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

MarquisBill

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.

###

The USA deducts 30% tax from dividends.
15% if you signed a W-8 BEN form (DTA) - I assume you did.
The UK wants to take another 7.5% Income Tax.

You are allowed to claim the lower of...
What the USA took, or, what the UK would take.
You lose the rest.

So in this case you can claim what the UK would take.
As it happens 7.5% is half 15%...
So you can claim half what the USA took, as FTCR.
Simple. Finished.

But, that's if your income falls in the basic band.
And if the dividends fall above £5,000 zero rate.

It is possible foreign dividends could fall in another band.
Or across bands.
Or across the £5,000 zero rate band for dividends.
Hence, HMRC says FTCR is £0, or you can work it out yourself!

However, the basics are pretty simple.
HMRC says your foreign dividends are your top slice of income.
That's a useful start.

It could be pretty clear if...
All your dividend income is under £5,000 in total or...
You have at least £5,000 in UK dividends too, and...
You are not within £5,000 (up or down) of a tax band threshold.
In that position your dividend rate should be obvious.

Typically you will be comparing...
0%, 7.5%, 32.5% or 38.1% for UK tax with 15% for the USA
You can claim the lower of the UK and US rates/amounts as FTCR
Many people will be able to work on just that basis.

Otherwise, you need to cut your income into slices.
As HMRC says, use the highest-taxing foreign country first.

For the first foreign country, take...
Whatever amount of dividend income reduces you to £5,000 of dividend income, or...
Reduces you down a tax band (i.e. takes you to the threshold).
Its whichever of those you hit first.

For that amount, this slice, decide...
Whether it is 0% rated for dividend income

If not, decide the tax band it falls in - so you know which UK dividend tax rate applies.

Decide which is lower, the UK tax or the foreign tax?
You can claim the lower as FTCR.

OK, that slice is dealt with.
So, reduce your foreign dividends and gross income by that amount.

Now repeat for the next slice of foreign dividends.
And so on.

You claim FTCR for each page/line of foreign dividends
HMRC will tell you its zero and ask if you agree
Say no, and you will get a very complicated page
Usually you can ignore that and just click next
You will see a box where you can just key in the amount.
Done! Tax saved.

There might be other issues, such as whether there is DTA, and whether that DTA has special provisions. But most people need not bother with that.

Bethany14

I'm looking for some urgent help on this. In May 2016 I received a dividend payment on my employee share plan - from a French company so foreign income. It was above £300 but below £5000. I believed at the time I needed to fill in a self assessment tax return form as I thought at the time you had to do this if you received over £300 from foreign income. Cut a long story short, I never returned the tax form as I later discovered the rules had changed from April 2016 and I now believe that as a UK resident I am entitled to a tax free dividend alowance of £5000 a year. Instead of advising HMRC I didn't need to complete a tax return I forgot about it and have just received a £100 fine for not returning the form! I am going to obviously appeal on the above grounds but can I just check that my thoughts are correct and I do have this tax free allowance even on foreign dividends . Help would be greatly appreciated

Lakeuk

Bethany14- your thoughts are correct, in applying for a tax return you’ve signed up to filling one in, even though it’ll come back as owing no addition tax. They’ll be in their right to still fine you but no harm in you making contact with them to explain the chain of events and ask what can be done. Also check if you need to file an tax return going forward.

Geoffrey_Coan

I've just been through the whole foreign income form on my tax return for the first time as I received a letter from HMRC advising me that they'd received information from the US tax office that I was receiving foreign income, and inviting me if I wanted to "correct my return".
Cutting a long story short I filled all the form in, but couldn't work out why I wasn't getting any benefit for the US tax I'd paid. Google led me to this article, and once I manually entered the tax paid value as a FTCR I could see the benefit of reduced tax.
*However*, I couldn't work out from the very technical HMRC forms whether there was a double taxation treaty in place for the US so I phoned HMRC to check. A technical advisor called me back today, and after going through my circumstances it turned out that as I was receiving scrip/stock dividends (i.e. additional shares) in lieu of a US $ cheque which would cost a fortune to pay into my UK account, these don't need to be declared on the foreign section of the tax return form, only actual money received.
This differs from UK dividends where both dividends and stock dividends are taxable, but for foreign dividends its only the former that go on the tax return.

