HMRC Self Assessment, 2016-17 - Foreign Income (Dividends)

I've just started my self assessment tax return for 2016-17, and have foreign income to declare (US Stock dividends). The dividends have been taxed in the USA, at the rate of 15%. Using the HMRC online return, in the foreign income section, I choose the option to claim Foreign tax credit relief, and enter the tax rate of 15%.
On viewing the tax calculation, the foreign dividends have been taxed as follows (I am a basic rate taxpayer):

Dividends from foreign companies: £7,522
Nil rate £5,000 x 0% £0.00
Basic rate £2,525 x 7.5% £189.37

If I go back to the foreign income section and choose not to claim foreign tax credit relief, the tax calculation now shows as:

Dividends from foreign companies: £6,393 (i.e 85% of £7,522)
Nil rate £5,000 x 0% £0.00
Basic rate £1,396 x 7.5% £104.70

So I pay almost £85 more tax if I choose to claim foreign tax credit relief compared with not claiming it???
"You were only supposed to blow the bl**dy doors off!!"
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Comments

  • Hi maninthestreet.


    I am just starting my paper tax return and have been studying the conundrum of FTCR since the change of rates etc for 2016/17.

    I have been reading the updated notes from HMRC, particularly SA106-notes-2017 and HS263_FTCRWS_2017.

    If you have paid US withholding tax at 15% equal to £1129 it exceeds the UK tax for which you are liable. Since your UK tax liability on funds received in the UK is £104.70 then the FTCR is limited to £104.70.
    If you declare the funds received as gross then the UK tax liabilty rises to £189.37 and so does the FTCR. In both cases the FTCR cancels out the UK tax liability.
    If you are a higher rate tax payer then the figures will be quite different.
    If your total dividends were less than £5000 and your UK tax liability was therefore £0 then it looks like you say goodbye to the FTCR since it is the lower of the UK tax liability and the withholding tax.
  • maninthestreet
    maninthestreet Posts: 16,127
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    Thanks for responding.
    The point I was trying to make is that FTCR does not seem to get applied when I tick the box asking if I wish to claim FTCR - the £1129 US withholding tax I have paid is ignored completely, and I have an additional UK tax liability of £189.37 to pay.
    When I un-tick the box asking if I wish to claim FTCR, the £1129 US withholding tax I have paid is deducted from the gross amount of the dividends (£7522), leaving £6393 to be subject UK tax, giving an additional UK tax liability of £104.70 to pay.
    So I still have to pay either an additional £104.70 or £189.37 of tax to the UK government on top of the £1129 I have already paid to the US government.
    "You were only supposed to blow the bl**dy doors off!!"
  • EdSwippet
    EdSwippet Posts: 1,584
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    Are you following the process through to the end, or just viewing an intermediate figure?

    Based on my experience last year -- I have not yet embarked on my 2016/17 return -- HMRC's online self-assessment computes an 'Income tax charged' value before applying FTCR, and only applies it when you get right through to the end and into the 'view your calculation' step. It does apply it very visibly, though; in the final calculation you should find something like this (numbers fictional, of course):
    Income Tax charged £10,000.00
    minus Foreign Tax Credit Relief £1,129.00
    Income Tax due after allowances and reliefs £8,871.00
  • maninthestreet
    maninthestreet Posts: 16,127
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    EdSwippet wrote: »
    Are you following the process through to the end, or just viewing an intermediate figure?

    Based on my experience last year -- I have not yet embarked on my 2016/17 return -- HMRC's online self-assessment computes an 'Income tax charged' value before applying FTCR, and only applies it when you get right through to the end and into the 'view your calculation' step. It does apply it very visibly, though; in the final calculation you should find something like this (numbers fictional, of course):

    Yes, I'm proceeding to the end and into the 'view your calculation' step - that's where I got the figures from in my opening post. There is no reference to 'Foreign Tax Credit Relief' anywhere in the calculations.
    "You were only supposed to blow the bl**dy doors off!!"
  • maninthestreet
    maninthestreet Posts: 16,127
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    Is FTCR the same as 'Dividend Tax Credit'?
    HMRC form HS263 for 2017,

    https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet

    states:

    "Foreign dividends will no longer qualify for UK dividend tax credits and there will no longer be the need to gross-up any qualifying dividend when working out the UK tax due."

