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Dividend Tax for Non-UK Res.

Do you pay UK Dividend Tax if you are an Irish Resident

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One of my clients operates a UK PSC and is paid via a mixture of wages and dividends. All work is completed in Southern Ireland and he is resident in Ireland and has been for the last 5 years.   

As he is receiving the dividends from a UK company my understanding is that he needs to pay dividend tax in the UK. However, he will then need to pay Dividends tax on the same dividends in the South. It is my understanding there is no DTR on this and the 10% credit which used to exist is no longer available. Is this correct? Or, as he is not a UK-Res, will he be exempt from UK dividend tax and only subject to dividend tax down south?

I have been getting different answers to this wherever I look. I have called HMRC to confirm and they were as helpful as ever...

Any clarity would be greatly appreciated. 

Replies (23)

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By The Dullard
29th Oct 2020 16:26

It depends, Anonymous..

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By Wanderer
29th Oct 2020 16:24

Quote:
Dividend Tax for Non-UK Res.
Do you pay UK Dividend Tax if you are an Irish Resident

One of my clients operates a UK PSC and is paid via a mixture of wages and dividends. All work is completed in Southern Ireland and he is resident in Ireland and has been for the last 5 years.   

As he is receiving the dividends from a UK company my understanding is that he needs to pay dividend tax in the UK. However, he will then need to pay Dividends tax on the same dividends in the South. It is my understanding there is no DTR on this and the 10% credit which used to exist is no longer available. Is this correct? Or, as he is not a UK-Res, will he be exempt from UK dividend tax and only subject to dividend tax down south?

I have been getting different answers to this wherever I look. I have called HMRC to confirm and they were as helpful as ever...

Any clarity would be greatly appreciated. 

You seem to 'understand' a lot but possibly have misunderstood a lot.
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By richard thomas
29th Oct 2020 16:31

I am not sure quite what you mean by "dividend tax", but an Irish resident, like any other non-resident, is not liable to UK tax on a dividend from a UK company as a dividend is disregarded income from which no tax is deducted at source.

But UK tax I would have thought is the least of his tax worries unless he has already recognised that a UK registered one man company controlled entirely by an Irish resident and carrying its only business in Ireland is 99% sure to be Irish resident for Irish CT. So there is the possibility of two lots of CT (one in UK and one in Ireland).

As an Irish resident company (by reason of central management and control) it is probably also liable to pay Irish dividend withholding tax at the standard rate.

Whether there is an Irish liability on the wages or an obligation on the company to deduct Irish PAYE I do not know.

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Replying to richard thomas:
By Duggimon
30th Oct 2020 10:15

Being a UK registered company doesn't mean you're automatically liable to UK corporation tax, I have a client with a UK company but all the work is done abroad, the company is not required to file a tax return in the UK, which HMRC have agreed in writing. So I agree with your assessment that it's likely liable to Irish Corp Tax (which is cheaper than the UK) but not that it necessarily means two lots of tax.

It's a moot point in my case since the company in question makes no profit, but I thought it worth mentioning.

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Replying to Duggimon:
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By Wanderer
30th Oct 2020 10:48

Quote:

Being a UK registered company doesn't mean you're automatically liable to UK corporation tax, ...

Discussed on here recently and conclusion was a UK registered company is automatically chargeable to CT under CTA 2009 Part 2 Chapter 3 Section 14, but then may be excluded under the terms of a DTA .
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Replying to Wanderer:
Psycho
By Wilson Philips
30th Oct 2020 11:04

Quote:
Discussed on here recently and conclusion was a UK registered company is automatically chargeable to CT under CTA 2009 Part 2 Chapter 3 Section 14, but then may be excluded under the terms of a DTA .

Strictly, s14 doesn't say that a UK incorporated company is chargeable to CT, it simply says that the company is UK resident (although of course one normally follows the other). But as you say, foreign tax residence rules and the terms of the relevant Treaty might cause the company to be treated as non-UK resident, in which case you turn to s18.
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Replying to Wilson Philips:
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By richard thomas
30th Oct 2020 14:08

And in the circumstances described by the OP then the company will be treaty non-resident in the UK. That stays applies automatically without a claim (see s 18) but I imagine the company could also have elected under s 18A to achieve the same effect.

Thus there is no UK liability to CT if affective arrangement is in Ireland.

There remains an interesting question whether the dividends have a UK or Irish source from the Irish point of view, but whether it is a meaningful or material question I do not know, nor do I know the answer.

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By frankfx
29th Oct 2020 16:34

Revenue Ireland are very helpful on such matters.

