Tax on a US dividend

Remittub · 28 December 2018 at 9:38PM

I have just filled in my 2017/2018 Self Assessment. I filled in the foreign income section as I have shares in Dr Pepper Snapple (following the takeover of Cadbury) and included the amount recd and the (NRA witholding) tax paid.
Against this entry, in my tax calculation, it has the amount marked as "Amount not qualifying for UK tax credits". Why is this - I thought that we had a double taxation agreement with the US ? How do I get credit for the US tax paid ?

londoninvestor · 28 December 2018 at 9:56PM

What was your total dividend income for 2017/18, and how much UK tax are you liable for on it?

I'm speculating, but if this was under £5k, you'd have had no UK tax liability on your dividends, and this would indeed not enable you to claim a foreign tax credit. (In that scenario there is no UK taxation, so no double taxation.)

In general, Foreign Tax Credit is intended to bring you back to the position you would be in if you had to pay only the higher of the two countries' taxes, and not both.

So:

If both countries tax you and the US tax is more than the UK tax*, the tax credit effectively repays you the UK tax
If both countries tax you and the US tax is less than the UK tax, the tax credit effectively repays you the US tax
If only one country taxes you, no tax credit

["UK tax" means the difference between the total UK tax you'd pay with this item included, vs the total UK tax you'd pay with this item excluded. That can get a bit fiddly if it takes you across a threshold amount, because of the way different incomes interact.]

Dazed_and_confused · 28 December 2018 at 10:15PM

Out of interest what is the position if the op had other income of exactly £100k plus dividends of £5k.

So no tax due on the dividends themselves but the op would lose £2.5k of their Personal Allowance and incur additional tax overall of £1k.

So aneffective dividend tax rate of 20% but no actual dividend tax charged.

Is a tax credit available in this situation?

Remittub · 28 December 2018 at 10:15PM

Sorry - my mistake !! Apologies !

londoninvestor · 28 December 2018 at 10:23PM

Dazed_and_confused wrote: »

Out of interest what is the position if the op had other income of exactly £100k plus dividends of £5k.

So no tax due on the dividends themselves but the op would lose £2.5k of their Personal Allowance and incur additional tax overall of £1k.

So aneffective dividend tax rate of 20% but no actual dividend tax charged.

Is a tax credit available in this situation?

I'm not an expert (I've never been in one of these "edge case" situations, my only encounter with FTC has been when the UK tax from the income was significantly and obviously more than the foreign tax)... but as I understand it, the answer is yes.

If you have a look at HMRC's worksheet which demonstrates how to calculate the UK tax due on the amount (link), there's an item TC19 (towards the bottom left of the first page). This is labelled "Additional Personal Allowance due as a result of excluding the item of income in boxes TC6 to TC10" and looks like it's there to account for the scenario you suggest.

Dazed_and_confused · 28 December 2018 at 10:31PM

Thanks. I know it's not an everyday situation but that one, High Income Child Benefit Charge and Married Couple's Allowance cases can all have the same issue where dividend (and interest) income is concerned.

londoninvestor · 28 December 2018 at 10:33PM

Dazed_and_confused wrote: »

Thanks. I know it's not an everyday situation but that one, High Income Child Benefit Charge and Married Couple's Allowance cases can all have the same issue where dividend (and interest) income is concerned.

That's a good point - it's fiddly!