Dividend allowance query

Are non-residents entitled to the dividend allowance?

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I act for a non-resident UK individual currently living in Portugal.

He has substantial UK rental income which uses up most of his basic rate band plus UK dividend income. In the past, it has usually been beneficial for him to claim a personal allowance so the dividend income is not disregarded. I have run tax computations for 2016/17 on our tax software with varying levels of dividend. The software (Iris) is charging the first £5,000 of dividend at 0%, the next part of the dividend within the basic rate at 7.5%, and the balance at 32.5%. Is this correct as I had been led to believe that non-residents are not entitled to the dividend allowance? Also, I understand that non-residents are still entitled to a 7.5% tax credit but this is not being given in the tax computation. Is that because the tax credit is only relevant to his Portguese tax position?

(If I pitch the dividend sufficiently high enough, the computation reverts to the alternative calculation and the dividend income is disregarded so the software is picking up that the individual is non-resident. )

I need to be certain that our software is dealing with this correctly. What do other members think?

Replies (2)

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By Tim Vane
28th Mar 2017 11:50

I don't recall anything in the legislation that limited the dividend allowance for non-residents. And yes, non-residents are entitled to a 7.5% non-repayable tax credit.

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By Matrix
28th Mar 2017 15:16

I would expect these dividends to be subject to tax in Portugal and do not need to be included on the UK tax return. The UK has the right to deduct withholding tax up to 15% under the treaty, but since there is no UK withholding tax on dividends, then Portugal has the taxing rights.

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