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Dividend tax for UK non resident

Practical Issues
valueinvestor123
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Dividend tax for UK non resident

#411650

Postby valueinvestor123 » May 13th, 2021, 1:16 pm

Either the info is conflicting on this or the laws keep changing; but does anyone know whether one would need to pay tax on dividend income in UK. from investments held in UK? (via self assessment). I know tax is payable in the country of residence.
I thought only property income was taxable for overseas investors but I now read that income arising in UK is supposed to be taxed in UK. There is also something about "disregarded income" which I do not understand at all.
As I understand it, in 2016, the 10% tax credit was abolished (which may or may not have implication on a non UK resident with UK investments: this is what I am trying to work out).
Could someone with knowledge please clarify?
Thank you!
VI123

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Re: Dividend tax for UK non resident

#411688

Postby BBLSP1 » May 13th, 2021, 4:42 pm

Best to look at:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2020

It all depends on what other, if any, UK income you have.


In my case I have rental income and some bank account interest. For me, it works out that no tax is due on my dividend income (although tax is due on the rental income) and so for the dividends, as no tax is taken at source these days, all is square – no tax to pay, no refund due.

I have my Self-Assessment done by a UK based accountant, and this is what their software gives in my case.

As you note, the explanation of ‘disregarded income’ in the HMRC document is not well made, and needs careful reading a few times in the light of your own circumstances.

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Re: Dividend tax for UK non resident

#411846

Postby valueinvestor123 » May 14th, 2021, 9:56 am

Many thanks. I have read the link several times but my brain is not really comprehending it.
This part: "the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income."

Is there any tax deducted at source for the UK dividends? My understanding is that since they abolished the notional 10% tax credit in 2016, this cannot be used as tax deducted anymore.

I also still don't understand how the "disregarded income" comes into it or why there is a special category of income like this.
I understand one can elect being taxed as if one was resident (using personal allowance) or not. I basically wondered whether any tax was due in UK from anything above £14,500pa in dividends received (and no other income).
Thank you!


BBLSP1 wrote:Best to look at:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2020

It all depends on what other, if any, UK income you have.


In my case I have rental income and some bank account interest. For me, it works out that no tax is due on my dividend income (although tax is due on the rental income) and so for the dividends, as no tax is taken at source these days, all is square – no tax to pay, no refund due.

I have my Self-Assessment done by a UK based accountant, and this is what their software gives in my case.

As you note, the explanation of ‘disregarded income’ in the HMRC document is not well made, and needs careful reading a few times in the light of your own circumstances.

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Re: Dividend tax for UK non resident

#411914

Postby Alaric » May 14th, 2021, 1:11 pm

valueinvestor123 wrote:Is there any tax deducted at source for the UK dividends?


Property Income Distributions (PIDs) on REITs (Real Estate Investment Trusts) are paid net of 20% tax.

Would you regard them as a UK dividend ? The REIT websites usually do.

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Re: Dividend tax for UK non resident

#411916

Postby BBLSP1 » May 14th, 2021, 1:36 pm

For what it is worth, which may not be much, how I see it is that you can take the lesser tax bill of:

1. Tax applied to an expats UK income exactly in the same way as applied to a UK residents’ income

or,

2. Forego your personal allowance, but only pay tax on dividends equal to any tax deducted at source. As in nearly all cases no tax is deducted at source these days (exemptions may exist, e.g. REITs) there is generally in this case no dividend tax to pay. However, if you have e.g. UK rental income, there is no personal allowance available to set against this.

However, this is not how the calculation appears with my accountant’s software, and they cannot explain to me what is happening ‘under the hood’ – all I can say is that the SA returns made over the last several years have attracted no queries from HMRC.

I am by no means an expert at this, so the above is only offered for consideration. If someone can provide a better explanation, that would be appreciated!

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Re: Dividend tax for UK non resident

#411928

Postby valueinvestor123 » May 14th, 2021, 2:57 pm

Alaric wrote:
valueinvestor123 wrote:Is there any tax deducted at source for the UK dividends?


Property Income Distributions (PIDs) on REITs (Real Estate Investment Trusts) are paid net of 20% tax.

Would you regard them as a UK dividend ? The REIT websites usually do.


