UK dividend tax to pay on US shares (ongoing and historic)

temega463

Hello,

I could do with some forum wisdom on how to treat tax for some historic and ongoing dividend payments from owning US shares. Situation is as per:

• Shares were acquired more than a decade ago as part of compensation whilst working for a US firm.
• They are held by a US bank who also holds a cash account for dividend payments.
• Quarterly dividend payments have 30% US federal tax withheld at source.
• Initial payments were much less than yearly UK dividend allowance and small enough that I did not invest time into how to handle in the most efficient way.
• Thereafter I've ignored until now; I still own the shares and dividend payments continue.

The cash account is still quite small but not negligible and I wish to transfer to an interest earning UK account. But looking into this situation I now wonder how to treat as far as HMRC is concerned. In recent years the combination of a declining UK dividend allowance and my utilisation of it for some separate UK share dividend payments means there are several years where the US dividend payments have exceeded my UK allowance. I also am aware of a W-8BEN form which perhaps I should have been filing.

I would be grateful for advice on the following points:

1. How best to handle future dividend payment tax. I'm guessing I should fill in W-8BEN and receive a lower US federal tax charge. Do I also need to declare to HMRC and if so, are the payments just treated as regular dividends and charged at 8.75 / 33.75 / 39.35 %? Or are they treated differently?
2. How best to handle historic dividend payment tax. Is having 30% already withheld sufficient? Or should I have been paying HMRC as per above before now? If so can I compute what is owed (this will not be easy!) and pay as a one-off or as part of next yearly SAF completion
3. Anything else you think may be relevant most welcome.

Thanks in advance.

DRS1

Were you by any chance subject to the remittance basis of taxation while you held these shares?  That applies to UK resident but non-domiciled people and means that foreign income (like those dividends) which is not brought to the UK (remitted) was not subject to UK tax.

I think the tax treatment of non-doms may have changed so I am not sure how the more modern tax treatment would apply to those dividends.

As a separate question what is SAF?  Do you mean self assessment?  Have you been doing a self assessment in past years and left the dividends off of those forms?  I suspect that would not be good.

wmb194

temega463 said:

Hello,

I could do with some forum wisdom on how to treat tax for some historic and ongoing dividend payments from owning US shares. Situation is as per:

• Shares were acquired more than a decade ago as part of compensation whilst working for a US firm.
• They are held by a US bank who also holds a cash account for dividend payments.
• Quarterly dividend payments have 30% US federal tax withheld at source.
• Initial payments were much less than yearly UK dividend allowance and small enough that I did not invest time into how to handle in the most efficient way.
• Thereafter I've ignored until now; I still own the shares and dividend payments continue.

The cash account is still quite small but not negligible and I wish to transfer to an interest earning UK account. But looking into this situation I now wonder how to treat as far as HMRC is concerned. In recent years the combination of a declining UK dividend allowance and my utilisation of it for some separate UK share dividend payments means there are several years where the US dividend payments have exceeded my UK allowance. I also am aware of a W-8BEN form which perhaps I should have been filing.

I would be grateful for advice on the following points:

1. How best to handle future dividend payment tax. I'm guessing I should fill in W-8BEN and receive a lower US federal tax charge. Do I also need to declare to HMRC and if so, are the payments just treated as regular dividends and charged at 8.75 / 33.75 / 39.35 %? Or are they treated differently?
2. How best to handle historic dividend payment tax. Is having 30% already withheld sufficient? Or should I have been paying HMRC as per above before now? If so can I compute what is owed (this will not be easy!) and pay as a one-off or as part of next yearly SAF completion
3. Anything else you think may be relevant most welcome.

Thanks in advance.

HMRC doesn't care that you paid more than you had to by not completing a W-8BEN, it'll still only give you credit at the 15% level. If you are/were at the 8.75% dividend tax rate you won't have anything to pay HMRC. 

Unless perhaps you're claiming non-dom status, you always need to declare all of your worldwide income in your self assessment.

poseidon1

Previous posts suggest the OP maybe a 40% tax payer ( if not higher).  Therefore there maybe dividend tax due, notwithstanding the 15% tax credit available via the  double tax agreement with USA.

