Budget 2008 - Changes to taxation of foreign dividends
Dividends paid by UK companies carry a non-repayable tax credit equivalent to one ninth of the dividend. This means that a basic rate taxpayer has nothing further to pay and a higher rate tax payer pays additional tax at an effective rate of 25%. Dividends from non-UK companies, however, do not currently carry a tax credit and so a basic rate taxpayer will be liable at 10% and a higher rate taxpayer will pay 32.5%.
It was previously announced that from 6 April 2008, provided the dividends did not exceed £5,000 a year, non-UK dividends would carry the same tax credit for shareholders who own less than 10% of the company. Today’s Budget announcement has removed the £5,000 limit. It is not clear what happens where foreign tax has been paid on the dividends.
In addition, the tax credit will be available, from 6 April 2009, for shareholders with more than 10% provided that the source country levies a tax on corporate profits similar to corporation tax. Further details can be found here.
Remittance basis
When the legislation relating to the taxation of overseas dividend was re-written in 2005 an error was made so that remitted dividends (for those claiming the remittance basis) were taxed at 32.5% rather than 40% as they had been in the past. Today’s Budget has announced that this will be corrected with effect from 6 April 2008. The Budget Notice can be found here.
It was previously announced that from 6 April 2008, provided the dividends did not exceed £5,000 a year, non-UK dividends would carry the same tax credit for shareholders who own less than 10% of the company. Today’s Budget announcement has removed the £5,000 limit. It is not clear what happens where foreign tax has been paid on the dividends.
In addition, the tax credit will be available, from 6 April 2009, for shareholders with more than 10% provided that the source country levies a tax on corporate profits similar to corporation tax. Further details can be found here.
Remittance basis
When the legislation relating to the taxation of overseas dividend was re-written in 2005 an error was made so that remitted dividends (for those claiming the remittance basis) were taxed at 32.5% rather than 40% as they had been in the past. Today’s Budget has announced that this will be corrected with effect from 6 April 2008. The Budget Notice can be found here.
I am a U.K. resident and tax payer. I receive dividends from a Canadian investment company quoted on the Toronto and London exchanges. The company pays a quarterly income dividend and a yearly capital gains dividend. Withholding tax is taken from the income but not the capital gains dividend. HMRC have confirmed by telephone that the capital gains dividend is chargeable as a capital gain not as income. However, consulting the capital gains section of the HMRC website when filling in this year's return seems to throw doubt on this.
Is the capital gains dividend chargeable as income or a capital gain for U.K tax purposes?
If income and incorrectly declared in previous tax years, might any penalties be payable and how should that addressed?
Will the 2008 budget changes change the position?
Ed
Without seeing any paperwork, it is impossible to comment on the exact treatment of any given sum of money but if it is described as capital gain and HMRC recognise it as such, I would suggest that that is how it is reported. Capital gains are usually only recharacterised as income where the fund is non distributing which does not sound as if it is the case here. Foreign capital gains can be tricky to fit in the form so you may have to so a paper form by 31 October. Budget 2008 rules should not affect the position."
thanks
Lisa
Many thanks