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When does liability for dividend tax arise? X/D, or P/D

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DiamondEcho
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When does liability for dividend tax arise? X/D, or P/D

#130381

Postby DiamondEcho » April 6th, 2018, 2:02 pm

This is probably a 'common-sense' or simple question for some but I don't seem to be able to find an answer.
I can't see it mentioned at the IR https://www.gov.uk/tax-on-dividends

I have a portfolio of UK shares and am currently long-term non-UK resident. I'll be relocating permanently to the UK in July. I have a list of projected dividends due that I maintain on a rolling basis, that currently extends out to September. Some of my shares will go X/D before I return to the UK, and will be due to pay only after I'm once again UK resident for tax (July). I'm not sure when the liability for tax arises 1) on the entitlement and before payment ie X/D or 2) on P/D, payment date?

I'm thinking it's likely 2), but if it were 1) then that might guide me re: the precise date I file the IR form to register as UK resident.

genou
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Re: When does liability for dividend tax arise? X/D, or P/D

#130396

Postby genou » April 6th, 2018, 2:51 pm

DiamondEcho wrote:This is probably a 'common-sense' or simple question for some but I don't seem to be able to find an answer.
I can't see it mentioned at the IR https://www.gov.uk/tax-on-dividends

I have a portfolio of UK shares and am currently long-term non-UK resident. I'll be relocating permanently to the UK in July. I have a list of projected dividends due that I maintain on a rolling basis, that currently extends out to September. Some of my shares will go X/D before I return to the UK, and will be due to pay only after I'm once again UK resident for tax (July). I'm not sure when the liability for tax arises 1) on the entitlement and before payment ie X/D or 2) on P/D, payment date?

I'm thinking it's likely 2), but if it were 1) then that might guide me re: the precise date I file the IR form to register as UK resident.


It is indeed 2. Taxed on a received basis.

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Re: When does liability for dividend tax arise? X/D, or P/D

#130525

Postby JonE » April 7th, 2018, 10:41 am

DiamondEcho wrote:... currently long-term non-UK resident. I'll be relocating permanently to the UK in July.


If I've correctly remembered the country in which you ended up, it generally applies a 183-day rule to deem residency as part of its ruleset and its tax year is the calendar year. You may find it worthwhile to research the effects of finally leaving that country before the end of June.

...the precise date I file the IR form to register as UK resident.

I don't think the 'filing date' is of any effect in the long run as we now have the fact-based Statutory Residence Test and the joys of split-year treatment for those becoming UK tax-resident during a UK tax-year.

Cheers!

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Re: When does liability for dividend tax arise? X/D, or P/D

#130574

Postby DiamondEcho » April 7th, 2018, 3:59 pm

JonE wrote:If I've correctly remembered the country in which you ended up, it generally applies a 183-day rule to deem residency as part of its ruleset and its tax year is the calendar year. You may find it worthwhile to research the effects of finally leaving that country before the end of June.
I don't think the 'filing date' is of any effect in the long run as we now have the fact-based Statutory Residence Test and the joys of split-year treatment for those becoming UK tax-resident during a UK tax-year. Cheers!


Right now I'm focusing on the UK side of things, since where I am now I'm not even liable for tax-reporting - I'm (entirely legally) not on that radar.
BTW a '183 day rule' and calendar year reporting is what they have in Singapore, our previous stop, but we're half-way en-route to getting back to Blighty now.

I was digging around on the IR site yesterday and I think you're right. It used to be that if you left the UK to work/live abroad there was an IR form you'd complete titled something like 'Departing the UK'*, it was formal notification. It was last night I was wondering if a form with the reverse effect existed, a 'Notification of arrival'. It seems not, and it seems the departure form no longer exists too it's now down to the facts. A curious side-effect is I'm now able to effectively choose (without notifying the IR) within say 3 months of landing in the UK the date on which I become formally UK resident again... hmm, decisions decisions.

* Although this form no longer seems to exist those leaving the UK might consider whether writing to the IR and formally advising them of the date you are leaving the UK is worthwhile. I reckon it is, esp if you have ongoing UK investments. Much simpler to advise or even discuss this at the time, than 3, 5, 10... ? years later have to evidence it.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131265

Postby DiamondEcho » April 10th, 2018, 6:22 pm

Just as a placeholder, and in case anyone else pops up with a question on this topic of the UK Statutory Residence Test.
I came across this flowchart from KPMG:
https://home.kpmg.com/uk/en/home/servic ... chart.html
This link goes directly to the chart without a summary description:
https://home.kpmg.com/content/dam/kpmg/ ... wchart.pdf
It looks a useful starting point but does not address split-year treatment which might limit it's use.

