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Tax free dividends

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I have been asked by a client that runs a UK limited company if they move to another country for a period of time (longer than the tax year and not returning in a tax year) and no longer have residence in the UK if dividends paid to them from their UK limited company would be subject to UK tax. 

I am happy that the client would no longer be a UK resident (with some final checking) but what I am unsure about is the 'disregarded income'. Would the client still pay UK taxes even though they would no longer be a resident? The UK company does carry out a trade and it has a permanent establishment in the UK only. There is another director based in the UK.

Thought I would ask here before recommending the client to approach KMPG or the like, and it does make a change from all the MTD threads.

Replies (10)

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By David Ex
02nd Sep 2021 20:29

Don’t know but obviously considerAtion needs to be given to liabilities in the then country of residence.

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Replying to David Ex:
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By creamdelacream
02nd Sep 2021 20:33

Agreed, but let's assume for now there is no liability in the new country of residence, so double taxation agreement is irrelevant

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By GR
02nd Sep 2021 20:46

I think there is a 5 year temporary non-residence rule to counter disregarded income. But assuming they are going to be non-resident for at least 5 full tax years then I think the dividends would not be taxable in the UK. I believe Sir Phillip Green's wife (who owns the clothing empire) lives in Monaco and received a £1 billion pound dividend tax free a few years ago as she is a long term non resident.

Also, I think you have to take the dividend in the tax year you are non-resident, i.e. you can't rely on split year treatment.

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By BIGWAL
02nd Sep 2021 23:12

I seem to recall that in such circumstances dividends can be received free of UK tax, but they would then lose any UK PersonL Aĺlowance. As a result any UK income (e.g. Rentals, Pensions etc) would be fuly taxable

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By leeanthonyblackshaw
03rd Sep 2021 07:48

Have a read of ITA 2007, 812A, to see if applies to the plan, including the limitation in subsection (5).

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By Cazzie B
03rd Sep 2021 10:26

None resident, lives in Monaco

Dividends from foreign companies £4,860.00
Dividends from UK companies £1,083,649.00
UK pensions and state benefits £5,780.00
Total income received £1,094,289.00
minus
Income excluded from this calculation £1,092,465.00

Total income on which tax is due £1,824.00

Pay, pensions, profit etc.
Basic rate £1,824.00 x 20% = £364.80

Tax on income excluded from this calculation £81,273.67
Minus 7.5% tax treated as paid on dividends
from UK companies (not repayable) £81,273.68
Income Tax due after allowances and reliefs £364.79

Income tax liability (1) £318,447.92
Limit on liability to income tax (2) £364.79
Income tax liability limited to Lower of (1) or (2) £364.79

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Replying to Cazzie B:
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By Hugo Fair
03rd Sep 2021 14:14

I thought I only got confused trying to follow the big threads ...
... so are you also posting as creamdelacream?

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Caroline
By accountantccole
03rd Sep 2021 10:51

Need to consider the rules where they will be resident. Tax and social charges on UK dividends here in France (capped at 30%) so saving the 7.5% or using income disregard doesn't necessarily mean the global figures are lower.
Can be a planning opportunity for a long term move if there is a gap in when residency is deemed to end in the UK and starts elsewhere.
Also need to consider the company may have issues if the director remotely works. Having a UK based director helps but doesn't necessarily get rid of the whole issue.

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By richard thomas
04th Sep 2021 22:16

The question you pose “Would the client still pay UK taxes even though they would no longer be a resident?” can be answered as follows:

No.

Putting a bit more flesh on the bones, there is a charge to tax on UK dividends (and from what the OP says, the company remains UK resident) where the recipient is non-resident. Section 383 ITTOIA provides for this and Part 2 ITA sets out the rates on which dividends are charged.

However for the purposes of s 59B TMA, determining the amount payable, s 399(2) provides that tax is treated as paid at the dividend ordinary rate (DOR) on the dividend. Thus in a case where the liability on dividends is only at the DOR there is no tax payable. If the person would be liable at the higher rates on dividends then the operation of s 811 ITA (which is what I think BIGWAL had in mind) ensures that the tax payable is limited to the 7.5% deemed paid by s 399(2) and the higher rates in excess of that are not payable.

Section 812A ITA (as mentioned by leeanthonyblackshaw, and indirectly by GR) and possibly s 401C ITTOIA (though I cannot make head or tail of that section, especially the apparently mutually contradictory paragraphs (b) and (c) of subsection (1)) may be relevant but not in a year of non-residence. Liability under those sections only arises in the year of return to resident status where less than 5 years non-residence have passed since the last residence year.

I would add two comments on what other posters have said.

One, I do not follow what BIGWAL says about losing personal allowances on other income. We had a debate about this in the thread “7.5% tax credit for non-residents on UK dividend income” originally posted on 23 November 2020.

Two, like Hugo Fair I am mystified by CazzieB’s post. Where do these precise figures come from? Are they related to the OP’s client? Unlikely given the OP says the plan is in the future.

In any case there seem to be some errors or unexplained facts in the example, assuming it is intended to cover the tax position of a non-resident under s 811.

Why are foreign dividends mentioned? They are not taxable on a non-resident in any case.

We are told that the non-disregarded income, pensions and state benefits (what are these if not old age pension?), is £5,780 but the total non-disregarded income on which tax is due is £1,824. How? Possibly the pension was paid under PAYE, and £3,956 is the OAP, but an amount of PAYE is not included in the figure of £81,273 odd as that is exactly 7.5% of the UK dividends and is the deemed tax under s 399(2).

As to the calculations after “£364.80”, I assume that £318,447.92 is the liability to tax amount on the assumption that s 811 does not apply, ie is the amount which falls to be limited by that section, and it is the Part 2 ITA 2007 tax on the UK dividends plus the pension and state benefits.

But, on a slightly pedantic and moot point, why is the s 811 amount just £364.79? That amount B (s 811(5)) only. Amount A, which must be added to it, is an amount equal to the tax deducted or deemed to be deducted at source, which is £81,273.67. Thus the s 811 limit is £81,639.46. The actual amount deemed deducted is then deducted from the £81,639.46 at a later stage, after the liability to tax is calculated – see s 23 ITA 2007 and s 59B TMA 1970.

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Replying to richard thomas:
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By creamdelacream
05th Sep 2021 11:25

Thank you for the comprehensive answer. CazzieB's figures are not related to the clients, I assume they have used an example found elsewhere online.

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