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Budget 2015 - Dividend taxation changes / Non Res

Budget 2015 - Dividend taxation changes / Non Res

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If the new dividend tax regime does away with the notional tax credit, how would this affect non-residents in receipt of UK dividends, at present the notional 10% tax credit covers all of the UK tax on the dividends received. If there is no longer a 10% tax credit does this mean that non-residents UK dividends will become taxable on the non-resident?

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By johngroganjga
08th Jul 2015 16:43

You mean a withholding tax?

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By Philip J Redhead
08th Jul 2015 16:44

Yes

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By Marion Hayes
08th Jul 2015 16:54

Double tax treaty

I think you have to go back as usual to the tax treaty to see if they have to be given a notional tax credit anyway

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By johngroganjga
08th Jul 2015 17:01

Well I've seen no reference anywhere to a withholding tax being introduced.

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By Philip J Redhead
08th Jul 2015 17:10

I will need to take a look. In general though I think this could be a big problem. (intended or not by the Government)

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By Philip J Redhead
08th Jul 2015 17:16

Sorry, not a withholding tax but the general rule that the notional tax credit will cover all the UK tax on the dividend for a non-res, If there is no notional tax credit then I would seem that tax will need to be paid, where currently, in this scenario it is not.

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By johngroganjga
09th Jul 2015 19:26

What am I missing? Why does a non resident have a UK tax liability?

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By DJKL
09th Jul 2015 21:35

Is not the only difference, in the absence of some form of witholding tax/notional witholding tax, that if resident elsewhere there will be no relief for the tax credit (where the DTT allowed such a relief) in whatever country the person is resident. They may not be very happy but their issue will be with their own country's tax system.

I think currently non residents in receipt of dividends have no UK liability but of course an inability to seek repayment of the tax credit (notionally) suffered from the UK authorities. I think similar institutions in different EU countries need to receive the same tax treatment to accord with EU law.

They may have to be careful with this, I recall there was a Finnish case re differences between resident/non resident receivers of dividends and differing treatment. However if everyone receives the same, and there is no tax credit/witholding, then not sure there are that many issues-however I know little about international tax.

 

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By Matrix
10th Jul 2015 08:09

In practice each country has to determine if the imputation credit is a creditable tax and the non-resident also has to know that it is creditable to put it on their tax return.  I expect only institutional investors with sophisticated advisers were claiming it. The cash receipt for non-residents/pension funds etc is unchanged, this is an attack on OMBs.

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By Steve Kesby
10th Jul 2015 10:19

Disregarded income

Dividend income is disregarded income for nonresidents (unless they are only temporary non-residents). This means that they are effectively not liable to UK tax beyond the amount of any tax deducted at source.

There is no suggestion that that will change. There is no tax deducted at source currently; just a notional tax credit that is of no practical effect to a non-resident, except where another country in which it is taxable by reason of the recipient's residence allows it as a deductible credit, as Matrix says.

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By santisuk
23rd Oct 2015 10:11

Disregarded income

As Steve Kesby says, non-residents are effectively not liable to UK tax beyond the amount amount of any tax deducted at source (on dividend and other savings income only). Regarding dividend income, previously - and still in the current tax year - 10% tax was/is deducted at source by companies paying dividends, but that requirement to deduct tax at source placed on companies will be withdrawn with effect from 6 April 2016 as part of taxation on dividend income reform.

If the government does not introduce some special additional provision to replace that tax deduction at source for non-residents then it would seem that non-residents will in future be able to make investments via the UK and receive their UK dividend income gross with no further UK tax to pay. For those who have left the UK and have formally acquired non-resident status but still invest through the UK this is seemingly a significant gimme by the UK government. For instance this year I will suffer about GBP 7,000 of UK dividend tax deducted at source and for 2016/17 seemingly the equivalent amount will be zero. I live in a country (Thailand) which does not tax investment income earned abroad!

I am suspicious of a gimme like that. Has anyone heard of anything in the pipeline that might reinstate the government's tax-take on such income for NRIs. Anything in the Finance Bill that presumably is approaching finalisation or has recently been finalised (if the same timetable is adopted as when I was in practice)? I wait with bated breath!

For completeness I will note that:

1.Disregarded income for NRIs also includes savings interest income. I assume that banks and others will still be deducting tax at source on UK taxpayers so nothing changes on the tax position for that stream of income

2. Disregraded income is advantageous for those NRIs who have significant levels of UK dividend and/or other savings income. However you are not permitted a UK personal allowance if you go the disregarded income route. Accordingly for smaller amounts of dividend and/or other savings interest it is better to be fully taxed on such income (especially so now that there is to be a tax-free allowance on the first GBP 5,000 of dividend income next year) and claim the personal allowance.

HMRC will automatically select which route is beneficial for the NRI taxpayer (disregarded income or personal allowance) when a return is submitted, but obviously it helps to know how your tax is being computed.

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Replying to tom123:
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By sweb1310
24th Mar 2016 15:52

Disregarded Income

Banks will not be deducting at source and interest will be paid gross from 16/17

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