Split year and dividends in foreign part of the year

crazyspaniard

Hi there.

I am Spanish, being in UK since late 2015. I am a sole trader working as digital marketer (affiliates, ads, etc. This is for another topic actually).

Well, soon I am planning to go to Spain, let´s say in September/October, and will stay there for more than a year, at least. So I would need to apply for split year and spend the following UK tax year in Spain. Ok.

The question here relates to dividend income. I have found information about Capital Gains, and I understood that you have to pay the tax here (UK) even if you sell the property in the foreign part of the tax year. Lets say I sell some stocks in December with 20,000 profit. I would need to pay the capital gains tax in UK, despite being in Spain.

However, I could not find a clear answer regarding the dividends issue. Will dividends be treated the same as capital gains?

In this case I have a dividend payment that is coming soon from a Spanish company. This is a dormant company that my father had from the past, which he put a 25% ownership for each member of the family, including me. Well, after a long story, my family decided to liquidate that limited and withdraw some of the old profits this year and the rest next year. 

For example, imagine I go to Spain in September and in December I get 60,000€ dividend income from this transaction. The Spanish Tax authorities will retain like 21% of that in January. Will the HMRC claim that I have to pay the tax for those dividends in UK?

Thank you amigos

Jeremy535897

Unfortunately they may be able to. Check the conditions in:
https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm12700

How this interacts with article 10 of the UK-Spain double tax agreement could depend upon the date on which you become resident in Spain, but the temporary non-resident rules will override this anyway, I fear:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507409/spain-dtc_-_in_force.pdf

More detail here:
https://www.bdo.co.uk/getmedia/9a110ced-e759-47f8-ad63-21e68d91956e/Tax-Journal-Temporary-non-residence-the-anti-avoidance-rules.pdf.aspx

crazyspaniard

Thanks for the links. 

For what I can see, I would need to pay for the dividends even if I get them while I am in Spain, as long as I come back to live in the UK in less than 5 years time. I am not sure how this would work out. I suppose that I would need to pay for the dividends first in Spain 21 or 23% and if I decide to come back in, for instance, in a couple of years, I should pay the difference (up to almost 34% dividend UK tax which would apply in my case due to my income). Unless the UK wants to tax me for the full 33.75%, in which case there would be double taxation since I paid the Spain´s tax years before that. That would be messy.

It could be the case by which I would not need to pay if the company profits where generated before I was UK resident. This I saw in the bdo article: "Only dividends out of profits arising whilst the shareholder was UK-resident would be". Although I think it would a mess trying to prove that the company had those reserves before year X (the year I started to be resident in UK). I would need to provide many year accounts and get them translated in English.

I think I will have to hire a tax lawyer eventually

Jeremy535897

I think you would always be able to claim the Spanish tax charged on the payment against the UK tax charge. At the very worst, it should be allowed as a deduction from the dividend.