Yes I know. But I deliberately don't hold any REIT's outside of a tax shelter. The dividends I am talking about are all only UK ordinary dividends (from blue chip UK shares etc).

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Re: Dividend tax for UK non resident

#411930

Postby valueinvestor123 » May 14th, 2021, 3:03 pm

I think i understand what you are saying...however I would prefer not to count on HMRC's lack of curiosity if this is possible.

This part: "As in nearly all cases no tax is deducted at source these days (exemptions may exist, e.g. REITs) there is generally in this case no dividend tax to pay."

Are you saying that since there is no dividend tax at source, there is no more dividend tax to pay? This seems to contradict HMRC's guidance that "income generated in UK is taxed in UK" (or something tot hat extent).

I always assumed there was a 'loophole' wrt dividend income, if you will (due to the notional credit). but since it was abolished I cannot really find any clear info on how much I can receive before tax is attracted!

BBLSP1 wrote:For what it is worth, which may not be much, how I see it is that you can take the lesser tax bill of:

1. Tax applied to an expats UK income exactly in the same way as applied to a UK residents’ income

or,

2. Forego your personal allowance, but only pay tax on dividends equal to any tax deducted at source. As in nearly all cases no tax is deducted at source these days (exemptions may exist, e.g. REITs) there is generally in this case no dividend tax to pay. However, if you have e.g. UK rental income, there is no personal allowance available to set against this.

However, this is not how the calculation appears with my accountant’s software, and they cannot explain to me what is happening ‘under the hood’ – all I can say is that the SA returns made over the last several years have attracted no queries from HMRC.

I am by no means an expert at this, so the above is only offered for consideration. If someone can provide a better explanation, that would be appreciated!

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Re: Dividend tax for UK non resident

#411937

Postby BBLSP1 » May 14th, 2021, 3:35 pm

valueinvestor123 wrote:Are you saying that since there is no dividend tax at source, there is no more dividend tax to pay? This seems to contradict HMRC's guidance that "income generated in UK is taxed in UK" (or something tot hat extent).


Well, I'm not really saying anything!!

However, from the linked HS300 Section 2:

'The tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income.'

So, in other words, if you only have dividend income, you only pay what is deducted at source. If any tax is deducted at source, it is paid anyway, but more generally there is no tax deducted at source and so no tax to pay.

In short, as an expat I have not paid tax on dividends for the past several years as determined by my UK accountants and their software and (so far) no queries from HMRC.

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Re: Dividend tax for UK non resident

#411938

Postby valueinvestor123 » May 14th, 2021, 3:40 pm

ah that’s great then!
I somehow didn’t read it this way!
(It stresses me out reading these notices; they are always worded as if I have done something wrong or they are telling me off for something! I know, it’s probably just me..)
Any idea why HMRC gives non residents a much better deal on dividends but not on rental income? (Shhh, don’t tell them :roll: )

BBLSP1 wrote:
valueinvestor123 wrote:Are you saying that since there is no dividend tax at source, there is no more dividend tax to pay? This seems to contradict HMRC's guidance that "income generated in UK is taxed in UK" (or something tot hat extent).


Well, I'm not really saying anything!!

However, from the linked HS300 Section 2:

'The tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income.'

So, in other words, if you only have dividend income, you only pay what is deducted at source. If any tax is deducted at source, it is paid anyway, but more generally there is no tax deducted at source and so no tax to pay.

In short, as an expat I have not paid tax on dividends for the past several years as determined by my UK accountants and their software and (so far) no queries from HMRC.

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Re: Dividend tax for UK non resident

#412034

Postby 1nvest » May 15th, 2021, 12:44 am

Alaric wrote:
valueinvestor123 wrote:Is there any tax deducted at source for the UK dividends?

Property Income Distributions (PIDs) on REITs (Real Estate Investment Trusts) are paid net of 20% tax.

Would you regard them as a UK dividend ? The REIT websites usually do.

It's my understanding that the UK levies no dividend withholding taxes, but do on REIT type holdings/dividends (counted as interest and taxed 20%). The US for instance levies a 30% dividend withholding tax, reduced to 15% under UK/US treaty assuming a W8BEN has been registered with the US. Other countries levy varying rates https://www2.deloitte.com/content/dam/D ... -rates.pdf and where UK/other-country treaties might adjust those rates downward.