This from the IR:
RDR3: Statutory Residence Test - https://www.gov.uk/government/publicati ... e-test-srt
I've a nasty feeling I'm going to have to wade through all 105 pages of it.

Another flowchart from a legal firm, perhaps a useful x-check vs KPMG:
http://www.blplaw.com/media/how-can-we- ... wchart.PDF

This looks like a pretty forensic analysis of the legislation and how it works:
https://www.taxation.co.uk/Articles/201 ... dence-test

I'll come back to this shortly, when I've several hours to spend on trying to reach a definitive conclusion.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131303

Postby scrumpyjack » April 10th, 2018, 9:54 pm

The Income tax liability is based on the paid date, not the XD date.

There is an anomaly with IHT in that the Inheritance Tax Liability arises on the XD date and the estate then gets taxed again for income tax based on the paid date ignoring the fact that 40% tax (IHT) has been paid already. There used to be an obscure provision whereby the beneficiary of the estate could get relief against higher rate tax in respect of this double taxation but it appears no longer to apply.

So lets say a share is XD before the date of death for a dividend of £1,000. £400 of IHT is charged.

The dividend of £1,000 subsequently paid is then taxable as income of the estate/beneficiary ignoring the fact that £400 tax has already been paid.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131313

Postby JonE » April 10th, 2018, 10:18 pm

DiamondEcho wrote:Just as a placeholder, and in case anyone else pops up with a question on this topic of the UK Statutory Residence Test.
[...]
This from the IR:
RDR3: Statutory Residence Test - https://www.gov.uk/government/publicati ... e-test-srt
I've a nasty feeling I'm going to have to wade through all 105 pages of it.


What? You mean you haven't been studying it during the year since PD first pointed it out on these boards?
viewtopic.php?f=49&t=3827&p=37909

I found that great chunks didn't need examination for my circumstances and hope you'll find the same for your circumstances.

Cheers!

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Re: When does liability for dividend tax arise? X/D, or P/D

#131368

Postby tjh290633 » April 11th, 2018, 9:35 am

Those with long memories will recall the occasional habit of companies, either to bring dividend payments forward to be paid in the current tax year, in order to avoid a tax increase, or to delay them because of a tax reduction in the next tax year.

Both events have happened in the past. Astrazeneca was one such a good few years back. They were instrumental in causing famine or feast in March or April compared with the previous year.

That confirms when HMRC and it's precursors determine when a dividend becomes liable to tax.

TJH

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Re: When does liability for dividend tax arise? X/D, or P/D

#131393

Postby PinkDalek » April 11th, 2018, 10:48 am

tjh290633 wrote:Those with long memories will recall the occasional habit of companies, either to bring dividend payments forward to be paid in the current tax year, in order to avoid a tax increase, or to delay them because of a tax reduction in the next tax year.

Both events have happened in the past. Astrazeneca was one such a good few years back. They were instrumental in causing famine or feast in March or April compared with the previous year.

That confirms when HMRC and it's precursors determine when a dividend becomes liable to tax.

TJH


I don't know the AstraZeneca history but that sounds like an issue with surplus ACT, rather than a change in Corporation Tax rates, or maybe something to do with foreign tax credits.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131433

Postby BBLSP1 » April 11th, 2018, 12:36 pm

DiamondEcho wrote:Just as a placeholder, and in case anyone else pops up with a question on this topic of the UK Statutory Residence Test.
I came across this flowchart from KPMG:
https://home.kpmg.com/uk/en/home/servic ... chart.html
This link goes directly to the chart without a summary description:
https://home.kpmg.com/content/dam/kpmg/ ... wchart.pdf
It looks a useful starting point but does not address split-year treatment which might limit it's use.

This from the IR:
RDR3: Statutory Residence Test - https://www.gov.uk/government/publicati ... e-test-srt
I've a nasty feeling I'm going to have to wade through all 105 pages of it.

Another flowchart from a legal firm, perhaps a useful x-check vs KPMG:
http://www.blplaw.com/media/how-can-we- ... wchart.PDF

This looks like a pretty forensic analysis of the legislation and how it works:
https://www.taxation.co.uk/Articles/201 ... dence-test

I'll come back to this shortly, when I've several hours to spend on trying to reach a definitive conclusion.


