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Non resident UK citizen now living in New Zealand

Is there any liability for addn 7.5% dividend tax

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A shareholder of a UK company has asked me if he has any liability for the additional 7.5% dividend tax.

My repsonse was no, he needs to declare the income on his NZ tax return, is this correct?

He then mentioned that he has rental incomef rom a UK property that he declares on a UK tax return. This doesn't feel right to me, if he is uk non-resident, now lives in NZ he should be declaring all his worldwide earnings on his NZ tax return, is that correct?

 

Many thanks

Replies (9)

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By Ruddles
23rd Jan 2017 12:46

Does this ring any bells? Non-Resident Landlord Scheme.

There also used to be agreements between certain countries that set out how and where various profits and gains etc should be taxed, and to stop such items being taxed twice. If only I could remember what they were called ...

But, yes, you are correct re the dividends.

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By Portia Nina Levin
23rd Jan 2017 13:05

Nope. He is still liable to UK tax on his UK source income, subject to:
- the terms of the UK/NZ treaty in relation to the income concerned (UK rental income and dividend income can be taxed on both countries, with credit in NZ for the UK tax).
- the fact that non-residents do not get the first £5,000 of dividend income taxed at 0% IIRC.
- the limitation of liability for non-residents legislation, under which the UK PA is not given and the UK dividend income, and any other disregarded income, is not taxable).

EDIT: Started typing this earlier, before a meeting, and have now crossed with Ruddles, who is not entirely correct with regard to the dividends.

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Replying to Portia Nina Levin:
By Ruddles
23rd Jan 2017 13:22

Yes, I was a little quick off the mark. I had assumed that the OP was asking whether or not the individual would have to pay over the 7.5% tax.

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By Matrix
23rd Jan 2017 21:44

Since there is no UK withholding tax on dividends under domestic law then there would be no UK tax on the dividends.

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By Portia Nina Levin
24th Jan 2017 13:20

I am getting annoyed with this there is no UK tax on the dividends. There is.

Consider a UK national now resident in NZ with £50,000 of net rental profit (all properties unencumbered, so no interest to worry about) and £8,000 of dividends.

I make his tax liability (by default) to be £32,000 @ 20%, £7,000 @ 40% and £8,000 @ 32.5% (no £5,000 @ 0%, because he is not resident). That is a total of £11,800.

That liability is then limited to what it would be if he did not have a personal allowance, but also was not taxable on the dividend income.

That gives a liability of £32,000 @ 20%, plus £18,000 @ 40% = £13,600.

That is higher than the default calculation and so the limitation does not apply.

That means our individual does pay actual tax of more than 7.5%.

Subject to the amount of rental income, the limitation provisions MAY reduce the tax so that no actual tax is suffered in the UK on them. However, when they get taxed in NZ they will be treated as having suffered tax at 7.5%.

Now which part of that is it that everybody disagrees with?

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Replying to Portia Nina Levin:
By Ruddles
24th Jan 2017 14:02

ITTOIA 2005 s399

BTW, where does it say that a NZ-resident is entitled to the UK personal allowance? He may be, but I think you'd need to state your assumption in your calculations. EDIT -scratch that, I found the answer.

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By Matrix
24th Jan 2017 13:54

I don't understand why a non-resident would put the UK dividends on their UK tax return. Under the treaty the UK has the right to deduct withholding tax up to 15% from the dividend. Since there is no withholding tax then the UK tax deducted and payable is nil.

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Replying to Matrix:
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By Portia Nina Levin
24th Jan 2017 14:23

That is not quite what the treaty says, it says the tax charged by the UK (not just withholding tax) cannot exceed 15%.

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By Portia Nina Levin
24th Jan 2017 14:36

I accept Ruddles' point. I had read section 399 as giving a 7.5% credit for the purposes of DTR only, but it does also give a (non-repayable) credit against UK tax.

So, ignoring Matrix's point on the limitation of the UK tax rate for a minute, the default tax liability is £32,[email protected]%, £7,[email protected]% and £8,[email protected]% (32.5% - 7.5%) = £11,200.

That is still less than the limitation of liability calculation.

However, as Matrix notes, in the case of NZ the tax rate is limited to 15%, and so the default calculation is as above, but with the £8,000 of dividends charged to tax at an additional 7.5% (15% - 7.5%), giving a total liability of £9,800. Again limitation of liability does not apply, and the individual gets a 15% credit (rather than just a 7.5% credit) against his NZ tax.

Are we all agreed now?

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