resident and domiciled with UK property income and Uk dividends - i just wanted to demonstrate the difference in tax position using both options and tax credits available under the DTA

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By richard thomas
24th Nov 2020 12:02

Sorry, but I now have another question. What tax credits are available under the DTA? And where is the UK domestic legislation entitling anyone to such tax credits?

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By Wanderer
24th Nov 2020 12:06

richard thomas wrote:

And where is the UK domestic legislation entitling anyone to such tax credits?

https://www.legislation.gov.uk/ukpga/2005/5/section/399
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Replying to Wanderer:
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By richard thomas
24th Nov 2020 12:17

That's not a tax credit given under the DTA (even if it could be loosely called a tax credit).

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By Wanderer
24th Nov 2020 12:23

Well I didn't say it was did I? I answered you specific question "And where is the UK domestic legislation entitling anyone to such tax credits?". If you check I even quoted just that part.

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Replying to Wanderer:
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By richard thomas
24th Nov 2020 12:47

You answered the question: "And where is the UK domestic legislation entitling anyone to ... tax credits on overseas dividends?" The word "such" is important - it shows that "tax credits"in my question to Nick Farrow meant only those under the UK/NZ DTA.

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By Wanderer
24th Nov 2020 12:57

Okay, bowing out of this "discussion". I have given quite a few pointers which I thought were helpful in explaining what other posters meant. However your continued diversion into other matters is not adding anything to help the OP's query.

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By Matrix
24th Nov 2020 12:57

Why is the non resident completing a UK tax return?

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Replying to Matrix:
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By Wanderer
24th Nov 2020 12:58

UK property income.

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By nick farrow
24th Nov 2020 14:42

sorry i added an s - I meant foreign i,e. UK tax credit (no S!) in respect of tax on property income!

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By richard thomas
24th Nov 2020 17:28

Despite what others may have said, the purpose of my questions to you was to give me the necessary information to explain to you why I think your original question was a based on a misapprehension.

Assuming Taxcalc uses the HMRC calculation algorithm and based on the Tax Calculation Summary Notes attached to the SA 110, the SA109 and the Helpsheet 300 working sheet, what essentially happens is this. This is what you would do if you made a full paper return with a self-assessment.

You enter the figures for rental income on the UK property pages (and I assume no tax was deducted by a tenant or agent in the UK) and the gross amount of the dividends on the main tax return page TR3.

You put an ‘x’ in box 1 on page RR1 and in box 15 on page RR2 (claim to personal allowances) on the SA 109 (residence) pages, and the appropriate code for New Zealand in box 18.

The calculation will then add the income amounts together, deduct the personal allowance you have claimed and calculate the tax rates to arrive at the tax liability for the year.

In this calculation you should find that the dividends have been taxed at 0% on the first £2000, and then at 7.5% on so much as falls within the BR band not used by rental income, and then 32.5% if any falls within the HR band.

I would assume that the x in box 15 of the SA109 will trigger the computer to allow you 7.5% of the total dividends to be treated as tax deducted at source (under s 399 ITTOIA as linked to by Wanderer). This is what you will need to check.

The HMRC calculation should also show whether the tax you are due to pay is the amount limited by s 811 ITA 2007 or the actual liability if that is less.

You can see this calculation on the HS 300 working sheet which you can print and do for yourself (it’s only 2 pages):

On page 1:
• you put the tax deducted from your disregarded income in box 2 ie the 7.5% on the gross dividends.
• you put the profit from UK property in box 4.

Boxes 8 to 15 works out the tax on that rental income without giving a PA.

Box 16 adds that tax (which is Amount B in s 811) to the tax deducted in box 2 (Amount A) and the total is then taken to page 2. Assuming you have none of the reliefs or charges mentioned, box 29 is the same as box 16 and is the s 811 limit of income tax payable.

The worksheet then compares this with box A328 on the Tax Calculation Summary Notes and is the tax you have to pay based on your return including taxation of the dividends at the varying rates applicable and with a PA.

The worksheet then says that if box 29 is less than the box A328 figure you put the lower s 811 figure in box A328 so that will feed into the self-assessment figure.

Everything should be done without any elections etc. or trade off calculations. If all the dividends fall within the basic rate band I expect the limit will not apply. This is because you lose the PA and the dividend allowance in calculating it.

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By The Dullard
24th Nov 2020 16:42

The limitation on liability (which is just that) should be calculated automatically, IF IT APPLIES. If the individual is NZ resident, it isn't the UK that gives credit for the NZ tax on the income, it's NZ that gives credit for the UK tax (of which there isn't any, just a fiction of some, in the case of UK dividend income).

Presumably the dividend income is within the basic rate band so that limitation of liability isn't in point. It will give the same result in those circumstances if the individual isn't entitled to a personal allowance and will give a worse result (and thus not apply) if they are.

In my opinion, practitioners ought to know how to handle their clients' tax affairs before they engage them as clients and should disengage them if their clients' circumstances change so as to take their affairs outside the practitioner's competence.

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By Tax Dragon
24th Nov 2020 17:13

This thread seems to have become unnecessarily tetchy.

As I read your question, Nick (admittedly with the benefit of your additional comments, which were not available upfront), you want to run the workings of the s811 calculation in TaxFiler, in a situation in which s811 has no effect.

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By nick farrow
24th Nov 2020 17:48

thanks everyone - my question was really just about getting the tax software to do something as I was very happy about the alternative UK tax positions already
sorry if I have wasted your time

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