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Split year treatment and UK dividends

How does a UK dividend get taxed on a split year?

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I hope someone can help with this, I am getting rather confused.

A client left the Uk to work overseas and under Case 1 of the SRT will be spliting 2015/16 tax year on 1/7/2015.  He is working is Switzerland.

At the end of September 2015 a £100k UK dividend was paid to the client, which grossed up is £111,111 - so there is a liability at 32.5% .  I believe that as a Uk dividend it should be declared on the TR, no limit of liability for non residents is available in a split year.  The treaty with Switzerland restricts the UK liability to 15%, so I understood that I would claim on HS304 that the UK tax is restricted to £111,111 @ 15% = £16,667.

However HS304 claim form suggests that the £11,111 is excluded from the tax return. 

Having read INTM343520 concerning UK dividends it appears to be saying that because 10% tax credit is less than 15% there is no further tax to pay?

So I am not sure if I should exclude the dividend income from the TR, as per HS304, and assume HMRC will eventually issue some sort of assessment for the 15% tax (or maybe INTM343520 does mean no tax due).  OR

On HS304 show the total Dividend tax calculated in column D and then the partial relief box (box 22) will reduce the dividend tax to 15%.

One issue with most guidance I have read it is aimed at non residents for a complete year, so because of the limiting rule generally it states there will be no UK tax on the dividends...... wish the dividend was paid the dividend AFTER 6/4/2016 when non resident; a bit easier.

I hope someone can help.  Thanks.

Replies (3)

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By Tim Vane
07th Jan 2017 02:40

Split year treatment is a concessionary treatment for UK tax and does not affect your tax residency for the purposes of a DTA. So under the terms of the DTA he is UK resident and any restrictions on taxability of UK source dividends do not apply. The dividend is therefore fully taxable in the UK, should be entered in the tax return as normal dividend income, and will be liable to tax at UK dividend rates. It should not be taxed in Switzerland.

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Replying to Tim Vane:
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By Mister E
08th Jan 2017 09:18

Since the Statutory Residence Test was introduced split year is via legislation.
Page 12 of the RDR1 confirms this https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
So taxed as a non resident from 1/6/2015, which in my view makes the DTA appropriate.

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Replying to Tim Vane:
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By Portia Nina Levin
08th Jan 2017 11:36

Split year treatment is statutory.

However, it does not alter a person's residence status. The individual is resident for the tax year, but is being taxed IN THE UK as if they are non-resident. That, by default, does not change the treatment of the dividends.

Then you consider the effect of the treaty, in relation to which split year treatment is of no relevance. The individual is considered to be resident under UK domestic law. If he is considered resident in Switzerland, we then look at the tie-breaker to determine his residence under the treaty.

Finally, we apply article 10, based on the residence position determined under the treaty, ignoring the statutory residence test. If he is determined to be resident under the treaty we will probably have to ignore the helpsheet, which does not cater for our specific situation (resident under UK domestic legislation, but not UK resident under the treaty).

That being said, I would expect the treaty tiebreaker to conclude the individual was UK resident in the split year. In that case, the dividend should not be taxable in Switzerland as Tim says.

That's my opinion. I have not done any research, beyond a cursory glance at the treaty.

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