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

mybestattempt

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?

I think there maybe some misunderstanding about the amount of foreign tax credit which can be claimed against the UK tax chargeable on the US dividends.

I don't believe it's restricted to 15%. 

My understanding of the UK legislation is that the only restriction is that the foreign tax credit cannot exceed the UK tax due on the foreign income.

Even if a W-8BEN had been completed and the US withholding tax had been only 15%, then that would be still be available (subject to restriction to UK tax due) as a foreign tax credit against UK tax.

DRS1

I think the rate you can set against UK tax is set by the double tax treaty.  There used to be a very complicated page on the HMRC site setting out what the rate allowed was depending on type of income and source country.  I cannot find it now but I am pretty sure the rate for the US has been 15% on dividends for years.

Of course the OP would be very pleased if he could set off the full 30% so he will probably need to find a copy of the UK/US double tax treaty to check it out.

A good starting point would be the notes you get for foreign dividends on the online self assessment form  There also used to be drop down box in the online form showing what rates of withholding tax were allowed to be set against UK tax. That may be a shortcut though I recall it does not just show 15%.

DRS1

Foreign Tax Credit Relief on overseas dividends - Community Forum - GOV.UK

This may be useful.  It starts with Spain but gets on to the US pretty quickly 

wmb194

mybestattempt said:

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?

I think there maybe some misunderstanding about the amount of foreign tax credit which can be claimed against the UK tax chargeable on the US dividends.

I don't believe it's restricted to 15%. 

My understanding of the UK legislation is that the only restriction is that the foreign tax credit cannot exceed the UK tax due on the foreign income.

Even if a W-8BEN had been completed and the US withholding tax had been only 15%, then that would be still be available (subject to restriction to UK tax due) as a foreign tax credit against UK tax.

No, as per the UK/US DTT, it's 15%. France will withhold 25% but you can only claim relief on 15%. The Netherlands will withhold at 15% but you can only claim relief on 10%. Belgium withholds 30% but relief is only 10%(!). You can usually claim the balance from the respective countries' tax authorities but it isn't always easy.

Think about it from the government's/HMRC's pov: if it allowed full relief it would be giving revenue away to foreign countries.

poseidon1

wmb194 said:

mybestattempt said:

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?

I think there maybe some misunderstanding about the amount of foreign tax credit which can be claimed against the UK tax chargeable on the US dividends.

I don't believe it's restricted to 15%. 

My understanding of the UK legislation is that the only restriction is that the foreign tax credit cannot exceed the UK tax due on the foreign income.

Even if a W-8BEN had been completed and the US withholding tax had been only 15%, then that would be still be available (subject to restriction to UK tax due) as a foreign tax credit against UK tax.

No, as per the UK/US DTT, it's 15%. France will withhold 25% but you can only claim relief on 15%. The Netherlands will withhold at 15% but you can only claim relief on 10%. Belgium withholds 30% but relief is only 10%(!). You can usually claim the balance from the respective countries' tax authorities but it isn't always easy.

Think about it from the government's/HMRC's pov: if it allowed full relief it would be giving revenue away to foreign countries.

To back up wmb194 herewith link to country by country DTAs and reliefs available depending on the income category. 

https://www.gov.uk/government/publications/double-taxation-treaties-territory-residents-with-uk-income

Reaffirm that the maximum relief on USA dividends is 15% and this has been the case for at least a of couple of decades. No ambiguity or confusion on this point.

Also as indicated by wmb194 excess foreign tax can be recovered from the foreign source countries  ( often with considerable difficulty ), but worth noting re UK Sipps holding USA shares the SIPP provider ( if properly resourced) can recover the entire USA witholding tax in accordance with the UK/USA DTA.

mybestattempt

wmb194 said:

mybestattempt said:

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?

I think there maybe some misunderstanding about the amount of foreign tax credit which can be claimed against the UK tax chargeable on the US dividends.

I don't believe it's restricted to 15%. 

My understanding of the UK legislation is that the only restriction is that the foreign tax credit cannot exceed the UK tax due on the foreign income.

Even if a W-8BEN had been completed and the US withholding tax had been only 15%, then that would be still be available (subject to restriction to UK tax due) as a foreign tax credit against UK tax.

No, as per the UK/US DTT, it's 15%. France will withhold 25% but you can only claim relief on 15%. The Netherlands will withhold at 15% but you can only claim relief on 10%. Belgium withholds 30% but relief is only 10%(!). You can usually claim the balance from the respective countries' tax authorities but it isn't always easy.