If OP is intent on retaining the shares ( rather than selling ASAP) , he should not delay in putting in place the W -8BEN  to halve the witholding tax (curious as to why this was not done as a matter of course far sooner).

As regards potential  historic liabilties, and assuming a higher rate tax payer at all material times, he will have to calculate the dividend tax exposure for each relevant tax year, and make a voluntary disclosure to HMRC in respect of the total tax payable.

OP has not indicated he has non dom status and therefore subject to tax on a remittance basis, but if so, special remittance rules ( and tax rates)  took effect as at 6 April 2025.

temega463

Hello - thanks drs1, wmb194 & poseidon1 for your responses. Very helpful.

Addressing your Qs:

• I've always been a UK resident, no non-dom status.
• For the period of the dividend payments I've been a higher or additional rate UK taxpayer. Mostly the latter.
• By SAF I mean self assessment, sorry for not being clear.
• I've been doing self assessment during this time and did not declare, because at the start I reasoned the value was much less than the UK dividend allowance (also frankly the material from the broker was complicated and I was busy at work). Sadly that's changed and I did not think to change with it.

Some more Qs arising from your responses:

1. "HMRC doesn't care that you paid more than you had to by not completing a W-8BEN, it'll still only give you credit at the 15% level." I infer from this that I should have been paying HMRC dividend tax, but that it will be reduced by 15% as part of a UK/US arrangement? I'm, guessing there's no easy way to claim back retrospectively from US tax authoritees on the 15% overpayment due to not completeing the W-8BEN?
2. "... you always need to declare all of your worldwide income in your self assessment." & "As regards potential historic liabilties, and assuming a higher rate tax payer at all material times, he will have to calculate the dividend tax exposure for each relevant tax year, and make a voluntary disclosure to HMRC in respect of the total tax payable." This confirms my fears. Pretty sure I don't have to hand all details going back ~ 12 years to compute 100% accurately. Do you think HMRC would accept a payment based on a value that must be greater than the value I should have paid e.g. for every year, pay tax at the additional rate and assume no allowance applied? Any advice how to go about making such a disclosure?

Thanks again for the help so far. 

poseidon1

temega463 said:

Hello - thanks drs1, wmb194 & poseidon1 for your responses. Very helpful.

Addressing your Qs:

• I've always been a UK resident, no non-dom status.
• For the period of the dividend payments I've been a higher or additional rate UK taxpayer. Mostly the latter.
• By SAF I mean self assessment, sorry for not being clear.
• I've been doing self assessment during this time and did not declare, because at the start I reasoned the value was much less than the UK dividend allowance (also frankly the material from the broker was complicated and I was busy at work). Sadly that's changed and I did not think to change with it.

Some more Qs arising from your responses:

1. "HMRC doesn't care that you paid more than you had to by not completing a W-8BEN, it'll still only give you credit at the 15% level." I infer from this that I should have been paying HMRC dividend tax, but that it will be reduced by 15% as part of a UK/US arrangement? I'm, guessing there's no easy way to claim back retrospectively from US tax authoritees on the 15% overpayment due to not completeing the W-8BEN?
2. "... you always need to declare all of your worldwide income in your self assessment." & "As regards potential historic liabilties, and assuming a higher rate tax payer at all material times, he will have to calculate the dividend tax exposure for each relevant tax year, and make a voluntary disclosure to HMRC in respect of the total tax payable." This confirms my fears. Pretty sure I don't have to hand all details going back ~ 12 years to compute 100% accurately. Do you think HMRC would accept a payment based on a value that must be greater than the value I should have paid e.g. for every year, pay tax at the additional rate and assume no allowance applied? Any advice how to go about making such a disclosure?

Thanks again for the help so far. 

If the company you worked for is quoted on the NYSE then it should be possible to obtain accruate historic dividend  rates paid  on your holding, even going back 12 years ( see below dividendmax website as an example). As for dollar sterling exchange rates I would use HMRC's average for each tax year.

https://www.dividendmax.com/united-states/nyse/banks/bank-of-america-corp/dividends

Regarding the dividend allowance see no reason why you should not apply the appropriate figure for each year. Voluntary disclosure shouldn't mean paying more than necessary.

