Tax treatment of Foreign Dividend income

Thank you TonyE Reading INTM601160 as provided to you by HMRC, it appears to talk about the person in receipt of the stock/scrip dividend being abroad, but Nik1957 is UK resident so I am not sure this is the section they meant to send you? It seems to be specifically talking about transfers of assets abroad, which has no relavence to what Nik1957 or we are asking. Or maybe I am reading this wrong!

Dear HMRC, this issue still does not appear to have been resolved. Can you please confirm if there is anywhere else we can take this matter further, perhaps direct to a department within HMRC. I am happy to write or email that department directly with a history of this thread for their consideration? Thank you Peter

Hi Peter Roberts,

We hope to provide a definitive reply within the next 10 to 15 working days.

Thank you.

Hi, I am also interested in this. I am a Uk resident and tax payer. I have shares via Hargreaves in eg equinor. The dividends have a 25% withholding tax applied. The Equinor web site confirms this and provides a link to the Norwegian Tax Authorities who state that I am not to write to them but should contact my broker (nominee account at Hargreaves) but they do not want to know. They also say that they have no foreign custodian to write to. My accounting company in London would also like to know the answer. The shares are held in SIPP, ISA and share account. So i want to reclaim the 25% withholding tax on the ISA and SIPP in full and appreciate i am meant to only pay 15% to Norway on the share account and then state this on self assesment. I think i need formal stamped confirmation from HMRC of my residency and status to send to someone (not sure who as Norway Tax web site says dont send to them and equinor refers one to this web site) so that going forwards i dont get taxed in the first place. I also need to claim back 15% on my self assesment (as i cant claim 25% as it has already been paid): is this correct? I also act for 3 childrens ISA's with european shares in them so what do they have to do? I also want this information for several countries in Europe not just Norway. The situation on USA and Canadian shares is quite different as most brokers get you to fill out a W8-Ben form and thus tax is deducted at 15%. I presume i then state this on the self assesment form. I know at least 10 people who have the same issue including my accounting company - and have agreed i will reply to all once i know the answer. We are specifically inerested in Norway, Denmark, Switzerland, France, Spain, Germany, Portugal i.e. all of whom have dual taxation treaties with UK. I have told my Accounting company that we can expecet an answer in the next 2 days as pre HMRC Admin 2 statement above... so we are quite excited to know this!!

Hi Robin I am not sure that you are going to get the answer you need from this thread. This thread refers specifically to the taxation or not of foreign stock/scrip dividends for UK residents (and UK domiciled), although perhaps some of your cases might indeed contain these within their portfolios!

To Peter Roberts: this is exactly my (and friends position)? We are UK residents and UK domiciled. We use Hargreaves and ii as a broker in UK. We hold European and USA stocks within our private portfolio. We get dividends from these companies which have withholding tax applied at a rate greeater than that required by dual taxation law. My undrstanding of this thread is exactly this position. It is easy on the USA stocks due to Hargreaves getting people to sign a W8-BEN form. Not easy on European stocks on any broker i can find as they dont want to fill in the necessary paperwork on behalf of their clients so the client gets charged withholding tax in excess of that required by dual taxation.

Hi all,

“Stock dividends”, if they are traditionally structured bonus issues, are neither dividends (since nothing leaves the company) nor capital reductions, but rather reflect a capital reconstruction. 

Stock dividends as defined in the legislation are treated as income by virtue of S1049 CTA10 and, where undertaken by UK resident company, are taxable as savings income under S409 to S414 CHAPTER 5, Part 4 ITTOIA05.

However, there is no equivalent charge for stock dividend income from a non-UK resident company. Furthermore, the charging provision for dividends from non-UK resident companies (‘overseas dividends’) is quite different from the charging provision for UK dividends and other distributions at section 383 ITTOIA 2005. Section 402 ITTOIA 2005 is narrower, for example it excludes ‘dividends of a capital nature’.

This means that to be charged to income tax under s402 ITTOIA, something described as a “stock dividend” by a non-UK resident company would need to be a dividend of an income nature. It is the company law mechanism of payment that determines whether the payment is a ‘dividend’ or not (this is set out in more detail by the Court of Appeal in HMRC v First Nationwide. This case determined that whether an issue of share capital by an overseas company is chargeable to UK income tax, the primary question is whether the distribution is paid by a dividend mechanism. The dividend will only escape the charge to income tax if it is accompanied by a reduction in capital or paid in a liquidation). There is further guidance on the meaning of stock dividend at CTM17005, and a specific comment on ‘Dividend Reinvestment Plans’.

CTM17005 - Distributions: stock dividends: introduction

Applying this to the question raised here it is necessary to look at the exact mechanism being used to achieve any sort of “stock dividend” by a foreign company. If the transaction in question is a true “bonus issue”, then a SCRIP dividend will not give rise to a charge under section 402, ITTOIA 2005 for the reasons set out above – nothing has left the company and there has been no capital reduction. However, where alternative methods are used – such as the DRIP scheme you note in your query – it is possible that a dividend chargeable under section 402 has been received, but it always depends on the exact mechanism used in the particular jurisdiction.

Thank you.
 

Thank you HMRC. Appreciate that detailed clarification. This needs to get out to as many people as possible. Peter