Taxation on US shares (Dr Pepper merger)
Comments
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I too have just come across this thread while trying to research how the Dr Pepper special dividend should be treated for UK tax purposes.
My brother and I both received the special dividend and understood one part was to be treated as income subject to dividend tax while the other larger part was to be treated as capital and subject to capital gains tax. However my brother’s accountant has suggested to him that the whole amount of the special dividend is income and subject to dividend tax.
Does anyone have a definitive answer here? I see that this question is being asked on different websites but am not sure any conclusion has been reached yet.
Many thanks in advance for any help which can be offered.0 -
I managed to speak to HMRC who seem to indicate the approach referred to in the post by Gwyndy on 5th March and also pointed me in the direction of their form HS285
However my accountant sent me an email with the following:-
"Unfortunately, everything points to it just being treated as a normal foreign dividend which is taxable in full to UK income tax, albeit with a tax credit for the small amount already paid in the US.
Although the US paperwork says it is a non-dividend distribution this is just for US purposes and the actual payment paperwork just shows it as a special dividend (commonly used to get rid of surplus cash back to shareholders prior to a merger). If it had shown a reorganisation of stock, the company would have bought back some of your shares resulting in a disposal of some of the units. This would have then been a capital gain for UK tax purposes. Instead it looks like you just changed from XYZ holding in Dr Pepper to XYZ holding in Keurig, so haven’t actually sold anything"
Any views appreciated, there must be 1000s of ex Cadbury Schweppes employees who ended up with Dr Pepper shares, who all have the same question!0 -
"Dr Pepper, what's the worst that could happen?"0
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My apologies, I have only just come back to this thread.
HMRC has accepted my calculation based on the steps in my earlier post - i.e. the dividend element taxed in the US is treated as a normal foreign dividend; the 'special', non-taxed payment is a return of capital and is therefore reported in the CGT section of the SA return. The same calculation was used for my wife's KDP payments and also accepted without query.0 -
Gwyndy, your reply is incredibly useful. I am seeking to complete a tax assessment for my 89 year old mother, who has 294 DPS shares. Two questions:
1) In the end, for A, did you include the dividend in the total value?
2) For the base cost is it fair to use the 2008 DPS launch price or do you have to go back to the Cadburys purchase price? (Complex here as my mother was given the shares by my father around 1990 who, in turn, inherited them from his mother sometime around 1988.)
be great if youa re anybody can help with these. pts0 -
One other question is on the tax withheld on the DPS dividend.
On my mother's shares the dividend was $8,887.62 and the Federal income tax withheld was $2,133.02
That is 24% - not the 15% others refer to. Anybody know why this is so high?0 -
24% is the US's 'backup withholding' rate for 2018-2025 (previously it was 28%). It could be this.stewarthenry wrote: »On my mother's shares the dividend was $8,887.62 and the Federal income tax withheld was $2,133.02. That is 24% - not the 15% others refer to. Anybody know why this is so high?
Does your mother's broker or platform know that she is a non-US person? Generally, that would be by sending them a form W-8BEN. One of the conditions for applying this withholding rate is "If the status of the payee as a foreign person or a U.S. person cannot be determined ...".
Your mother can only claim up to 15% against her UK tax (US/UK tax treaty rules), but she should be able to recover the 9% excess withholding from the IRS, although because this is the US, the procedure is of course long-winded, delay-ridden and arcane. Details in the instructions for form 1040NR (search for "Simplified Procedure for Claiming Certain Refunds"), anyway. The broker should send a form 1042-S showing this withholding, and to get the refund your mother will need to attach it to her 1040NR return.0 -
Thanks for the help Gwyndy, very useful.
One question, wrt to the dividend, EdSwippet mentions earlier about claiming back 15% against UK tax. Is this right, shouldn't it only be 7.5%, ie the smaller of foreign tax paid (or allowed by treaty) and UK tax due0 -
Assuming basic rate tax, you're right. This should read "... can only claim up to 15% against her UK tax ...". I've edited this post.One question, wrt to the dividend, EdSwippet mentions earlier about claiming back 15% against UK tax. Is this right, shouldn't it only be 7.5%, ie the smaller of foreign tax paid (or allowed by treaty) and UK tax due
So for a basic rate taxpayer with 24% withheld for US tax and dividend and annual tax free allowances both exhausted, claim 9% back from the IRS, take a UK tax credit for 7.5%, and lose 7.5% in deadweight US tax loss; total 15% tax. If a higher rate taxpayer, claim 9% back from the IRS, take a UK tax credit for 15%, and end up with a 17.5% UK tax payment; total 32.5% tax. And if a zero-rate taxpayer (inside the annual dividend allowance or annual tax free allowance, say), claim 9% back from the IRS, leaving a 15% deadweight US tax loss.
The bottom line is that you end up paying in total the higher of the 15% US/UK treaty rate and the UK dividend rate, which could range from 0% up to 38.1% depending on circumstances. Reclaiming the 9% from the US is likely to be the most frustrating and time-consuming part of the exercise.0 -
Thanks for the clarification.
Considering the number of Cadbury employees who must have held DPS shares, it's shameful that the company didn't put out some sort of guidance re CGT for this complex situation and save a lot of staff and ex-staff a lot of hassle and, for some, expense. When I approached the company about this, it just advised me that tax affairs were the responsibility of the individual and that was it!0
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