Question about “foreign income”

[Tara]

Can anyone explain exactly what is meant by “foreign income” and “non-UK source income” with regard to a non-UK domiciled person who is tax resident in the UK?

For example, does it include dividends from UK shares that are held in a French bank/broker custody account located in France?

I have searched the internet but the answer is not very clear. I have read some sites that say “foreign dividends are those received from companies not resident in the UK.” But does this refer to the UK company that is paying the dividend to the bank/broker in France, or does it refer to the bank/broker company in France that is paying the dividend to their client?

For example, if a person with French domicile is tax resident in the UK, and they have a portfolio of UK shares (FTSE 100 shares) held by their bank/broker in Paris. And their annual dividend income from these FTSE 100 shares is for example £100,000.

Can this person claim the remittance basis for all of their dividend income from these UK shares?

If they do not remit any of this £100,000 dividend income to the UK, is this dividend income taxable or not taxable?

[genou]

Can anyone explain exactly what is meant by “foreign income” and “non-UK source income” with regard to a non-UK domiciled person who is tax resident in the UK?

For example, does it include dividends from UK shares that are held in a French bank/broker custody account located in France?

No. The broker is an intermediary. Reverse the situation - a US dividend channelled through a UK broker is still foreign income.

Can this person claim the remittance basis for all of their dividend income from these UK shares?

No

If they do not remit any of this £100,000 dividend income to the UK, is this dividend income taxable or not taxable?

Taxable.

[Lootman]

Can this person claim the remittance basis for all of their dividend income from these UK shares?

No

If they do not remit any of this £100,000 dividend income to the UK, is this dividend income taxable or not taxable?

Taxable.

Presumably those answers are only correct because these are UK sourced shareholdings. If instead they were Irish-domiciled ETFs or US-domiciled shares, then the remittance exemption can be claimed.

I would imagine than any foreign national considering becoming a non-dom UK resident would be advised to sell off any UK-sourced investments before becoming liable for UK taxation. Unless they planned to remit the dividends anyway.

[genou]

Presumably those answers are only correct because these are UK sourced shareholdings. If instead they were Irish-domiciled ETFs or US-domiciled shares, then the remittance exemption can be claimed.

Of course, but the OP asked about UK shares.

[Tara]

So is there any way in which a non-dom UK resident could claim the remittance basis for their UK sourced shareholdings?

For example, is it any different if the underlying UK sourced shareholdings are held or owned

a) by a bank/broker nominee account in France or in Jersey?
b) by a unit/investment trust located in UK?
c) by a unit/investment trust located in France or in Jersey?

And what happens if the unit/investment trust located either in UK or France/Jersey is invested in worldwide equities with a constant changing mix of UK equities?

Will the non-dom have to sift through the underlying shareholdings of the investment trust at the end of the tax year to calculate what part of their income was UK sourced and what part was non-UK sourced?

[genou]

So is there any way in which a non-dom UK resident could claim the remittance basis for their UK sourced shareholdings?

For example, is it any different if the underlying UK sourced shareholdings are held or owned

a) by a bank/broker nominee account in France or in Jersey?

This is the scenario already discussed, I think. I am not sure what you are thinking is the distinction between "held" and "owned". I am operating on the basis that the non-dom owns the UK shares and the account is merely a broker account.

b) by a unit/investment trust located in UK?

In this scenario the non-dom holds UK shares in the UK located UT/IT, and the holding is taxable in the UK on an arising basis -no remittance basis available.

c) by a unit/investment trust located in France or in Jersey?

These are non-UK holdings and remittance basis is available

And what happens if the unit/investment trust located either in UK or France/Jersey is invested in worldwide equities with a constant changing mix of UK equities?

Will the non-dom have to sift through the underlying shareholdings of the investment trust at the end of the tax year to calculate what part of their income was UK sourced and what part was non-UK sourced?

There is no sifting required. The non-dom either owns shares in a non-UK source, or a UK source. What that source owns is irrelevant. So if you go back to (b), if the UK UT/IT gets all its income/ gains by investing in non-UK shares, the non-dom has found a cunning way of converting non-UK income and gains into UK income and gains - i.e. they don't want to invest that way. As stated, the non-dom wants to hold non-UK holdings to get remittance basis.

An Irish ETF invested entirely in UK shares would be a non-UK source.

[Tara]

So is there any way in which a non-dom UK resident could claim the remittance basis for dividends that they receive from directly owned shareholdings in FTSE 100 companies?

And if the person stops being UK resident, would they have any UK tax liability on the UK dividends that they receive?

For example, does a person who is tax resident in France, and who receives annual dividends of £100,000 from UK FTSE companies, have any further UK tax liability?

[genou]

So is there any way in which a non-dom UK resident could claim the remittance basis for dividends that they receive from directly owned shareholdings in FTSE 100 companies??

Depends. A UK listing does not mean that the company is UK resident. For a UK resident company, there is no remittance basis. For a non-UK company paying a dividend in the UK ( even if to a foreign broker ) I don't know what view HMRC take on whether the initial payment of the dividend in the UK means that you cannot claim remittance basis.

And if the person stops being UK resident, would they have any UK tax liability on the UK dividends that they receive?

For example, does a person who is tax resident in France, and who receives annual dividends of £100,000 from UK FTSE companies, have any further UK tax liability?

I believe they could elect to have it treated as excluded income and it would not be taxed in the UK. That involves loss of all UK personal allowances, so other income might be affected.

[Lootman]

And if the person stops being UK resident, would they have any UK tax liability on the UK dividends that they receive?

For example, does a person who is tax resident in France, and who receives annual dividends of £100,000 from UK FTSE companies, have any further UK tax liability?

I believe they could elect to have it treated as excluded income and it would not be taxed in the UK. That involves loss of all UK personal allowances, so other income might be affected.

More generally, the UK has benign tax rules for foreign holders of UK shares. Not only is there no UK tax withholding on the dividends, but there is no UK capital gains tax for a UK non-resident.

Any UK-resident non-dom should simply avoid UK shares in my view, and for that matter avoid UK income as much as possible.