Tax on Dividends & Interest

Foreign Dividends Income

Our tax accountants take care of your accounting needs and ensure that companies and individuals comply with changing and complex laws on tax on dividends.

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The changes made to Dividends Tax and Credits in 2016 were complex, so you should seek professional dividend and tax advice, so you don’t have to pay more than you need. We can help you plan and give professional advice in order to avoid a detrimental effect on your household budget, a couple earning £100,000 per annum are now worse off by around £5,000. Small business owners will also need new guidance, especially if the company owner paid themselves £8,000 per annum to cover basic NIC benefits. The new system could see you pay an extra £2,050 on a dividend of £40,000 with a basic £8,000 salary. Forthcoming amendments to corporation tax will also see these thresholds change over the next few years, so we understand many people will seek the help and support of a professional tax accountant to help plan around the tax on dividends and their tax returns.

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Dividends paid by UK resident companies to shareholders attract dividend tax according to their income tax bands. Basic rate taxpayers pay 7.5% dividend tax, higher rate 32.5% and additional rate taxpayers 38.1%. This is regardless of whether dividends are taken as cash income or reinvested. The annual dividend allowance lets the first £2,000 of dividends be received tax free. Dividends above this threshold are declared on self assessment returns and taxed at the relevant rate. Tax rates are subject to change for coming tax years.

Yes, foreign dividend income received by UK residents is subject to UK income tax. Dividends from overseas companies must be reported on your UK self assessment alongside any UK dividends. The same dividend allowance and tax rates apply. Any foreign dividend tax withheld at source can typically be credited against your UK tax liability, subject to limits.

Standard UK bank account interest is taxable as savings income. The Personal Savings Allowance exempts the first £1,000 of interest for basic rate taxpayers or £500 for higher rate taxpayers. Interest above these allowances is taxed at your marginal income tax band – 20% basic rate, 40% higher rate or 45% additional rate. Non-residents may have interest paid to them gross without deduction of tax.

Yes, interest earned on overseas accounts owned by UK tax residents is subject to UK tax. Whether the account is based in the Channel Islands, Isle of Man, Cyprus, Dubai or elsewhere, you must still declare this on your UK self assessment return. The same Personal Savings Allowance will apply and additional tax may be due above the exempt threshold based on your tax band.

For jointly owned offshore investments like bonds, each spouse is usually entitled to use their own Personal Savings Allowance against a share of the interest. You should agree an ownership split and report this proportion of the income on each return. If ownership is unclear, HMRC may apply a default 50/50 split. Keeping records of contributions can help evidence the split.

Undeclared offshore income is treated very seriously by HMRC and can result in substantial back taxes, interest, penalties and investigations if later discovered. Failure to declare offshore investment earnings above the relevant allowances constitutes evasion. With recent international tax cooperation, non-compliance carries high risk of detection nowadays.

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