If you are residing in the UK and own shares of a company overseas, you need to know foreign dividends tax and the relevant set of rules regarding this. The process of implementing foreign dividends tax is quite simple unless it is interrupted by the other countries’ tax rules. In this guide, you will get help to learn what foreign dividends are and what is foreign dividend tax in the UK. Let us continue reading to learn all the basics related to your foreign dividends and how you can declare them to HMRC.
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How to Define Foreign Dividends?
In the UK, foreign dividends refer to dividend payments from companies outside the UK. These dividends will undergo some tax implications for individuals and businesses. Several types of foreign dividends can be received in the UK. Foreign dividends received in the UK are subject to taxation. The tax implications depend on the individual’s or business’s tax status and the type of dividend received.
Moreover, individuals and businesses receiving foreign dividends must report them to HMRC. Individuals must report foreign dividends on their self-assessment tax return. Companies must report foreign dividends on their company tax return. Individuals and companies may receive dividend vouchers from the paying company, which must be kept as proof of dividend income.
Can I Claim Foreign Tax Credit Relief on Foreign Dividends?
To claim foreign tax credit relief, you’ll need to keep records of the foreign dividends received and the tax withheld. Complete the relevant sections of the tax return to claim foreign tax credit relief. Attach supporting documents, such as dividend vouchers and tax certificates, to the tax return.
How are Foreign Dividends Taxed in the UK?
Foreign dividends are taxed as income in the UK, and the tax rates depend on the individual’s or company’s tax status. The tax rates on foreign dividends are for basic rate taxpayers, it is 8.75% on dividend income and for higher rate taxpayers, it is 33.75% on dividend income.
In the case of additional rate taxpayers, it is 39.35% on dividend income. Corporation tax rates also apply to foreign dividend income at a certain percentage. Moreover, there are several allowances and reliefs available to reduce the tax liability on foreign dividends. Tax on foreign dividends is usually paid through the self-assessment system or corporation tax returns.
How much is the Dividend Allowance in the UK?
The dividend allowance was introduced in 2016 as part of the UK government’s efforts to simplify the tax system and provide relief to small investors and business owners. Before 2016, dividend income was taxed as income with no specific allowance. The dividend allowance was set at a different for the 2016-2017 tax year and has since been reduced. Now it is £500 for the tax year 2024-2025.
Individuals must be resident in the UK for tax purposes and receive dividend income from UK or overseas companies. Individuals must be subject to UK income tax on their dividend income. The dividend allowance works by providing a tax-free allowance on dividend income.
What is the Tax Implications of the Dividend Allowance?
The dividend allowance has several tax implications. Tax-free allowance is the first £500 of dividend income is tax-free. The basic rate tax is for dividend income above the £500 allowance is taxed at the basic rate of 8.75%. Dividend income above a certain limit is taxed at a higher rate of 33.75%, and dividend income is taxed at an additional rate of 39.35%.
Can you Declare Foreign Dividends on Tax Returns in the UK?
To declare foreign dividends, you’ll need to complete the relevant tax return form. Self-assessment tax return (SA100) is for individuals receiving foreign dividends who must complete the Self-assessment tax return form. Companies receiving foreign dividends must complete the company tax return form.
To declare foreign dividends, you’ll need to gather the required information. Obtain dividend vouchers from the paying company, which show the amount of dividend paid and any tax withheld. Get foreign tax certificates, which show the amount of tax withheld in the foreign country. Obtain dividend statements from the paying company, which show the amount of dividend paid and any tax withheld.
How to Declare?
To declare foreign dividends, complete the foreign income section of the tax return form, including the amount of foreign dividend income received. Report dividend income on the tax return form, including the amount of dividend income received and any tax withheld. Relief is available for foreign tax withheld on dividends, which can be claimed against UK tax liability.
What are the Deadlines and Penalties?
There are certain deadlines when it comes to submitting tax returns or paying tax on foreign dividends. The deadline for self-assessment tax returns is 31 January following the tax year. The deadline for the company tax return is 9 months and 1 day. This is after the accounting period of the company. Penalties and fines apply for late submission of tax returns, including a £100 penalty for missing the deadline.
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The Bottom Line
In conclusion, it is crucial to understand how foreign dividends tax works in the UK because the tax system here is quite overwhelming. Not following the deadlines and accurate procedure of declaring it to HMRC can cause trouble for you in the form of fines and penalties. If you are still confused and looking for further guidance, you can talk to our tax specialist and get tailored advice according to your unique situation in this regard.
Disclaimer: All the information provided in this article on foreign dividends tax, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