Not sure how it all currently stands however. For instance Ireland apply a 20% dividend withholding tax that when the UK was in the EU was null/void, but now we're outside of the EU might fall due, in which case as many ETF's are domiciled in Ireland that could become a tax liability ???

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Re: Dividend tax for UK non resident

#412088

Postby XFool » May 15th, 2021, 11:17 am

valueinvestor123 wrote:Many thanks. I have read the link several times but my brain is not really comprehending it.
This part: "the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income."

Is there any tax deducted at source for the UK dividends? My understanding is that since they abolished the notional 10% tax credit in 2016, this cannot be used as tax deducted anymore.

Oh dear!

As you say, for most ordinary UK shares: No tax has been "deducted at source" from dividends for about a quarter of a century now...
The "10% tax credit" was nothing to do with tax "deducted at source" (of dividend). I no longer have the energy or inclination to explain this further. :(

There are some dividends which are different. As explained above: REITS, & property companies (I think).

Sorry, I don't know enough to explain the particulars of your question beyond this.

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Re: Dividend tax for UK non resident

#412095

Postby Alaric » May 15th, 2021, 11:29 am

1nvest wrote:For instance Ireland apply a 20% dividend withholding tax that when the UK was in the EU was null/void, but now we're outside of the EU might fall due, in which case as many ETF's are domiciled in Ireland that could become a tax liability ???


Ireland went out of its way to attract financial services businesses to Dublin, partly as a means of boosting employment and reducing emigration. As a consequence I imagine Irish based ETFs have a special tax status. If they don't, there would be a rush for the exit which isn't happening.

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Re: Dividend tax for UK non resident

#412234

Postby 1nvest » May 15th, 2021, 6:20 pm

Alaric wrote:
1nvest wrote:For instance Ireland apply a 20% dividend withholding tax that when the UK was in the EU was null/void, but now we're outside of the EU might fall due, in which case as many ETF's are domiciled in Ireland that could become a tax liability ???

Ireland went out of its way to attract financial services businesses to Dublin, partly as a means of boosting employment and reducing emigration. As a consequence I imagine Irish based ETFs have a special tax status. If they don't, there would be a rush for the exit which isn't happening.

All very subjective. EU directives in effect kept the withholding taxes between member states at zero, but now being no longer part of that I suspect its the Irish/UK tax treaty, that along with the CTA is perhaps closer to being reviewed/dropped. More so if NI or even Scotland leave the UK.

Whilst zero rated presently, worth keeping Irish domiciled ETF holdings liquid IMO - not locked into the likes of a large capital gain tax liability if they were best sold, or otherwise trapped paying 20%.

The GFA/CTA were workable when both were under the same umbrella, but now in effect equates to a free movement back doorway into the UK from across the entire EU that at some point will have to be addressed as the EU ever converges and Ireland becomes just a EU state.

Another risk is that the UK could opt at any time to just drop EU based ETF's being reporting registered, to make them 'foreign' (non reporting registered) and where both capital gains and income are taxed as income, from the start date of having been purchased. That clause is a potential nasty trap IMO (if a reporting registered fund lapses with registration even for just a few seconds then then entire holding period for all investors reverts to being taxed as income). Perhaps more likely a change Labour might make, along with perhaps excluding non-reporting from ISA tax exemption so even holdings within ISA/SIPP would be 'converted' to income taxable. Much that same as how its no longer viable for UK investors to buy into US ETF's and where if you do then they're taxed as income.

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Re: Dividend tax for UK non resident

#412242

Postby XFool » May 15th, 2021, 6:52 pm

1nvest wrote:Much that same as how its no longer viable for UK investors to buy into US ETF's and where if you do then they're taxed as income.

Could you possibly expand on this, for those of us unfamiliar with the situation. It seems worth knowing about. (I do not currently hold any ETFs.)

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Re: Dividend tax for UK non resident

#412833

Postby 1nvest » May 17th, 2021, 9:44 pm

XFool wrote:
1nvest wrote:Much that same as how its no longer viable for UK investors to buy into US ETF's and where if you do then they're taxed as income.

