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UK dividends for Non UK Residents

UK dividends for Non-UK residents

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Position. Client UK citizen resident only in the USA. UK company pays him a salary of £8,500 and dividends for the rest.

I have been testing the calculations on my tax system for 2018/19. It appears from the tests that when his dividends reach about £46,275 his personal allowance disappears and is replaced by an exclusion of the dividends and thus tax at basic rate is charged on the whole of the salary. Before that change the client ends up with a basic and higher rate liability on the dividends relieved by 7.5% of the whole of the dividends. I am having difficulty finding the legislative basis for this. Normally the personal allowance doesn't suddenly disappear but only starts doing so when income exceeds £100k. Just to confuse me further The Double Tax Treaty seems to indicate at Article 10 2 (a) that if, in these circumstances, you own more than 10% of the dividend paying shares the UK cannot charge tax at more than 5% of those dividends.

Can anyone point me at the legal stuff involved and/or explain what is going on here?

 

 

 

 

Replies (8)

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By Matrix
14th Jun 2019 18:34

Why is he completing a UK tax return? This may explain the personal allowance: https://www.gov.uk/government/publications/non-residents-and-investment-...

There is no withholding tax on dividends so the extract from the dividend article is not in point.

Is it Director’s remuneration and are the duties performed in the UK? Has it been payrolled?

Thanks (1)
Psycho
By Wilson Philips
14th Jun 2019 18:48

The individual has the choice of claiming the personal allowance, in which case the dividends are not excluded income, or disclaiming it, making the dividends non-taxable. I haven’t checked the calculations (and I don’t understand the apparent tax credit) but it may be that the software is working out the point at which it is better not to claim the allowance.

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Replying to Wilson Philips:
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By Wanderer
14th Jun 2019 19:05

Wilson Philips wrote:

(and I don’t understand the apparent tax credit)

Section 399 ITTOI 2015.
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Replying to Wanderer:
Psycho
By Wilson Philips
14th Jun 2019 19:23

Of course - it’s been so long since I’ve had to deal with this that I’d forgotten that the credit remained for non-UK recipients.

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By Wanderer
17th Jun 2019 09:08

Double post.

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By Wanderer
14th Jun 2019 19:25

OP basically as Wilson says.

Exclude the dividends and you don't get the PA.
Therefore:-
£8,500 @ 20% = £1,700

Include the dividends and you do get the PA at which point the UK resident (normal) tax liability would be £5,175, however a non res gets a £46,275 @ 7.5% tax credit = £3,470, giving a net liability of £1,705.

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By Tim Vane
14th Jun 2019 20:56

My suspicion from the facts presented is that the whole basis for this tax return is incorrect and that neither the income nor the dividends are taxable in the UK, that no UK tax return is required and that all the income is taxable solely in the US.

The trouble is, far too many UK accountants don't understand the rules and so we have a US resident completing a UK tax return that is neither required nor correct, and they are therefore in addition paying for a tax service that they do not need.

Get a few of these each year inherited from other accountants.

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By Arbitrary
17th Jun 2019 18:35

Thank you you all for your valued comments and explanations.

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