French dividends against UK dividend allowance instead of withholding tax

bd10

Hi all,

Got a question regarding holding company shares abroad. So, here's the scenario:

I am interested in buying shares in a French company and to hold them not via an ISA/SIPP but directly via their corporate shareholder service. The rationale: to get shareholder perks I need to be on the shareholder register and I learned that UK brokers/investment providers could not get me registered there.

Now, dividends are subject to the 12.8% French statutory rate as I am not a resident in France. As we have a double tax treaty, is there a way of not having to pay the withholding tax on the French side and be taxed on the UK side instead? I was hoping I could apply the dividend income against my UK dividend allowance of £2k, so no tax on the dividends at all (my expected dividends from them are below the £2k threshold). Is this possible? An alternative might be to claim the withholding tax back when I do my income tax return. But this sounds even to me a bit too optimistic.

Any pointers most welcome!

Thanks

masonic

Since, as you say, it is a French statutory withholding tax, it is up to the French government under which circumstances it is paid. If they have an exemption, such as that non-residents who live in the UK don't have to pay it by way of a double taxation treaty, then you'd need to apply to your French corporate shareholder service to have the exemption applied. If there is no such exemption, then you have no choice but to pay it.

Moving on to the UK side, a double taxation treaty is there to stop you being taxed twice on the same earnings, so the tax you have paid to France will be taken into account when considering if you have any additional tax liability in the UK. You will not be able to get a refund for tax you have had to pay to France if it turns out you have a lower UK tax liability on the same income. In other words, your foreign tax bill will not be picked up by other UK taxpayers.

This would be the relevant part of the double taxation treaty:

ARTICLE 11 DIVIDENDS

1. (a) Dividends arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

(b) Subject to the provisions of sub-paragraph (c) of this paragraph, any such dividends as are mentioned in sub-paragraph (a) of this paragraph may also be taxed in the first-mentioned State, and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/496672/france_dtc_-_in_force.pdf

bd10

Thanks masonic!

bowlhead99

Masonic has covered it but if it helps to clarify:

- you will have French tax withheld on your French income as you're not a French resident

- you can knock that French tax off your UK tax bill on the same income, to avoid being double taxed

- if you don't have a UK tax bill on the same income because the UK tax is at 0%, you won't be able to have your French tax knocked off the bill

- if you do have a UK tax bill on the same income but it's only at 7.5%, you can use your French tax bill at 12.8% to reduce it down to zero but not below that (HMRC can't refund you the excess French tax you paid over and above UK rates, as they don't have that money, the French have the money).

If you prefer, instead of reducing your UK tax bill on the gross amount by the French tax paid on the gross amount, you could net the French tax off the gross amount and choose to pay your UK tax on the lower net amount. In some niche situations this may produce a better result.

bd10

Thanks for the clarification. Back to the drawing board, have some thinking to do, whether the perks outweigh the 12.8% tax plus admin hassle by a good margin.

bowlhead99

bd10 said:

whether the perks outweigh the 12.8% tax plus admin hassle by a good margin.

It shouldn't be much of an admin hassle - if you are already doing a tax return, then recording an extra figure on it (which will be a figure you can find quite easily from your bank statement or the corporate brokerage account) is not too tricky. 

If the dividend is (e.g.) 2% a year and the tax is 12.8% of that 2%, the performance drag is a quarter of a percent of the value of your investment each year.  Many people hold investment funds on a fund platform that charges them a quarter percent a year and, although the platform fees are unwelcome, they don't mind them as part and parcel of doing the investment because the fund is giving them some useful benefits (easy diversification across underlying equity investment holdings, etc). 

So if you're giving up a quarter percent of the value of your investment each year as a drag on performance to get some unspecified perks, It's probably not the end of the world.