bailes

I'm in the same situation as Maninthestreet and reading through this post there appears to be conflicting answers from Nautilus342 (UK tax liability on funds received in the UK is £104.70 then the FTCR is limited to £104.70) and MarquisBill (So you can claim half what the USA took, as FTCR.). Can somebody advise which is correct since depending on which route you take makes a significant difference.

londoninvestor

bailes wrote: »

I'm in the same situation as Maninthestreet and reading through this post there appears to be conflicting answers from Nautilus342 (UK tax liability on funds received in the UK is £104.70 then the FTCR is limited to £104.70) and MarquisBill (So you can claim half what the USA took, as FTCR.). Can somebody advise which is correct since depending on which route you take makes a significant difference.

Both Nautilus342 and MarquisBill have stated the governing principle correctly - i.e. the FTCR refunds you only enough to put you in the position you'd be if you paid the higher of the two countries' taxes.

When MarquisBill says "you can claim half what the USA took", this is referring to a specific scenario (US dividends received, after the deduction of 15% withholding tax, by a UK basic rate taxpayer over their £2,000 dividend allowance, who would therefore generally pay 7.5% on their dividends.)

The fact that 15% = 2 * 7.5% is really a coincidence of the UK and US tax rates in this scenario. There isn't a generalised rule that the FTCR is half the foreign tax.

bailes

Thanks for taking the time to respond.
Just to clarify though... When MarquisBill says "you can claim half what the USA took", wouldn't the US tax on the his dividend be around £1128 (£7,522x0.15) so, according to MarquisBill, FTCR would be £564 or am I missing his point?

londoninvestor

bailes wrote: »

Thanks for taking the time to respond.
Just to clarify though... When MarquisBill says "you can claim half what the USA took", wouldn't the US tax on the his dividend be around £1128 (£7,522x0.15) so, according to MarquisBill, FTCR would be £564 or am I missing his point?

MarquisBill's rule of thumb "claim half what the USA took" only applies in particular circumstances - i.e. US withholding tax of 15%, UK dividend tax of 7.5% on the whole dividend.

That would apply to a UK taxpayer who had filed a W8-BEN (to reduce US tax from 30% to 15%), was a basic rate UK taxpayer, and had used their whole dividend allowance (£2k now, but £5k in previous tax years).

If those conditions don't apply, "claim half the US tax" isn't a valid rule of thumb.

In post #3, maninthestreet says:

maninthestreet wrote: »

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.

We don't have the full facts, but my guess is that maninthestreet is a basic rate taxpayer with no other dividends (unlike the hypothetical taxpayer we just discussed, who had used up all their dividend allowance).

That would lead to a UK dividend tax figure of 7.5% * (£7,522 - £5,000) = £189.15 - which is very very close to the figure maninthestreet got.

Eleeson

We have had 15% tax withheld on dividends in the US. No other dividend income at all. Is it possible to reclaim this in any way through the FTCR as we should be paying 0%??

londoninvestor

Eleeson wrote: »

We have had 15% tax withheld on dividends in the US. No other dividend income at all. Is it possible to reclaim this in any way through the FTCR as we should be paying 0%??

You can't, because this isn't a case of double taxation.

(I'm assuming when you say you should be paying 0% tax that your total dividend income is under £2k, and also that it doesn't take you across any thresholds that impact your income tax, e.g. the child benefit tax charge).

The principle of FTCR is to refund you only enough to put you in the position you'd be if you paid the higher of the two countries' taxes. In your case, the higher of the two countries' taxes is the US's 15% - you've already paid that, so the UK won't charge you any more, but you won't get a refund.