tax on foreign income - am I applying the rules correctly?

appel42

I'm German and moved to the UK in 2009 and have been resident here ever since and am now considered a resident in the UK and employed here and pay PAYE tax here. However, I still have investments in Germany (stocks/shares/funds) that I have had since before 2009. I am now at a stage where I am considering selling them and moving all my money to the UK. Obviously the issue of taxation arises. Under german law the income would be more or less exempt from taxation under particular rules here. However, as a resident in the UK HMRC will obviously be interested in this income. I did some research around taxation of foreign income in the UK (using mostly the "foreign income" page on the gov website) and wanted to check if I have interpreted and applied these rules correctly for my situation.

My foreign income consists of:

- dividends from my investments (that I have been getting regularly since before 2009). However, these are less than £300 a year and I understand that up to £300 a year from foreign dividends is tax free and need not be declared
- possible capital gains tax from the future sale of my investment. This is more problematic as this is currently quite a lot of money that I stand to gain potentially. I understand that capital gains are taxed in the country of residence (i.e. UK in my case) under their rules. I then understand that the UK capital gains tax allowance is £11,500. Would this mean I could sell parts of the shares each year as long as each year the gains from sales are under £11,500 and thereby not need to pay any tax?

It kind of feels like there should be more to it, but maybe it is this simple? Does anyone with knowledge or experience in this area have any comments or detects flaws in my research?

Spidernick

As things currently stand, even though you have been here since 1999, if you are 'domiciled' outside the UK (as seems likely, assuming you were born outside the UK to German parents) then you can claim the Remittance Basis of taxation and only pay UK tax on the dividend income if it is brought into the UK:

https://www.gov.uk/tax-foreign-income/non-domiciled-residents

Without wishing to go into the complex rules for non-UK domiciles, once you start realising capital gains, things then change, as you then breach the £2,000 limit under which there are no issues. In that UK tax year you should then file on the Arising Basis, declaring your worldwide income and gains and the Capital Gains Tax issues at #2 would then need to be considered.

I hope this helps.

appel42

Is it my choice though to go through remittance basis?

I am thinking that if I declare dividends and capital gains tax as normal foreign income that will then be taxed under UK rules, it would mean that I have up to £5000 tax free allowance on dividends (which is way more than i actually got through dividends) or - before april 2016 - a 0% tax on dividends as a non or basic rate tax payer (which i always have been). I.e. under these rules I should not be suject to UK tax on any dividends at all (of course these have been taxed already in germany, but I understand under the double taxation agreement that this tax is capped at 15% and I may be able to claim any tax above that back from the german authorities, but that's a different isue)

In terms of capital gains my plan was anyways to sell bit by bit, rather than all at once to gradually move in order to gradually move my money to the UK and invest it here. To be fair I have not that much more than the annual CGT allowance. Again, the taxation I am subject to under german rules is a different issue that I am looking into seperately.

I will be doing a self assessment return after this tax year and of course declare all of this income, but as the above I should not be subject to any UK tax from either dividends of capital gains as both fall within the respective allowances or am I missing something?

jennifernil

I think you are interpreting things correctly, the remittance basis is not something you should consider.

Yes, you can sell your investments so much per year and that way stay under your annual CGT allowance.

Cook_County

You'll also need to decide if any of your German investments might be in non-reporting funds, where gains would be taxable as offshore income gains.

appel42

Cook_County wrote: »

You'll also need to decide if any of your German investments might be in non-reporting funds, where gains would be taxable as offshore income gains.

Okay, I had a look at this and none of my funds are listed as reporting funds.

However I found that there is a third category, transparent funds?

This states that:

(1) Transparent funds. If the income is taxable on the participators as relevant foreign income as it arises, disposals are not covered by the offshore income gains rules.


Another website states:
The main characteristic of a reporting fund is that the investor is subject to income tax on any income arising in the fund regardless of whether it was distributed to the investor or not. On the other hand, in the case of a non-reporting fund, the taxation of income is limited to that which is distributed.


All the regular dividends that my funds have produced have been taxed, but not distributed to me, but instead been put back into the fund. So wouldn't it be a transparent fund?

Cook_County

It is not possible to do what you are thinking. Parliament intended such gains to be subject to UK income tax. The correct time for planning would have been before you moved to the UK. https://www.taxation.co.uk/Articles/2016/11/15/335652/caught-you

appel42

Cook_County wrote: »

It is not possible to do what you are thinking. Parliament intended such gains to be subject to UK income tax. The correct time for planning would have been before you moved to the UK.

meh, okay.. it was money my father had invested for me before i was even an adult so not that i could've done or known anything about this.. so it's all taxable at 20% basic rate, rather than CGT? can i still split it over several years as to not fall into the higher income tax rates?