10% tax credits on foreign ETFs

[wickham]

I understand that the 10% tax credit is removed for this year's dividends. Does this mean that foreign income which was subject to the 10% tax credit is just added to UK dividends and subject to the overall new allowances?

I'm particularly interested in Dublin based iShares ETFs. I always had to state in my tax return that these were subject to the 10% tax credit. Will this tick box not show in the tax return after April 5th 2017?

Are iShares ETFs from Dublin taxed at source in Eire?

If any foreign dividends or income is taxed abroad, how will this be dealt with when filling in the tax return?

[helfordpirate]

Foreign dividends will be included in the dividend "allowance" (more correctly the 0% band). The automatic grossing up of the foreign dividend with, in this case an even more notional, tax credit will not happen and any tax will be based on the actual amount received.

I am not sure what you mean by "Will this tick box not show in the tax return"? There is no tick box for the notional tax credit, it is applied automatically in the tax calculation. If you mean tick box E in the SA Foreign Pages that is to claim Foreign Tax Credit Relief. You only tick that if the dividend has been taxed abroad and you want to claim a credit to the extent it is permissible, as opposed to a later deduction.

Dividends from Eire-based ETFs are not subject to any withholding tax so there is no taxation at source and nothing to claim back.

Any taxation of dividends abroad will presumably continue to be handled as now i.e. the amount of tax taken will generally be limited by a double-taxation treaty, you may have to fill in a form to make sure that it is properly limited e.g the US, you can claim Foreign Tax Credit relief on the withholding tax. (There is a also a "deduction" route but that is less useful.)

The situation for interest-paying ETF such as bond funds is of course different - they continue to pay interest gross. Unlike their UK brethren, who despite the change to gross on bank interest, will pay net of tax till April 2017.

[wickham]

I am not sure what you mean by "Will this tick box not show in the tax return"? There is no tick box for the notional tax credit, it is applied automatically in the tax calculation. If you mean tick box E in the SA Foreign Pages that is to claim Foreign Tax Credit Relief. You only tick that if the dividend has been taxed abroad and you want to claim a credit to the extent it is permissible, as opposed to a later deduction.

Dividends from Eire-based ETFs are not subject to any withholding tax so there is no taxation at source and nothing to claim back.

Thanks.

There definitely was a check box in the tax return foreign dividends section because for four years I didn't tick it and discovered that I had not got the 10% tax credit on Dublin iShares ETFs. I got three years tax refund through adjusted tax returns but the fourth year had to be claimed separately. I think the check box in the tax return disappeared in my last return 2015/16 but there was still a place to request the 10% tax credit, I think I remember it was a Yes or No answer.

[helfordpirate]

Um... well if that's the case I have been doing it wrong for many years!

I thought the way it worked was...
- the calculation assumes that dividends have a 10% UK tax credit automatically (since 2008)
- if the dividend is not entitled to the UK tax credit (some obscure tax treaty stuff) you have to explicitly declare the non-qualifying income i.e. you get the credit unless you explicitly say it is not entitled
- if you claim Foreign Tax Credit relief you have to use the grossed up values in column B. The way the calculation works is it later takes off the 10% again and also needs the grossed up amount to check that you get the minimum of UK tax due (which is a % of the gross amount) and the foreign tax paid/entitled.

Hopefully someone more authoritative can clarify!

[genou]

I am not sure what you mean by "Will this tick box not show in the tax return"?

There definitely was a check box in the tax return foreign dividends section ...

Dig out your return and tell us the number of the box. I don't recall such, and looking back at the 2014 return ( as downloadable from HMRC ) I can't see one.

[PinkDalek]

I am not sure what you mean by "Will this tick box not show in the tax return"?

There definitely was a check box in the tax return foreign dividends section ...

Dig out your return and tell us the number of the box. I don't recall such, and looking back at the 2014 return ( as downloadable from HMRC ) I can't see one.

Me neither.

The (notional) Tax Credits have always been given automatically in the tax calculation (unless, perhaps, Wickham is doing the Tax calculation himself). Perhaps the OP is thinking about the "X" in Column E as in "E To claim Foreign Tax Credit Relief put ‘X’ in the box" on Page F 3 which is a different matter entirely (the link below is for 2012-13):

https://www.gov.uk/government/uploads/s ... 6-2013.pdf

[PinkDalek]

...

I thought this query of yours (assuming Wickham43 is you) sounded familiar and have found this unanswered post of yours at TMF:

http://boards.fool.co.uk/overpaid-tax-o ... 85024.aspx

I can't copy and paste it here, as it is your copyright, but you can, should you so wish. There does appear to be some confusion between Foreign Tax Credit Relief and the (notional) UK tax credit.

[helfordpirate]

I think part of the confusion is that in the Foreign Pages notes it tells you, that if you want "to claim the tax credit" (it means the Foreign Tax Credit not the UK dividend tax credit) to gross up the amount you receive plus any foreign tax by 100/90 i.e. the notional tax credit and put that amount in column B and to add 10% of it to box 2 which is the claim for Foreign Tax Credit Relief. I think this is just a mechanism needed in the tax calculation.