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Replying to frankfx:
By SteveHa
30th Oct 2020 13:10

Revenue Ireland are infinitely more helpful than HMRC on pretty much everything - and they even answer their phones.

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By davexyz
29th Oct 2020 19:35

As individual is non-resident in the UK then the dividend tax is deducted at 0%. This is the technicality, tax is deducted it just so happens that the rate for non UK residents is currently 0.
These dividends are declared in individual's jurisdiction of residence, in this case Ireland where the relevant Income tax, PRSI (their National Insurance) and USC, Universal Social Charge (Austerity/Bail-out charge for want of a better term) is applied.
A credit of any tax paid in the Jurisdiction where the Income arose is credited against the imposed taxes in this case 0.

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Replying to davexyz:
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By richard thomas
29th Oct 2020 20:56

I'm getting a strange feeling that there is a parallel universe where the UK has a "dividend tax" about which I know nothing. All I know is that my dividends are chargeable to income tax and are charged at various rates including 0% on the first £x, depending on the year and at other rates were I to be sufficiently wealthy.

I would therefore like you to give me the statutory reference for the "dividend tax" and in particular for the deduction of it at source, presumably by the company paying the dividend, and for the technicality you mention that the rate for deduction is 0% for a non-resident.

I had thought that actual deduction of tax from dividends ended in 1973.

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Replying to richard thomas:
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By davexyz
10th Nov 2020 14:31

In answering this I assume that you may not be professionally qualified. I apologise in advance if you are. But if you are not;
1. Get an Accountant
2 Get Independent Tax advice as to the pros and cons of any tax election
This is not a DIY solution, and the advice from HMRC on such matters would be in the event of any enquiry/investigation of any Tax submission would be
1 Get an Accountant and
2 Get Independent tax advice
HMRC run a series of "tests" to ascertain non-resident status and the applicability of an Individual to avail of tax free allowances.

The relevant HMRC advice is for dividends associated to a resident
https://www.gov.uk/tax-on-dividends

Dividend Tax free allowance of £2,000 then rates of 7.5% for a basic rate and 32.5% and higher for higher rate band tax payers

For a non-resident they can elect that dividends be regarded as "excluded income" and therefore the tax would be nil
However the caveat is that if this election is made then there is a loss of the all UK personal allowances which can give rise to a tax charge. Therefore an analysis of the elements which give rise to the total income is required. NOTE Professional Tax advice should be sought to ascertain any potential benefit/disadvantage

So if you have rental income which is below the personal allowance (if they are applicable for this allowance , not all are) then if you elect to have dividends and similar income. disregarded you may end up paying tax from £0 on the rental profit.

If your only source of income in the UK is via dividends then make the election and the tax liability is zero

https://www.gov.uk/government/publications/non-residents-and-investment-....

I cannot emphasise enough
1. Get an Accountant
2 Get Independent Tax advice as to the pros and cons of any tax election

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Replying to davexyz:
My photo
By Matrix
10th Nov 2020 16:11

Hilarious. Out of all the posters on here, I would imagine that RT is the most qualified to know whether “dividend tax” is included in statute or not.

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Replying to Matrix:
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By frankfx
10th Nov 2020 16:35

Quote:

Hilarious. Out of all the posters on here, I would imagine that RT is the most qualified to know whether “dividend tax” is included in statute or not.

RT
Close company apportionment , deeming a dividend payment ''apportionment''.
a tax raid on retained profits .
that would be hilarious , not!

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Replying to davexyz:
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By Cheshire
10th Nov 2020 16:58

Quote:

In answering this I assume that you may not be professionally qualified. I apologise in advance if you are. But if you are not;
1. Get an Accountant
2 Get Independent Tax advice as to the pros and cons of any tax election
This is not a DIY solution, and the advice from HMRC on such matters would be in the event of any enquiry/investigation of any Tax submission would be
1 Get an Accountant and
2 Get Independent tax advice
HMRC run a series of "tests" to ascertain non-resident status and the applicability of an Individual to avail of tax free allowances.

The relevant HMRC advice is for dividends associated to a resident
https://www.gov.uk/tax-on-dividends

Dividend Tax free allowance of £2,000 then rates of 7.5% for a basic rate and 32.5% and higher for higher rate band tax payers

For a non-resident they can elect that dividends be regarded as "excluded income" and therefore the tax would be nil
However the caveat is that if this election is made then there is a loss of the all UK personal allowances which can give rise to a tax charge. Therefore an analysis of the elements which give rise to the total income is required. NOTE Professional Tax advice should be sought to ascertain any potential benefit/disadvantage

So if you have rental income which is below the personal allowance (if they are applicable for this allowance , not all are) then if you elect to have dividends and similar income. disregarded you may end up paying tax from £0 on the rental profit.