Could you possibly expand on this, for those of us unfamiliar with the situation. It seems worth knowing about. (I do not currently hold any ETFs.)

Whoops. Should have read "Much the same ..."

Foreign funds have to be reporting registered (with HMRC) in order to be eligible for taxation as price appreciation = capital gains taxed, otherwise HMRC taxes all gains as being income taxable. Firms that are registered have to report to HMRC and being foreign many opt to NOT do so.

A few years back and you could still buy US ETF's relatively easily, however the EU put a end to that. The culprit being PRIIPs – a set of EU investment regulations designed to "protect consumers" (PRIIPs = Packaged Retail Investment and Insurance Products), that require fund providers (including ETFs) to produce a Key Information Document (KID) that enables investors to compare the risks, rewards and costs of different investment products. US-domiciled ETFs did not comply as they mostly serve the US market and producing EU-approved information at their own cost is/was not a priority.

When you look at KID's they're rather pathetic IMO, along the lines of as much value as the EU directive that enforced having to now 'click to accept cookies' seen when visiting most web pages.

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Re: Dividend tax for UK non resident

#412840

Postby XFool » May 17th, 2021, 10:25 pm

1nvest wrote:Foreign funds have to be reporting registered (with HMRC) in order to be eligible for taxation as price appreciation = capital gains taxed, otherwise HMRC taxes all gains as being income taxable. Firms that are registered have to report to HMRC and being foreign many opt to NOT do so.

A few years back and you could still buy US ETF's relatively easily, however the EU put a end to that. The culprit being PRIIPs – a set of EU investment regulations designed to "protect consumers" (PRIIPs = Packaged Retail Investment and Insurance Products), that require fund providers (including ETFs) to produce a Key Information Document (KID) that enables investors to compare the risks, rewards and costs of different investment products. US-domiciled ETFs did not comply as they mostly serve the US market and producing EU-approved information at their own cost is/was not a priority.

Thanks for the information.

1nvest wrote:When you look at KID's they're rather pathetic IMO, along the lines of as much value as the EU directive that enforced having to now 'click to accept cookies' seen when visiting most web pages.

I have seen KIDs as nowadays you need to have seen them, or agree you have seen them, when buying ordinary ITs.

That cookie thing is a pain in the proverbial. However, long ago I pointed out how I would prefer if browsers blocked all cookies by default and allowed the user to select in the browser which ones they needed or wanted. This user selection would then remain in place unless changed in the browser.

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Re: Dividend tax for UK non resident

#412927

Postby valueinvestor123 » May 18th, 2021, 11:08 am

XFool wrote:
valueinvestor123 wrote:Many thanks. I have read the link several times but my brain is not really comprehending it.
This part: "the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income."

Is there any tax deducted at source for the UK dividends? My understanding is that since they abolished the notional 10% tax credit in 2016, this cannot be used as tax deducted anymore.

Oh dear!

As you say, for most ordinary UK shares: No tax has been "deducted at source" from dividends for about a quarter of a century now...
The "10% tax credit" was nothing to do with tax "deducted at source" (of dividend). I no longer have the energy or inclination to explain this further. :(

There are some dividends which are different. As explained above: REITS, & property companies (I think).

Sorry, I don't know enough to explain the particulars of your question beyond this.


You don't need to explain it (and please save your precious energy). I know how it worked with the tax credits. I just didn't phrase it well. My question had nothing to do with the tax credits.

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Re: Dividend tax for UK non resident

#412984

Postby murraypaul » May 18th, 2021, 3:09 pm

1nvest wrote:When you look at KID's they're rather pathetic IMO, along the lines of as much value as the EU directive that enforced having to now 'click to accept cookies' seen when visiting most web pages.


They force openness about charges, shown in a consistent manner.
I have found that useful.

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Re: Dividend tax for UK non resident

#413036

Postby Alaric » May 18th, 2021, 5:46 pm

murraypaul wrote:They force openness about charges, shown in a consistent manner.
I have found that useful.


With ITs, if it borrows money, the interest on the borrowing is counted as an expense and added to the management charge. That's not a helpful presentation.


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