Many clients now have small amounts of foreign dividends from Santander etc which I put in the "foreign divs up to £300" boxes on the tax return. Now have a client with over £2K dividends from french & USA companies with 30% french tax and 15% US tax deducted. Trying to follow what I can claim from the Digest of Double tax Treaties - is it 5% over the treaty rate of 15% - so 20% for France? With the US dividends, do I claim what has been deducted - ie 15% or can I also claim the 5% excess - so claim 20%?
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The maximum you can claim is the treaty rate which I assume is 15% for both countries. Any excess tax withheld will have to be reclaimed.
"Where a percentage rate is shown it is the ‘treaty rate’. The relief from UK tax is the excess of the UK income tax over the treaty rate. The basic rate of UK income tax is 20%. So if (for example) the treaty rate is 15% then the excess of 5% tax is relievable if a satisfactory claim is made. "
The above note is in HMRC's digest of double taxation treaties and it seems to imply that you can claim more than the treaty rate if that is less than 20%.
Is that, by any chance, the bit of the digest that refers to double taxation relief for *UK* income received by *non-residents*?
As usual with HMRC it is clear as mud. I had always thought you just claimed the lower treaty amount hence my confusion with HMRC's digest which I looked up to get the treaty rate for France. I guess you claim the treaty rate on the UK tax return & then you may be able to claim back excess tax from the country who deducted it - US companies sometimes send though forms for this anyway.
And, in reverse, someone who paid (or, would but for the relevant treaty, pay) 20% tax in the UK, but is liable here at only 15% under said treaty, would be eligible for relief in the UK on the other 5% - as you have read in the Digest.
The withholding tax rate is capped by the treaty. The French can only charge your client 15% under the terms of the treaty, so if 30% has been withheld, you need (ie, your client needs, via a French adviser) to make a treaty claim in France to get some of it back. You say the US has only withheld the permissible 15%, so they've taken what's due. You can apply online to HMRC for a certificate of UK residence, which will be needed to make the treaty claim.
Are you sure the numbers you've given are correct? The normal French WHT rate for non-resident individuals is 12.8%, so you may find that the 30% withholding was 12.8% tax plus 17.2% social security levy. The social security is probably not due because of EU social security coordination rules, if your client is living and working at all in the UK, so a refund should probably be requested. The US rate for dividends paid to non-resident aliens is 30% (unless a treaty claim has been made to reduce it to 15%).
Assuming you've taken the £2,000 annual dividend allowance into account, you need to consider the UK tax rate on the dividend. You can only claim credit up to the tax that would have been payable in the UK on that income. If that's 7.5% of the gross dividend, that's the only tax credit you can claim. If it's 32.5% or 38.1%, you can claim to set off all of the foreign tax. Look at the HMRC helpsheet HS263 and the working sheet HS260 to work out the limit on what you can claim as a foreign tax credit.
The info I have from client, with the tax rates shown, is the annual report from his stockbroker with the tax certificate for dividends. Quite a bit of foreign income and the french dividends show 30% overseas tax and the US dividends have 15% overseas tax.
The French changed the rules in 2019, but the 'old' 30% (applicable to your 2018=19 return, I assume) was a flat 'tax' that was in fact tax plus social charges (prélèvements sociaux - PS). If your client is a UK resident, covered by the UK NIC scheme, there was no liability to the PS because of EU social security regulations. The rules have now changed (so that EEA foreigners pay more tax but no social security), and will probably change again for us because of Brexit, but I would suggest you or your client take some French advice about what exactly has been paid and how much can be reclaimed because there was no liability.