These links do not include for some of the subtleties of RDR3; and of course there is always the suspicion that they are trying to drive you towards themselves for advice rather than a do-it-yourself approach. RDR3 is not that bad, and as has been said, much of it may not be relevant to your circumstances. In summary:

There are three stages to determining your residency; and remember that you are either resident or not-resident for the complete tax year. The 'split year' treatment is an extra-statutory concession.

The first stage in RDR3 is to determine if you are definitely non-resident. If you pass this, all well and good (presuming, as for most people, you do want to be classed as non-resident).

If you cannot satisfy this requirement, the second stage is to determine if you are definitely resident. If you do satisfy this, all is not lost, you would need to look at the split year rules to determine if you may split the year to keep your overseas income free of UK tax for the period up until you returned to the UK.

If you cannot determine your residency status from stages 1 and 2, you then need to look at your UK ties as a basis for determining residency. If this gives you non-resident, all to the good; if it gives you resident, then again you would need to look at the split year option to protect overseas income from UK tax.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131459

Postby tjh290633 » April 11th, 2018, 2:25 pm

PinkDalek wrote:
tjh290633 wrote:Those with long memories will recall the occasional habit of companies, either to bring dividend payments forward to be paid in the current tax year, in order to avoid a tax increase, or to delay them because of a tax reduction in the next tax year.

Both events have happened in the past. Astrazeneca was one such a good few years back. They were instrumental in causing famine or feast in March or April compared with the previous year.

That confirms when HMRC and it's precursors determine when a dividend becomes liable to tax.

TJH


I don't know the AstraZeneca history but that sounds like an issue with surplus ACT, rather than a change in Corporation Tax rates, or maybe something to do with foreign tax credits.

It was income tax, as I recall, but it could be related to ACT.

I'll have to dig back into my records to see when it happened.

TJH

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Re: When does liability for dividend tax arise? X/D, or P/D

#131509

Postby tjh290633 » April 11th, 2018, 6:03 pm

tjh290633 wrote:
PinkDalek wrote:I don't know the AstraZeneca history but that sounds like an issue with surplus ACT, rather than a change in Corporation Tax rates, or maybe something to do with foreign tax credits.

It was income tax, as I recall, but it could be related to ACT.

I'll have to dig back into my records to see when it happened.

TJH


It was the second interim for 2004, paid in March 2005.

See https://www.investegate.co.uk/astrazene ... 00058630H/

The record date for the second interim dividend for 2004 payable on 21 March
2005 (in the UK, Sweden and the US) will be 11 February 2005. Ordinary Shares
will trade ex-dividend on the London and Stockholm Stock Exchanges from 9
February 2005. ADRs will trade ex-dividend on the New York Stock Exchange from
the same date. The accelerated payment of the second interim dividend for 2004
in March 2005 instead of April payment, as was previous practice, will result in
the Company making three dividend payments to shareholders in the UK 2004/2005
tax year.


I haven't found the reason for the acceleration, but it may be somewhere in one of the three RNS posts of the final results.

TJH

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Re: When does liability for dividend tax arise? X/D, or P/D

#131521

Postby Lootman » April 11th, 2018, 7:06 pm

BBLSP1 wrote:There are three stages to determining your residency; and remember that you are either resident or not-resident for the complete tax year. The 'split year' treatment is an extra-statutory concession.

The first stage in RDR3 is to determine if you are definitely non-resident. If you pass this, all well and good (presuming, as for most people, you do want to be classed as non-resident).

If you cannot satisfy this requirement, the second stage is to determine if you are definitely resident. If you do satisfy this, all is not lost, you would need to look at the split year rules to determine if you may split the year to keep your overseas income free of UK tax for the period up until you returned to the UK.

If you cannot determine your residency status from stages 1 and 2, you then need to look at your UK ties as a basis for determining residency. If this gives you non-resident, all to the good; if it gives you resident, then again you would need to look at the split year option to protect overseas income from UK tax.

That is an informative summary, thank you. Why they had to make it so complicated I have no idea. Some other countries just say that if you are present for 182 days you are non-resident but if it is 183 days then you are resident.

Then again, different countries having different rules means that you could be resident nowhere (or non-resident everywhere) which would be handy.

Under the old system you made an election and in my circumstances I was always happy to remain deemed as resident even if I had the option not to be. Under the new system it seems that you cannot choose. But then the determination is made from factors that only you know anyway. So in a sense it is still a choice, unless HMRC has copious data on all transit in and out of the UK and all the other stuff that is in those conditions.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131583

Postby BBLSP1 » April 12th, 2018, 6:32 am

DiamondEcho wrote:........I have a portfolio of UK shares and am currently long-term non-UK resident. I'll be relocating permanently to the UK in July. I have a list of projected dividends due that I maintain on a rolling basis, that currently extends out to September. Some of my shares will go X/D before I return to the UK, and will be due to pay only after I'm once again UK resident for tax (July). I'm not sure when the liability for tax arises 1) on the entitlement and before payment ie X/D or 2) on P/D, payment date?........


