Non Uk Tax Resident And Dividend Tax Removes Personal Allowance

[NowPermOutsideUK]

As I prepare for the 31 Jan deadline I just want to share information I received from my accountant first to help others but also to check its veracity.

Suppose you have income of 50K from uk rental income and are not UK tax resident - You would of course pay UK tax on that rental income and entitled to personal allowance and basic and higher rate thresholds

However if you also decide to take dividends from your UK based Ltd which has a warchest (bearing in mind that dividends to non uk residents are tax free) then your personal allowance is no longer available to you...

Does anyone know if this is the case? Do dividends from a UK Ltd mean that personal allowance is not available for non residents?

[Paralytic]

What does your accountant say?

Are you sure dividends to non-uk residents are tax free, or are they just "effectively" tax free in most/many cases?

Seriously, this is the sort of thing I'd not trust the opinion of random folk on the internet

[NowPermOutsideUK]

What does your accountant say?

Are you sure dividends to non-uk residents are tax free, or are they just "effectively" tax free in most/many cases?

Seriously, this is the sort of thing I'd not trust the opinion of random folk on the interne

Dividends to non uk tax residents are tax free in the UK - However the loss of personal allowance is what is troubling me which is why I hoped that someone else would have come across this before and hopefully share their view

[northernladuk]

What does your accountant say?

Are you sure dividends to non-uk residents are tax free, or are they just "effectively" tax free in most/many cases?

Seriously, this is the sort of thing I'd not trust the opinion of random folk on the internet

Particularly on a UK contracting site.

[eek]

Find another accountant and ask them

There are going to be about zero people on this site in your situation (i.e. working abroad with continuing UK income) and being frank no one who is interested in your tax avoidance attempts.

[ContractorPL]

As I prepare for the 31 Jan deadline I just want to share information I received from my accountant first to help others but also to check its veracity.

Suppose you have income of 50K from uk rental income and are not UK tax resident - You would of course pay UK tax on that rental income and entitled to personal allowance and basic and higher rate thresholds

However if you also decide to take dividends from your UK based Ltd which has a warchest (bearing in mind that dividends to non uk residents are tax free) then your personal allowance is no longer available to you...

Does anyone know if this is the case? Do dividends from a UK Ltd mean that personal allowance is not available for non residents?

I haven't yet talked about it with my accountant yet, but that's exactly how I understand HMRC guidelines - there are two ways - either calculate your tax as if you were a resident or treat dividends as disregarded income AND resign from your personal allowance.

HMRC suggests you should follow the route which results in less tax, what I don't know, though is if it means overall tax or UK tax only (in my cases I'll be better off paying more UK tax (out of these 2 ways) because it results in less total tax due to my country's tax rules. I also don't understand how/where to apply DTA rules (cap the dividend tax, especially if you calculate as you were a resident)

HS300 Non-residents and investment income (2019) - GOV.UK

P.S. in here, what the author meant by tax free dividends was: "no UK tax, foreign tax applying"

[lecyclist]

In addition to ContractorPL's comment.

1. You can instruct your accountant concerning which years you want to be assessed under excluded income, or whether to use your UK personal allowance.
2. If a tax year is classified as having excluded income, be aware that any dividends taken out in that tax year may be reassessed, if it transpires that you return to the UK and were temporarily non-UK resident. Standard recommendation would be to apply excluded income only if you are certain you will remain non-UK tax resident for 5 years following the date you become non-resident. IANATA.
3. Important to check whether you need to declare dividends in your country of residence (I'm assuming you have checked with you local accountant and no tax is eligible on worldwide income or dividends specifically) . If tax should be applied, it is likely that using your personal allowance, and the 7.5% tax on dividends up to your basic rate income tax band in the UK, would be more attractive for smaller amounts. For larger amounts you could stagger drawdowns across tax years to reduce overall tax.
4. As a rule of thumb, the decision to apply excluded income becomes more compelling once drawdown amounts are over £100K.

[ContractorPL]

In addition to ContractorPL's comment.

1. You can instruct your accountant concerning which years you want to be assessed under excluded income, or whether to use your UK personal allowance.
2. If a tax year is classified as having excluded income, be aware that any dividends taken out in that tax year may be reassessed, if it transpires that you return to the UK and were temporarily non-UK resident. Standard recommendation would be to apply excluded income only if you are certain you will remain non-UK tax resident for 5 years following the date you become non-resident. IANATA.
3. Important to check whether you need to declare dividends in your country of residence (I'm assuming you have checked with you local accountant and no tax is eligible on worldwide income or dividends specifically) . If tax should be applied, it is likely that using your personal allowance, and the 7.5% tax on dividends up to your basic rate income tax band in the UK, would be more attractive for smaller amounts. For larger amounts you could stagger drawdowns across tax years to reduce overall tax.
4. As a rule of thumb, the decision to apply excluded income becomes more compelling once drawdown amounts are over £100K.

Lecyclist - if I want to follow option "as resident" (UK dividend tax + personal allowance), I still don't need to take into account my non-UK income for my UK self assessment , correct?

[lecyclist]

Lecyclist - if I want to follow option "as resident" (UK dividend tax + personal allowance), I still don't need to take into account my non-UK income for my UK self assessment , correct?

Only UK-sourced income needs to be reported if you are UK non-resident. IANATA

There are a number of posts on reportingweb that provides the same answer. Here is one from 2017.

Where do I report foreign income as a UK non-resident? -Tax Forum :: Free Tax Advice

[NowPermOutsideUK]

Lecyclist - if I want to follow option "as resident" (UK dividend tax + personal allowance), I still don't need to take into account my non-UK income for my UK self assessment , correct?

I agree with that - You only report your UK income on your tax return if you are not tax resident