Drawing dividends from UK LTD while working& living abroad

[LondonPM1]

How do they calculate the tax owed and which tax bracket you are in if you also earn money outside the UK (be it perm or via local ltd company)? Simply take whatever salary you are on outside of the UK, convert into £ and go from there? Seems like it can get messy fairly quickly with tax paid in two countries.

Asking, as I'm thinking of taking a perm job outside the UK and moving out altogether, just not sure for how long. Already read the bit that tax is payable on all profits earned whilst working in the UK, so fair enough on that end, but I'm not 100% sure how the detailed calcs are done when the individual in question is also working and living outside the UK.

I am in this position and can confirm that your overseas income is not included - So you can take 50K income on basic tax without any reference to income from outside the UK if you are no longer tax resident

[dsc]

Isn't there some sort of EU anti-avoidance legislation which means you get taxed more in the country of residence if you pay very little tax on your dividends in the UK? I just can't believe that you can move outside the UK, get a job which pays say 150k euros and still draw out £50k dividends with 7.5% tax paid on that without anyone thinking this is dodgy.

[LondonPM1]

Isn't there some sort of EU anti-avoidance legislation which means you get taxed more in the country of residence if you pay very little tax on your dividends in the UK? I just can't believe that you can move outside the UK, get a job which pays say 150k euros and still draw out £50k dividends with 7.5% tax paid on that without anyone thinking this is dodgy.

You might have to pay in the new country tax on both sets of income - from the uk and the new country

But the UK only taxes it without taking your overseas income into account

[jamesbrown]

Isn't there some sort of EU anti-avoidance legislation which means you get taxed more in the country of residence if you pay very little tax on your dividends in the UK? I just can't believe that you can move outside the UK, get a job which pays say 150k euros and still draw out £50k dividends with 7.5% tax paid on that without anyone thinking this is dodgy.

You will pay dividend tax on the UK dividends received overseas, most likely. Additionally, you will pay dividend tax in the UK as temporarily non-resident on your year of return, most likely, with all dividends declared in the non-resident years accrued as declared in the year of return. So you can end up paying a lot more tax than you might expect. As I said, double taxation can happen here because this is anti-avoidance legislation.

[skysies]

This only applies to dividends on UK profits made before you became a temporary non-resident. All UK dividends will be taxed as though they were declared in your tax year of return (if you return within 5 years) and will form the top slice of income as normal.

Well, that's a lot of hearsay I would say. I don't see why the HMRC will tax this in your tax year of return:

1. Leave the UK and get the non-resident status for tax purposes
2. Draw dividends in the period you are non-resident. Those dividends are for profits generated through the UK company before leaving the UK.

The dividends would be taxed in the period I'm away from the UK. I'm also thinking of paying the 12.5K salary and 2K in dividends. That would imply zero tax for the periods I'm away. I'm aware that if I return to the UK in the middle of the tax year, that will be a different story.

[jamesbrown]

Well, that's a lot of hearsay I would say. I don't see why the HMRC will tax this in your tax year of return:

1. Leave the UK and get the non-resident status for tax purposes
2. Draw dividends in the period you are non-resident. Those dividends are for profits generated through the UK company before leaving the UK.

The dividends would be taxed in the period I'm away from the UK. I'm also thinking of paying the 12.5K salary and 2K in dividends. That would imply zero tax for the periods I'm away. I'm aware that if I return to the UK in the middle of the tax year, that will be a different story.

Hearsay.

Good luck with that.

Finance Act 2013

[zerosum]

Well, that's a lot of hearsay I would say. I don't see why the HMRC will tax this in your tax year of return:

1. Leave the UK and get the non-resident status for tax purposes
2. Draw dividends in the period you are non-resident. Those dividends are for profits generated through the UK company before leaving the UK.

The dividends would be taxed in the period I'm away from the UK. I'm also thinking of paying the 12.5K salary and 2K in dividends. That would imply zero tax for the periods I'm away. I'm aware that if I return to the UK in the middle of the tax year, that will be a different story.

Completely agree with jamesbrown. This is not hearsay. Some basic Googling of "temporary non-residence" and dividend will net you many results, including from accountingweb.

Additionally, the picture is complicated by Brexit. You need 5-6 full tax years outside the UK, but ensuring this has become vastly more difficult (at least within the EU, and it was always difficult outside it) by virtue of the loss of freedom of movement. If you become legally resident in an EU country by the end of the transition period, and ensure that you aren't absent for more than six months in any rolling window of time for the subsequent 5 years until you qualify for permanent residency, you're OK. But if you want to continue to operate your UK ltd (e.g. because of UK agents) there might be CFC issues to consider.

[skysies]

Hearsay.

Good luck with that.

Finance Act 2013

Ok, let me give an example:

1. I leave the UK in tax year 2021. During that tax year, I start paying a salary for a max of 12.5K and withdraw dividends for max of 2K. These two are below the taxable threshold, so normally one won't pay any tax on them.
2. Then I come back to the UK in tax year 2023.

Do you mean that HMRC will then say that I already used all my tax-free allowances in 2021 and so I can't use them in 2023?

[jamesbrown]

Ok, let me give an example:

1. I leave the UK in tax year 2021. During that tax year, I start paying a salary for a max of 12.5K and withdraw dividends for max of 2K. These two are below the taxable threshold, so normally one won't pay any tax on them.
2. Then I come back to the UK in tax year 2023.

Do you mean that HMRC will then say that I already used all my tax-free allowances in 2021 and so I can't use them in 2023?

It's really quite simple. If you take a dividend from a close company (in which you hold a 5% or greater share) from profits accrued while in the UK and the dividend is declared while you're temporarily non-resident, then you are taxable on the full amount of that dividend in the tax year you return, if you return within 5 years, regardless of any tax treaty benefits that might otherwise accrue (e.g., whether it was taxed overseas too). Your example is completely ignorant because it talks about salary (not part of the anti-avoidance legislation, which I linked) and you imply that the dividend is taken while you are resident in the UK

[zerosum]

If it's for two years, and you're working through a local ltd in Europe, why not liquidate your current company and benefit from ER? You should be able to open a new one after two years.

Also bear in mind that the UK is unusual in having an April-April tax year, which can add to the difficulty in being absent for 5 tax years. You generally want the strongest proof possible that you have genuinely been elsewhere which means being registered and filing tax returns etc. elsewhere.