Resident vs. Non Resident Tax UK – Dividends

What does the Budget mean for property

Being a landlord in the UK is great, whether this was by accident or fully intentional, there are many differing tax implications that you will need to be aware of and taking tax advice / hints is definitely recommended and will be worth your while. With great changes to how landlords have been taxed in the UK (due to changes to the stamp duty land tax, SDLT, rates on additional properties to mortgage interest caps), the changes in the rules may well catch those individuals out who do not keep their knowledge up to date. Not only will being a landlord in the UK require you to take special consideration as to your current UK tax obligations and your position in relation to your rental income, but receiving other sources of income will also require you to take care in determining your tax position. Here we highlight the important tax differences for those who receive a dividend with special considerations to an individual’s residency position.

Dividends are payable to shareholders of a business. This is because they are the actual owners of the business who initially invested their own capital in acquiring shares to enable the business to start up

They are typically declared / paid at the company’s year end with the total amount of dividends payable hugely dependant on a company’s performance. As a post corporation tax payment, dividends can commonly also be called a ‘distribution of profits’ to those individuals that have invested in a company.

For individuals, there are different rules in terms of taxation for those who are UK resident to those who are not UK resident and here we will look at the different rules for resident vs non residents in relation to the receipt of a dividends.

If a UK dividend is paid

For those UK residents (see our other articles on Residency and domicile), when a dividends is paid, it will become subject to UK income tax.

The first £2000 will fall under the new dividends tax free (i.e. 0%) allowance. After this allowance, depending on your other sources of income, the rates of dividends tax can range from 7.5% (basic rate band), 32.5% (higher rate band) and 38.1% (additional rate band).

If you are non-UK resident, then the above treatment will be followed with rates from 7.5% to 38.1%.

It is however possible to elect for dividends income to be deemed as ‘Excluded Income’ (similar to some investment income such as interest) which will mean that although the dividends is subject to UK income tax, the amount of tax a non-UK resident pays upon receipt of a UK dividends is NIL. This does however lead you to lose your eligibility to the UK personal allowance and as such, special consideration should be taken (with a professional adviser) to determine which method of assessment would be most optimal for you.

Under both scenarios, it is likely that a self-assessment tax return is required to correctly declare this income to HMRC.

If the dividend paid is from a Non-UK source.

As a UK resident, the tax treatment of a non-UK sourced dividends will depend on your domicile position.

Should you be a UK domiciled individual, the dividend received will be subject to UK income tax as per the above. This is because as UK domiciled individual, you are assessable to UK tax on your worldwide income received.

If however you a non-UK domiciled, then the dividends will be taxed in the UK should you elect for it to be included in either the arising basis of assessment or under the remittance basis of assessment. It will be beneficial for you to discuss this with your tax adviser in order to ensure the correct method of assessment is chosen and therefore provides you with the optimal tax position.

If you are non-resident, then any non-UK dividend paid will not be subject to UK income tax, this is by virtue of the income not being derived in the UK.

As with all taxes, the rules are complex and need to be carefully considered on a case by case basis and therefore it is thoroughly recommended that you seek professional advice (this can be for the UK as well as the country in which you reside in!).

Should you want to talk to one of Wisteria’s tax experts, then please feel free to call us on 020 8429 9245 or email info@wisteria.co.uk.