If your only source of income in the UK is via dividends then make the election and the tax liability is zero

https://www.gov.uk/government/publications/non-residents-and-investment-....

I cannot emphasise enough
1. Get an Accountant
2 Get Independent Tax advice as to the pros and cons of any tax election

Oh Davey
That has given me the best laugh all week. Superb.

Generally get an Accountant etc is good advice. But in this case, no.

Tip - look Richard up.
Tip 2 - check if 'dividend tax' exists. I think you will not find the answer you are expecting.

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Replying to davexyz:
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By richard thomas
10th Nov 2020 18:24

You assume correctly that I am not professionally qualified*, but why you should want to apologise for that I do not know. I would be interested to know what it was in my post of 29/10 @20:56 that led you to that conclusion.

I would also like to know why you think I might be making an election and be in need of an accountant’s advice as to the pros and cons.

Nor do I understand why you think I need to learn about the criteria for being resident or not or how I can avail myself** of tax free allowances. What have I said that leads you to this conclusion? And what does “HMRC run … tests” mean? I thought the tests were in the legislation which is not written or enacted by HMRC.

Turning to the rest of your reply of today @14:31, I am grateful to be told about the rates of tax on dividends, though quite what you mean by “associated to” I cannot tell. But if you mean dividends received by a resident I agree entirely. In fact I have recently looked them up when completing my own tax return.

But I’m afraid I’m going to query what you say about non-residents again, no doubt showing my lack of professional qualifications. But first I note that you have not produced any statutory reference or any other material to back up your claim that tax is deducted from dividends (first sentence of your post of 29/10 @19:35) or that the rate of deduction for a non-resident is 0%. You can’t say that you were referring, however awkwardly, to the tax rates on dividends because you contrast the rate of deduction with the rate of tax.

You say in your latest post that:

“For a non-resident they can elect that dividends be regarded as "excluded income" and therefore the tax would be nil.”

Where is this election to be found in law? The obvious place I thought of looking for it was, of course, section 811 ITA 2007. But that does not refer to an election or to “excluded income”. It is in mandatory, not elective, terms and sets an upper limit to the income tax that a non-resident person pays.
If a non-resident is in receipt of UK dividends in 2019-20 of say £20,000 and no other income and they claim personal allowances then their liability to UK tax is calculated under Part 2 ITA 2007 thus:
£
Dividends 20,000
Less PA 12,500
Step 3 income 7,500
Dividend nil rate £2,000 @0% 0
Dividend ordinary rate £5,500 @7.5% 412.50
Tax liability 412.50
Less tax deemed paid under s 399 ITTOIA 412.50
Amount due 0

Test this against s 811. The upper limit is the tax treated as deducted at source, ie £1500 (7.5% of £20,000) so as £0 is less than £1500, the liability is capped at £0.

I cannot emphasise enough that there is no need to make an election to have a dividend regarded as “excluded income”, if by that apparent quotation from a source you have not told us about you really means “disregarded income”, a term that is used in s 811 and elsewhere in Chapter 2 Part 17 ITA.

Nor can I see where the caveat, that an election to disregard dividends causes a loss of the personal allowance, comes from in the law. The two are not connected: an Irish national is entitled to the allowance (s 56(3)(za) ITA). Are you misreading the effect of s 811(5)(b)(i) ITA? That subsection concerns an exercise in finding amount B by setting counterfactual conditions. In the case above A is nil anyway because there is no income which is not disregarded.

I have examined the HMRC Helpsheets HS300 to which you gave a link. Paragraph 2 says:

“With the exception of income from property in the UK and investment income connected to a trade in the UK through a permanent establishment, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances won’t be given against other income. This restriction doesn’t apply in the overseas part of a split year.”

That may be the effect if the tax charge is limited by s 811 but that is not the case in my example above, and it won’t be the case unless the dividend is really big, enough to wipe out the personal allowance anyway. Why do you think that reduction to nil of the personal allowance applies in a case where the tax liability is £0?

I have run my figures above through the working sheet linked to from paragraph 1 HS 300 and got the same result as above.

If I was ever in this position myself I would not take professional advice, least of all from you (I assume you are professionally qualified), because I am sufficiently confident in my ability to construe tax law and to know that you are wrong about the election. Don’t you think that both the law and HMRC’s website would mention the election if it existed? Again you are welcome to prove me wrong by reference to material that can be verified.