Think about it from the government's/HMRC's pov: if it allowed full relief it would be giving revenue away to foreign countries.

Thank you, I realise I was wrong and should have done more research to have a better understanding of DTAs and of the UK/USA DTA in particular.

I've always been able to accept and learn from my mistakes.

temega463

Thanks all for the additional points. Today I called HMRC and got through to a "technical specialist" who was most helpful. She confirmed approach as above and relief is 15%. Anyway I've sent through the details and workings to HMRC and made a preliminary credit by their advice. Very friendly and understanding on the phone - hope things remain that way after their computations!

poseidon1

temega463 said:

Thanks all for the additional points. Today I called HMRC and got through to a "technical specialist" who was most helpful. She confirmed approach as above and relief is 15%. Anyway I've sent through the details and workings to HMRC and made a preliminary credit by their advice. Very friendly and understanding on the phone - hope things remain that way after their computations!

Good luck!

tonywick

temega463 said:

Thanks all for the additional points. Today I called HMRC and got through to a "technical specialist" who was most helpful. She confirmed approach as above and relief is 15%. Anyway I've sent through the details and workings to HMRC and made a preliminary credit by their advice. Very friendly and understanding on the phone - hope things remain that way after their computations!

Thanks for posting the advice in this thread. I was in a similar position with some US shares that I'd mostly left alone, and dividends were used to buy extra shares. I got interested again when they rose considerably in value and thought I'd better sort out the HMRC position. I'm only a basic rate taxpayer, and any time I've sold a batch the gain was within the relevant CGT threshold for that year. However, the guidance on foreign shares on Gov.uk indicates that you should report any income from such shares regardless, so I though I'd be in for a severe telling off.

But when I (eventually) got through to a real person in HMRC it was confirmed that as a basic rate taxpayer the 15% I pay in the US on dividends does indeed nullify any need for additional UK taxation. And that they trusted my word that I hadn't exceeded CGT thresholds! (I'd prefer to have that in writing, but I assume they recorded that call) I was also told that, if I were submitting a self-assessment for any other reasons, then I would be expected to include foreign income (at any level), but that as long as I stay at basic rate, and don't exceed the CGT threshold I don't need to submit a self-assessment each year just for my current share income.  

Also, it seems that if I do sell enough at any time to get hit with CGT, there is a "fastpath" mechanism of reporting this on Gov.uk, without doing a full self-assessment if I've nothing else to report.

poseidon1

tonywick said:

temega463 said:

Thanks all for the additional points. Today I called HMRC and got through to a "technical specialist" who was most helpful. She confirmed approach as above and relief is 15%. Anyway I've sent through the details and workings to HMRC and made a preliminary credit by their advice. Very friendly and understanding on the phone - hope things remain that way after their computations!

Thanks for posting the advice in this thread. I was in a similar position with some US shares that I'd mostly left alone, and dividends were used to buy extra shares. I got interested again when they rose considerably in value and thought I'd better sort out the HMRC position. I'm only a basic rate taxpayer, and any time I've sold a batch the gain was within the relevant CGT threshold for that year. However, the guidance on foreign shares on Gov.uk indicates that you should report any income from such shares regardless, so I though I'd be in for a severe telling off.

But when I (eventually) got through to a real person in HMRC it was confirmed that as a basic rate taxpayer the 15% I pay in the US on dividends does indeed nullify any need for additional UK taxation. And that they trusted my word that I hadn't exceeded CGT thresholds! (I'd prefer to have that in writing, but I assume they recorded that call) I was also told that, if I were submitting a self-assessment for any other reasons, then I would be expected to include foreign income (at any level), but that as long as I stay at basic rate, and don't exceed the CGT threshold I don't need to submit a self-assessment each year just for my current share income.  

Also, it seems that if I do sell enough at any time to get hit with CGT, there is a "fastpath" mechanism of reporting this on Gov.uk, without doing a full self-assessment if I've nothing else to report.

Probably does not apply to you so just for the benefit of others who may visit this thread,  basic rate tax status is not necessarily a shield which prevents an additional UK tax liabilty on  US shares, if one is very close to the higher rate tax threshold on  UK sources.

So for example £49k of UK taxable income could push you into  higher rate on a gross US dividend of say £3000. First  £500 taxed at 0%( dividend allowance ), but remaining £2500 is relying  on the 15% US tax credit to mitigate the 33.75% UK dividend rate on the slice of dividend income exposed to higher rate.

Therefore, borderline basic rate tax payers should be aware.