DE: Returning to your opening post. I am puzzled as to why you think your residency status impacts on taxation of dividends from UK shares. Regardless of your residency status, you will in general be subject to tax on any dividends from ‘UK sources’, RDR1 section 6.48 refers.

https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability

A possible workaround, in general only worthwhile if your only UK income is from UK sourced dividends, is to apply the rules outlined in HMRC documents SAIM1170/HS300 – unfortunately this is not applicable where split year treatment applies. I suspect that if you return in July, you will be UK resident for 18/19 and you will need the split year treatment to protect the overseas income you earned up to July.

Is there something more going on here that I am not understanding? Are you referring to dividends from non ‘UK sources’?

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Re: When does liability for dividend tax arise? X/D, or P/D

#131635

Postby DiamondEcho » April 12th, 2018, 11:02 am

BBLSP1 wrote:DE: Returning to your opening post. I am puzzled as to why you think your residency status impacts on taxation of dividends from UK shares. Regardless of your residency status, you will in general be subject to tax on any dividends from ‘UK sources’, RDR1 section 6.48 refers.
https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability
A possible workaround, in general only worthwhile if your only UK income is from UK sourced dividends, is to apply the rules outlined in HMRC documents SAIM1170/HS300 – unfortunately this is not applicable where split year treatment applies. I suspect that if you return in July, you will be UK resident for 18/19 and you will need the split year treatment to protect the overseas income you earned up to July.
Is there something more going on here that I am not understanding? Are you referring to dividends from non ‘UK sources’?


What do imagine 'UK source' means? Simply UK LSE-listed share income, or the legal national jurisdiction of the entity (company/broker) via which it is paid? Your question is one those that gives me a jolt and makes me ask myself why I report things to the IR etc as I do. What I do know is that I am confident the basis for how I report as I do is correct - I have nil intention to 'play games', evade tax etc. It feels like my [US] broker, Interactive Brokers, know everything about me bar my dental records; they demand rigorous periodic reviews of ID/address/tax status and so on and they haven't flagged up that I might be liable to UK withholding tax on divs. - FWIW the UK sourced div income is my only UK sourced income.
From what I've read so far I am tending to think that split-year treatment might be what applies after my return, 'based upon precise personal circumstances'. This is so mind-bogglingly complex I wonder how anyone not reasonably familiar with finances/tax can hope to determine their status. Anyway hopefully this w/e I'll have a chance of going through the flow-charts etc and make an informed go at estimating the starting date for UK tax vs UK div pay-dates after my return.

ps. I also do my tax returns via the UK TaxCalc application. Again everything I enter in there is entirely accurate incl re: nationality/country of residence/status here/ etc etc., and it too doesn't suggest any UK tax liability. I do live in a double-taxation treaty country, and am not liable (entirely legally) to report for tax locally. Maybe that is an unusual feature of my current status that flagged up on your radar, IDK...

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Re: When does liability for dividend tax arise? X/D, or P/D

#131657

Postby BBLSP1 » April 12th, 2018, 12:28 pm

DiamondEcho wrote:
What do imagine 'UK source' means? Simply UK LSE-listed share income, or the legal national jurisdiction of the entity (company/broker) via which it is paid? .......


Agreed it is complex! Not helped by HMRC’s documents being set out with a view to determining your position after the facts, whereas most people are looking as to how best to arrange their position in advance.

If your only UK income is dividends, then no UK tax is due on them in accordance with the rules documented in SAIM1170/HS300 whilst you are non-resident. However, if you end up having a split year when you come back, these rules may no longer be applicable. I suggest you take specialist advice if this is major concern for you. Remember that, as mentioned above, I suspect that you will be resident in this tax year, so that although the split year treatment protects the overseas part of your income until you physically 'come back', it does not seem unreasonable that now your dividends are taxed just like any other UK resident and as they will be taxed in successive years of residency.

In my case, I am non-resident and have rental income as well as dividend income. Although I could avoid the need to pay tax on the dividends, I would have to forego the personal allowance, all as detailed in HS300. In short, I can take the most favourable option of no tax on dividends and tax on rental income with no personal allowance or tax on dividends plus tax on rental income with the personal allowance. For my numbers, the second option is better, so I do pay tax on the dividends and this is how my accountant prepares my return.