You are also wrong when you say:

“So if you have rental income which is below the personal allowance (if they are applicable for this allowance , not all are) then if you elect to have dividends and similar income. disregarded you may end up paying tax from £0 on the rental profit.”

Suppose in the case above there was also £5,000 rental income. The calculation is this:
£
Dividends 20,000
Rental income 5,000
Less PA 12,500
Step 3 income 12,500
Basic rate 0
Dividend nil rate £2,000 @0% 0
Dividend ordinary rate £10,500 @7.5% 787.50
Tax liability 787.50
Less tax deemed paid under s 399 ITTOIA 787.50
Amount due 0

Test this against s 811. The upper limit is the tax treated as deducted at source, ie £1500 (7.5% of £20,000) plus tax on £5,000 rental income ie £1,000 so as £0 is less than £2500, the liability is capped at £0.

As to your statement that “if your only source is UK dividends make the election”, can you tell me how I make it? Where is it to be done, eg in the tax return? If so where in the SA106 non-resident pages?

As I said I’m always happy to be proved wrong, but assertion or belief (your posting of 24/2/20 on another thread) will not do to disprove what I am saying.

*I’m being slightly economical with the truth here.

I am a fully trained Tax Inspector who served for 37 years in the Inland Revenue and then HMRC. I was responsible in my time there for the enactment of about 700 pages of primary legislation in 19 Finance Bills and 115 statutory instruments on subjects as diverse as life assurance companies (my main interest), loan relationships, forex and derivatives, offshore funds and REITs, structured finance, repos and stock lending, the introduction of IFRS in UK tax law and much anti-avoidance legislation.

This experience of working closely with Parliamentary Counsel and of litigation in large cases, eg Scottish Widows v HMRC where £1bn of losses were at stake, was sufficient legal experience to convince the Senior President of Tribunals (Lord Justice Sullivan) to make me a judge of the First-tier Tribunal (Tax Chamber) from which office I retired in February 2019. I also write academic papers on tax and sit on the Tax Law Reform Committee of the Institute of Fiscal Studies.

** Not being from Ireland I instinctively put the reflexive pronoun after “avail”. Might you be the OP?

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Replying to richard thomas:
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By frankfx
10th Nov 2020 23:07

RT
Brilliance bounced off every line.

An image of great Peter Cook came to mind:

" I could have been a Judge, but didn't have the Latin"

Sapere aude !

Thank you for yet another insightful and incisive contribution.

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Replying to davexyz:
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By Wanderer
10th Nov 2020 19:54

Quote:

In answering this I assume that you may not be professionally qualified. I apologise in advance if you are. But if you are not;

!!! Are you seriously making that comment to Judge Thomas!
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Replying to davexyz:
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By Paul Crowley
10th Nov 2020 21:37

Wow
We all make mistakes and assumptions
But this is one of best

https://www.accountingweb.co.uk/tax/personal-tax/tribunal-no-evidence-tr...

This has become a strong theme in recent FTT judgments, especially those of Judge Richard Thomas, who appears to have set himself the task of holding HMRC officers to the same high level of compliance which HMRC routinely expects of taxpayers.

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By Youareatit
30th Oct 2020 06:56

Quote:

One of my clients operates a UK PSC and is paid via a mixture of wages and dividends. All work is completed in Southern Ireland and he is resident in Ireland and has been for the last 5 years.   

As he is receiving the dividends from a UK company my understanding is that he needs to pay dividend tax in the UK. However, he will then need to pay Dividends tax on the same dividends in the South. It is my understanding there is no DTR on this and the 10% credit which used to exist is no longer available. Is this correct? Or, as he is not a UK-Res, will he be exempt from UK dividend tax and only subject to dividend tax down south?

I have been getting different answers to this wherever I look. I have called HMRC to confirm and they were as helpful as ever...

Any clarity would be greatly appreciated. 

''I have called HMRC to confirm'' - hahahaha. Crazy idea asking HMRC to confirm anything over the phone.

''I have been getting different answers to this wherever I look'' - so if you get another different answer on here, what will you do?

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By Bobbo
30th Oct 2020 11:40

Quote:

Southern Ireland 

Which decade are we in here?

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Replying to Bobbo:
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By gphemy
30th Oct 2020 12:09

Decade? Or century?

OP probably means Irish Free State, cut him some slack.

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Replying to gphemy:
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By richard thomas
30th Oct 2020 14:09

Use of the term "the South" is indicative to my mind that the poster is from Northern Ireland, which makes sense given the facts as described. But I may be wrong.

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