    "Dividends received on or after 6 April 2016 no longer qualify for a dividend tax credit. From that date, you won’t pay tax on the first £5,000 of dividend income you receive (the dividend allowance). You’ll pay tax on dividends above the dividend allowance at the following rates:

    7.5% on dividend income within the basic rate band
    32.5% on dividend income within the higher rate band
    38.1% on dividend income within the additional rate band

    You should return all of your dividend income, even if it is less than £5,000 because it will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance."
    "You were only supposed to blow the bl**dy doors off!!"
  • EdSwippet
    EdSwippet Posts: 1,584
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    Is FTCR the same as 'Dividend Tax Credit'?
    No, they're separate. How they might interact with each other and with the new dividend tax allowance introduced in 2016/17 I've no idea, but overall it seems to me that you should get at least some FTCR here.

    Worst case I suppose you might lose some of credit if the dividend falls into the allowance (not sure, haven't even tried to understand this part of things yet), but I can't see any justification for your tax going up if you claim FTCR versus not claiming it -- that's just perverse.

    Don't know, then. You'll probably want to have this out with HMRC. Bug in HMRC online self assessment? It'll be interested to hear what you find out (if anything), as I will probably be facing this myself in a few months.
  • I have also just started my 16/17 tax. I have just entered my data into the HMRC online return and don't understand the result. I also have foreign dividends.

    I have used TaxCalc for a number of years. I started when the online return did not handle foreign dividends but continue because I like to use TaxCalc to do as trial / check run before I enter the data online.

    In the past the result from TaxCalc has always agreed exactly with the result from the HMRC online form.

    This year they disagree significantly, to the extent that TaxCalc calculates that HMRC owes me a few hundred pounds, while the online forms calculates that I owe HMRC over a thousand pounds. Whether the FTCR box is ticked makes some difference but does not get HMRC to match TaxCalc.

    I have tried to do the calculation manually, but I can't find enough information do be certain of the correct procedure. As dividends are taxed at a different rate to other income, the order in which they are added to the pile must matter. I have tried a number of different alternatives, but none come close to agreeing with the HMRC number.

    My current strategy is to wait for a while in the hope that things get sorted out. If not, I may have to consider finding an accountant with relevant experience to help.
  • I have now resolved the discrepancy between TaxCalc and the HMRC form.

    The difference is because the HMRC form no longer automatically calculates the Foreign Dividend Tax credit value and sets it to zero. It then asks you if you are happy with the value of zero and if not provides access to a calculation form so that you can calculate it yourself. TaxCalc does this for you automatically.

    When I calculate the FTCR value and enter it into the HMRC form, it gives the same answer as TaxCalc.
  • Hi All ,
    I came across this thread after pulling my hair out for hours on the self assessment form . Like others I have been doing this for years and previously the HMRC site always correctly calculated foreign tax relief correctly. However , not it seems to be defaulting to 0 and asking you to calculate yourself if you don't believe them.

    Did anyone manage to get to the bottom of this , have the tax rules changed ( from a quick google I don't believe so ) , or has anyone spoken to anyone at HMRC who would be able to shed light on this ?

    Thanks!
  • wclifford wrote: »
    Hi All ,
    I came across this thread after pulling my hair out for hours on the self assessment form . Like others I have been doing this for years and previously the HMRC site always correctly calculated foreign tax relief correctly. However , not it seems to be defaulting to 0 and asking you to calculate yourself if you don't believe them.

    Did anyone manage to get to the bottom of this , have the tax rules changed ( from a quick google I don't believe so ) , or has anyone spoken to anyone at HMRC who would be able to shed light on this ?

    Thanks!

    No it's wrong again this year as it was for last year. I have a client who has a property in Dublin and pays Irish tax on the surplus. The suggestion that the tax credit relief is zero appears and I calculate it myself without problems.
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