If however you mistakenly ticked column "E" (Foreign Tax Credit) (perhaps thinking it was UK Dividend Tax Credit) and then DID NOT gross up the amount in column B you will I think end up claiming 10% relief on your foreign dividends. As this is a real proper relief, nothing notional about it, you will get a tax reduction or refund. I am speculating...

[PinkDalek]

I think part of the confusion is that in the Foreign Pages notes it tells you, that if you want "to claim the tax credit" (it means the Foreign Tax Credit not the UK dividend tax credit) to gross up the amount you receive plus any foreign tax by 100/90 i.e. the notional tax credit and put that amount in column B and to add 10% of it to box 2 which is the claim for Foreign Tax Credit Relief. I think this is just a mechanism needed in the tax calculation.

The notes here on Page FN 6?:

https://www.gov.uk/government/uploads/s ... s-2015.pdf

If so, I think you meant "it means the the UK dividend tax credit not Foreign Tax Credit" (rather than vice versa) as in the "Working Sheet for non–UK dividends qualifying for tax credit" and "To claim the tax credit, copy the figure in box E
to box 2 on page F 1 of the ‘Foreign’ pages". This being 10% of the grossed-up amount.

Incidentally, there was discussion on this aspect back at TMF. I have never grossed up for the UK Tax Credit on the Foreign Pages but still get granted it. I don't submit a Tax calculation so perhaps that is the reason but I check HMRC's calculation thoroughly.

As for my (Notional) I think we both know what I meant!

[wickham]

In 2012/13 and previous years the printed tax return "Divs from foreign companies" item 7 said "Amount included in box 6 that does not qualify for UK tax credit" and I put the full amount there for several years and eventually realised my mistake and HMRC refunded me. (my reference to checking the box which said "To claim foreign tax credit relief put 'X' in the box" was irrelevant, I left it blank).

That's all sorted; this topic is about what happens for the next tax return 2016/17 and I think I'll digest what you've said. Thanks.

[helfordpirate]

I think part of the confusion is that in the Foreign Pages notes it tells you, that if you want "to claim the tax credit" (it means the Foreign Tax Credit not the UK dividend tax credit) to gross up the amount you receive plus any foreign tax by 100/90 i.e. the notional tax credit and put that amount in column B and to add 10% of it to box 2 which is the claim for Foreign Tax Credit Relief. I think this is just a mechanism needed in the tax calculation.

If so, I think you meant "it means the the UK dividend tax credit not Foreign Tax Credit" (rather than vice versa) as in the "Working Sheet for non–UK dividends qualifying for tax credit" and "To claim the tax credit, copy the figure in box E
to box 2 on page F 1 of the ‘Foreign’ pages".

I did actually mean what I wrote - but I am now very confused! I post this just in case others follow...

If you follow the tax calculation in HS263 https://www.gov.uk/government/publicati ... -helpsheet it is clear that the dividend figure required to calculate FTCR is a grossed up one. This is because the calculation needs the grossed one to check the tax due on the dividend - to see if it is less than the foreign tax paid. However, the worksheet says you should gross up the figure in column F i.e. that it is not grossed up already.

I tried entering a few things in Taxcalc (which you would hope would get it right!) - it never grosses up columns B or F, but does gross up the number in the FTCR calculation.

If you go back and read the notes for 2014 and 2013 the same paragraph and mini-worksheet appears but it is under a section about remitted dividends and would appear to be some mechanism for claiming the UK dividend tax credit on dividends now remitted but paid earlier. In the 2015 and later notes the section seems to have re-located under a Foreign Tax Credit sub-title but with the same wording.

My conclusion at this point is that you don't gross up B and F if you are claiming a FTCR (it gets grossed up in HS263); you do not gross it up either to get UK dividend tax credits (as this happens automatically). It seems to be some legacy text...

I always just put the amount received in and have never claimed or had any foreign tax paid anyway!

[PinkDalek]

I did actually mean what I wrote - but I am now very confused! I post this just in case others follow...

My conclusion at this point is that you don't gross up B and F if you are claiming a FTCR (it gets grossed up in HS263); you do not gross it up either to get UK dividend tax credits (as this happens automatically). It seems to be some legacy text...

I always just put the amount received in and have never claimed or had any foreign tax paid anyway!

Thanks, very helpful, and sorry to have caused the confusion. I think we were looking at different things and, from what you've said, I was probably looking in the wrong place!

[Gengulphus]

In 2012/13 and previous years the printed tax return "Divs from foreign companies" item 7 said "Amount included in box 6 that does not qualify for UK tax credit" and I put the full amount there for several years and eventually realised my mistake and HMRC refunded me. (my reference to checking the box which said "To claim foreign tax credit relief put 'X' in the box" was irrelevant, I left it blank).

That's all sorted; this topic is about what happens for the next tax return 2016/17 and I think I'll digest what you've said. Thanks.

The answer is that if HMRC stick to their normal form, the 2016/17 tax return won't be publicly available until 6 April 2017. It will clearly have changes to the questions to reflect the changes to dividend taxation, but we can only speculate about exactly what those changes will be.

However, since the changes to dividend taxation get rid of the notional 10% UK tax credit on dividends, one of the safer bits of speculation is that anything about that tax credit will vanish.

Gengulphus