As to what a UK sourced dividend income is – Good question!

My annual statement from the broker breaks my dividends down into UK equities and non-UK equities. As I understand it, and I could be wrong, what is important is the ‘country of share register’.

For example, referring to the LSE website for the Henderson Far East Income Investment Trust (HFEL):

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/JE00B1GXH751JEGBXSSMM.html?lang=en

Down the right hand side, the company address is Jersey and further down the country of share register is ‘JE’ – It is a non-UK equity.

Now consider Middlefield Canadian Investment trust (MCT):

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B15PV034GBGBXSSMM.html?lang=en

The company address is in Jersey, however, the country of share register is ‘GB’ – It is a UK equity

Confusingly, the AIC website for these two ITs refers to their ‘domicile’ which I infer to mean the location of their company address and not the country of share register, as AIC lists them both as having a domicile of Jersey.

The above is supposition on my part, and I would be interested to hear the views of others. I have never seen a definitive answer as to what a UK source dividend actually is.

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Re: When does liability for dividend tax arise? X/D, or P/D

#131911

Postby hiriskpaul » April 13th, 2018, 11:26 am

Many years ago I was running a small company with some colleagues and we declared dividends in March, before our company year end, and paid them in April, but in the new financial year. That meant that the ACT the company paid was taken into account for the current company year, but for our personal tax returns, the dividends were taken into account in the next financial year. HMRC took a very dim view of this and said it was not allowed and as far as our personal tax returns were concerned, had to be included in the tax year in which the dividends were declared. We and our accountant thought this was wrong as this was not how dividends coming from listed shares were taxed, but in the end we did not challenge the HMRC and paid up.

The difficulty we faced was that if we challenged the ruling and lost it would have likely wasted an awful lot of time/money, we would have been hit for penalties and HMRC would likely have dug back into previous years, when we did precisely the same thing and hit us for interest/penalties on those as well.

So in the case of unlisted shares over which shareholders have control over dividend declarations, I would be very cautious about assuming dividends are taken into account on the date received, rather than declared. However, since ACT has been abolished I cannot think of any reason to declare one year and pay the next now anyway.

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Re: When does liability for dividend tax arise? X/D, or P/D

#132668

Postby tieresias » April 16th, 2018, 9:51 pm

DiamondEcho wrote:It used to be that if you left the UK to work/live abroad there was an IR form you'd complete titled something like 'Departing the UK'*, it was formal notification. It was last night I was wondering if a form with the reverse effect existed, a 'Notification of arrival'. It seems not


I re-patriated last year and spoke to HMRC on the phone about such a form. They said there is no form and no need to specifically inform them.

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Re: When does liability for dividend tax arise? X/D, or P/D

#149446

Postby DiamondEcho » July 2nd, 2018, 11:44 am

tieresias wrote:
DiamondEcho wrote:It used to be that if you left the UK to work/live abroad there was an IR form you'd complete titled something like 'Departing the UK'*, it was formal notification. It was last night I was wondering if a form with the reverse effect existed, a 'Notification of arrival'. It seems not

I re-patriated last year and spoke to HMRC on the phone about such a form. They said there is no form and no need to specifically inform them.


My return to the UK is nearing, so I revisited this topic to refresh on the discussion that took place. [Thanks all, it's very useful!]
On your point^ Tieresias, the concern I have with this is I'd like to be able to clearly identify the point at which my dividend income becomes liable for UK tax. 'Then I know what I'm in for' and can report and plan accordingly. Ie. I have a concern that if I say simply report all dividends paid from the day I land at Heathrow, the IR might willingly take it even if some of it isn't liable. It seems anomalous that divining the date for this liability is so opaque only the IR have the ability determine it. Maybe there is a function with the TaxCalc IR return software that will generate and apply the applicable date for me, we shall see!

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Re: When does liability for dividend tax arise? X/D, or P/D

#152673

Postby tieresias » July 16th, 2018, 2:21 pm

On your point^ Tieresias, the concern I have with this is I'd like to be able to clearly identify the point at which my dividend income becomes liable for UK tax.


Sorry for the delayed reaction. I'm on an extended post-FI tour of North and East Asia and haven't logged in for a while...

Your UK-originated dividend (and any other) income was always liable for UK tax, even while you were non-resident. Any dividend income that originated outside the UK will become liable for UK tax from the day you repatriate. HTH.

All the best,

Paul


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