HMRC will no doubt calculate interest on late paid tax for each year, but unless your liabilties are appreciable, hopefully they won't push for penalties which can be up to 100% of the tax due.

Finally, consider getting a cheap copy of Whillans Tax Guide ( per below ) as a one stop reference material for tax rates and allowances.  From memory it may even have HMRC average exchange rates ( its been many years since I last saw one).


https://www.awesomebooks.com/book/9781474321181/whillanss-tax-tables-2022-23-finance-act-edition/used?gad_source=1&gad_campaignid=22269009095&gbraid=0AAAAADocATCfL-Xg6v1WofGk43vHYiwWy&gclid=CjwKCAjwr5_CBhBlEiwAzfwYuNu98qLTrStDgEy74VwUuRUFg23RBf2SKVyhDJpQRtryGDqLS4NfcBoCuLoQAvD_BwE&q=whillans

temega463

Very good, thanks poseidon1. Will proceed with this useful guidance.

DRS1

Just to mention that the rates of tax on dividends (over the allowance) changed.  If you have to go back to 2016 for your sums the rates were 7.5%/32.5%/38.1%.  I am not sure when they changed to the current rates but perhaps @poseidon1's book has that info.

temega463

Thanks drs1. Will check.

temega463

Hello,

Hopefully the final Q on this. So I've compiled a spreadsheet with everything needed to compute UK dividend tax due per year: dividends paid, values withheld, GBPUSD rates, UK allowances & rates, my use of allowance, my tax status. The tax I think is due is higher than I had in mind so I want to get this right. I found this advice on the web:

"When it comes to paying tax on your overseas dividends in the UK, they’re taxed in the usual way (UK dividend tax rates are 8.75%, 33.75% and 39.35%) depending on your other sources of income). However, if you are also subject to a withholding tax in the country where the shares are based, a claim for double tax relief can be made to ensure that you only pay tax once on that income.

If your UK liability is higher than the overseas withholding, you will only pay the amount in the UK over and above the withholding. If it’s lower, then you would not pay any further tax in the UK."

In my case the UK tax due is higher for all years than the value already withheld. But going back to wmb194's point I understand I can only discount by 15% irrespective of the 30% withheld because I failed to complete the W-8BEN. So by example for 2014 to 2015 tax year:

• US firm dividend payments in 2014 to 2015 period converted to £ = £X
• Dividend allowance in 2014 to 2015 = £0
• Dividend additional rate in 2014 to 2015 = 37.5%
• Withholding rate HMRC will recognise = 15%
• Resulting dividend rate = 22.5%
• Therefore Dividend tax due = 22.5% of £X

Make sense?

poseidon1

temega463 said:

Hello,

Hopefully the final Q on this. So I've compiled a spreadsheet with everything needed to compute UK dividend tax due per year: dividends paid, values withheld, GBPUSD rates, UK allowances & rates, my use of allowance, my tax status. The tax I think is due is higher than I had in mind so I want to get this right. I found this advice on the web:

"When it comes to paying tax on your overseas dividends in the UK, they’re taxed in the usual way (UK dividend tax rates are 8.75%, 33.75% and 39.35%) depending on your other sources of income). However, if you are also subject to a withholding tax in the country where the shares are based, a claim for double tax relief can be made to ensure that you only pay tax once on that income.

If your UK liability is higher than the overseas withholding, you will only pay the amount in the UK over and above the withholding. If it’s lower, then you would not pay any further tax in the UK."

In my case the UK tax due is higher for all years than the value already withheld. But going back to wmb194's point I understand I can only discount by 15% irrespective of the 30% withheld because I failed to complete the W-8BEN. So by example for 2014 to 2015 tax year:

• US firm dividend payments in 2014 to 2015 period converted to £ = £X
• Dividend allowance in 2014 to 2015 = £0
• Dividend additional rate in 2014 to 2015 = 37.5%
• Withholding rate HMRC will recognise = 15%
• Resulting dividend rate = 22.5%
• Therefore Dividend tax due = 22.5% of £X

Make sense?

Certainly makes sense to me assuming you were a 45% tax payer in that year.