Non-UK Tax Resident - Dividends

[Mister Clark]

Hi All, as posted recently, my circumstances are that I left the UK mid-July 2014 and have not returned back to the UK since then.

I have a limited company with retained funds which I plan to liquidate via a MVL and take advantage of ER whilst it is still around.

My question has two parts:

1 - I am currently in Australia and have spoken with a advisor here. They have advised that I look to withdraw the retained funds as dividends. This would not be taxable in Australia as I am not a permanent resident and also not taxable in the UK as I am a non-tax resident there; net result being no tax to pay (I do not believe this to be true).

I plan to return to the UK in the next 2-3 years; my UK accountant has advised that if I return within 5 years of leaving the UK then the dividends would be taxable on my return.

I have no reason to doubt this advise, but, based on the conversation with the Australian tax advisor it seems to be the diligent thing to do is to seek an independent opinion; I was hoping that one of the helpful accounts on CUK may be able to offer this.

2 - At the start of the 2014-2015 tax year my accountant advised I extract approximately 32k in dividends (I cant remember the exact figure) which I have done (I did not pay a salary to myself as this would be taxable in Australia).

At the time he advised that the dividend would be taxable on my return to the UK. To paraphrase, although I paid during the 2014-2015 tax year, if I were to return during the 2016-2017 tax year the dividend would be taxed as if it were paid during 2016-2017.

Since then Osborne has announced the changes to dividend tax that will take effect as of 6th April 2016. This now means that I will incur a tax liability I could not have known about at the time the dividend was declared; my account has advised that there is nothing I can do to avoid this.

Again, whist I have no reason to doubt the advice (and apologies if this turns into a rant), it doesn't seem right that I would incur a tax liability.

In essence it feels like a retrospective tax; I could return to the UK which isn't going to happen given the sums of money in question. In addition my Australian income would then also become taxable in the UK.

Is it a case of like it or lump it? I've asked if there is any kind of 'protective claim' that can be made but have been advised there is not. Any second opinions welcomed.

Many thanks in advance, Mister Clark.

[northernladuk]

I have no reason to doubt this advise, but, conversation with the Australian tax advisor it seems to be the diligent thing to do is to seek an independent opinion; I was hoping that one of the helpful accounts on CUK may be able to offer this.

My independent opinion is that you should be using 'advice'..

Again, whist I have no reason to doubt the advise (and apologies if this turns into a rant)

ARRRGHHHHHHHH!!!

[jamesbrown]

You really need expert advice, not forum advice (unless you're lucky enough that a UK-Oz dual tax specialist is lurking ). That said, your accountant is correct insofar as it would be chargeable in the year of return to the UK if you are non-resident for fewer than five tax years. However, IIRC, it would not be chargeable if you were also resident for fewer than four of the seven years prior to your departure (to Australia).

[Mister Clark]

You really need expert advice, not forum advice (unless you're lucky enough that a UK-Oz dual tax specialist is lurking ). That said, your accountant is correct insofar as it would be chargeable in the year of return to the UK if you are non-resident for fewer than five tax years. However, IIRC, it would not be chargeable if you were also resident for fewer than four of the seven years prior to your departure (to Australia).

Thanks for the reply.

Agree regarding engaging an expert. I've spoken with a firm in Australia who specialise in UK/Australian tax which is why I was a bit miffed to get conflicting advice with regards to the dividends being 'tax free'.

[Mister Clark]

My independent opinion is that you should be using 'advice'..

ARRRGHHHHHHHH!!!

It's gone midnight in the UK, my advise would be to get some shut eye.

[jamesbrown]

Thanks for the reply.

Agree regarding engaging an expert. I've spoken with a firm in Australia who specialise in UK/Australian tax which is why I was a bit miffed to get conflicting advice with regards to the dividends being 'tax free'.

Well, it isn't tax-free in the sense that YourCo has paid UK Corporation Tax on any profit. Incidentally, although unrelated, YourCo may now have obligations in Oz if you're managing your company from Oz (this is a risk with small companies because tax residency may follow the residency of the controlling persons). In terms of any personal tax liability, the rule in most countries (excluding the US, for example) is that residents are taxed on their worldwide income, and non-residents are taxed on their local income only, so it's plausible that you may not have an additional liability in Oz. That being said, based on the information you've provided, my expectation would be that you're already a resident for tax purposes in Oz (i.e. taxable on your worldwide income, for which treaty benefits may apply).

[Mister Clark]

Well, it isn't tax-free in the sense that YourCo has paid UK Corporation Tax on any profit. Incidentally, although unrelated, YourCo may now have obligations in Oz if you're managing your company from Oz (this is a risk with small companies because tax residency may follow the residency of the controlling persons). In terms of any personal tax liability, the rule in most countries (excluding the US, for example) is that residents are taxed on their worldwide income, and non-residents are taxed on their local income only, so it's plausible that you may not have an additional liability in Oz. That being said, based on the information you've provided, my expectation would be that you're already a resident for tax purposes in Oz (i.e. taxable on your worldwide income, for which treaty benefits may apply).

Your quite right re corporation tax, I was talking from a personal tax liability rather than from the limited companies POV.

In Australia you can be a resident for tax purposes (which I am due to the duration of time spent here plus how long I've worked), but a temporary resident (which I am; if you don't have a permanent visa then you are classified as a temporary resident).

Taken from the ATO (sniped some of the bits not applicable to me):

If you are an Australian resident for tax purposes and meet the requirements to be a temporary resident, the temporary resident rules mean:

•Most of your foreign income is not taxed in Australia except income earned from employment performed overseas for short periods while you are a temporary resident. This income is subject to income tax and would still be declared in your return for the year in which you earned it. Where you paid tax in a foreign country, you may be entitled to claim a foreign income tax offset when you lodge your tax return.

•If a capital gains tax event occurs on or after 12 December 2006, a temporary resident is not liable to capital gains tax (nor is treated as having made a capital loss) unless the asset is 'taxable Australian property'.

•If a capital gains tax event (such as the sale of an asset) occurred between 1 July 2006 and 12 December 2006, a temporary resident was not liable for capital gains tax (nor was the temporary resident treated as having made a capital loss) unless the asset had a 'necessary connection with Australia'. Special rules apply to capital gains on shares and rights acquired under employee share schemes (For more information employee share scheme refer to Foreign income exemption for Australian residents and temporary residents - employee share schemes).

So far as I understand it I'm only taxed on foreign income from employment sources which is why I have not paid myself a salary this year.

It's never straight forward!

[jamesbrown]

It's never straight forward!

No, indeed, you need someone familiar with the specific pair of countries and your circumstances. It's one of those areas that has limited mileage on a forum. FWIW, I've even had incorrect advice from specialists before (so try to find the best one you can)

[MrMarkyMark]

FTFY

I was hoping that one of the helpful accounts on CUK may be able to offer this free of charge.

Something as important as this?
Get some specialist paid for help ASAP.

HTH.

[Scruff]

If you are a UK Citizen, and a director of YourCo, as well as a shareholder, the sad news is that you are a UK Taxpayer and are liable to complete a Self-Assessment Tax Return.

I would forget about the Aussie advice under those circumstances and seek the advice of your UK Accountant and get them to complete your UK Tax Return?

If you are an Aussie Citizen, then when you come back here go to Pamps, Oktoberfest, Solar, and get digs in Earl's Court