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31 January 2001
Replies to Queries – 2
Foreign anomalies
Don is foreign domiciled but United Kingdom resident. In 1999-2000 he remits to the United Kingdom dividends from an Isle of Man company, and interest from foreign bank accounts which are not paid through a paying or collection agent and have not had tax deducted. Pages F1 and F2 of the foreign pages of the self-assessment return are causing confusion.
Foreign anomalies
Don is foreign domiciled but United Kingdom resident. In 1999-2000 he remits to the United Kingdom dividends from an Isle of Man company, and interest from foreign bank accounts which are not paid through a paying or collection agent and have not had tax deducted. Pages F1 and F2 of the foreign pages of the self-assessment return are causing confusion.
Replies to Queries – 2
Foreign anomalies
Don is foreign domiciled but United Kingdom resident. In 1999-2000 he remits to the United Kingdom dividends from an Isle of Man company, and interest from foreign bank accounts which are not paid through a paying or collection agent and have not had tax deducted. Pages F1 and F2 of the foreign pages of the self-assessment return are causing confusion.
If Don was a United Kingdom domiciliary, the entries would be: interest in box 6.2, and taxed at 10, 20 or 40 per cent and dividends in box 6.2A taxed at 10 or 32.5 per cent, presumably as a Schedule F source. However, as Don is taxed on the remittance basis, the notes indicate that he should include the total of his foreign interest and dividends in box 6.4 to be taxed as profits at 10, 23 or 40 per cent. Is this because all of Don's foreign income is treated as Schedule D, Case V?
Is Don paying more tax on his remitted income than a United Kingdom domiciled person would do?
(Query T15,745) – Dom-Dum.
From sections 1 and 1A, Taxes Act 1988 we learn the anatomy of the principal tax rates, 10, 23 and 40 per cent.
For income chargeable under Schedule F, typically United Kingdom dividends identified in accordance with section 20 and Part VI of that Act, the provision of a tax credit of one-ninth matches the Schedule F ordinary rate of 10 per cent and explains its upper rate of 32.5 per cent.
The 20 per cent rate applicable to savings income is what 'Dom-Dum' recognises as the middle rate for savers domiciled in the United Kingdom, although there are significant exceptions. Such savers are denied the 20 per cent rate by section 1A(1AA)(b), Taxes Act 1988 so far as concerns 'equivalent foreign income', meaning income chargeable under Schedule D, Case V, consisting of any such dividend or distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were United Kingdom resident.
Remittances by non-domiciled individuals are denied access to the 20 per cent rate for savings income by section 65(5), Taxes Act 1988, otherwise available under section 1A of the Act. The matter is confused because domiciled persons not on the remittance basis are allowed the 20 per cent lower rate on overseas income corresponding to that chargeable in the United Kingdom under Schedule D, Case III, other than annual payments and easements.
The answer, sadly, is affirmative. – Lane.
Dom-Dum' is confused about what will happen to the dividends entered on pages F1 and F2 of the 1999-2000 tax return.
If Don were of United Kingdom domicile, the entries would indeed go in box 6.2 for the interest and 6.2A for the dividends. But the dividends in box 6.2A are not within Schedule F, which covers dividends from companies resident in the United Kingdom. If Don is of United Kingdom domicile, the company paying the dividend is still resident outside the United Kingdom. The dividends are within Case V of Schedule D.
As Don is of foreign domicile, his Case V income is subject to the remittance basis under section 65(5), Taxes Act 1988. But, subject to that, it is Case V income as before and will be taxed at the same rates as before. The income goes in box 6.4 as stated. – Lois Anwin.
Extract from reply by 'Man of Kent':
The client may wish to consider paying all the dividends and interest concerned into an Isle of Man deposit account. Then, when a remittance is desired, he can close the account and remit all or some of the capital. The interest accrued and the balance of the capital can be used to start a new deposit account. In that way, he is not importing income.
Editorial note. It seems clear that the lower rate of income tax does not apply to income taxed on the remittance basis because this is clearly stated by section 1A(4)(a), Taxes Act 1988. Giles Clark's established work Offshore Tax Planning states that the Schedule F rates are also not available to such income, quoting section 1B, Taxes Act 1988 although the exact reasoning here is less clear. There is a principle (referred to in Whiteman at paragraph 22.10) that the remittance basis is a limitation on the arising basis and is not therefore operated in order to increase the tax chargeable. Obviously the principle can be overridden by statute and it seems to be the case that it has been with the Schedule F rates, on the basis that remitted foreign dividends are excluded from section 1A(3)(b) by section 1A(4), Taxes Act 1988.
Foreign anomalies
Don is foreign domiciled but United Kingdom resident. In 1999-2000 he remits to the United Kingdom dividends from an Isle of Man company, and interest from foreign bank accounts which are not paid through a paying or collection agent and have not had tax deducted. Pages F1 and F2 of the foreign pages of the self-assessment return are causing confusion.
If Don was a United Kingdom domiciliary, the entries would be: interest in box 6.2, and taxed at 10, 20 or 40 per cent and dividends in box 6.2A taxed at 10 or 32.5 per cent, presumably as a Schedule F source. However, as Don is taxed on the remittance basis, the notes indicate that he should include the total of his foreign interest and dividends in box 6.4 to be taxed as profits at 10, 23 or 40 per cent. Is this because all of Don's foreign income is treated as Schedule D, Case V?
Is Don paying more tax on his remitted income than a United Kingdom domiciled person would do?
(Query T15,745) – Dom-Dum.
From sections 1 and 1A, Taxes Act 1988 we learn the anatomy of the principal tax rates, 10, 23 and 40 per cent.
For income chargeable under Schedule F, typically United Kingdom dividends identified in accordance with section 20 and Part VI of that Act, the provision of a tax credit of one-ninth matches the Schedule F ordinary rate of 10 per cent and explains its upper rate of 32.5 per cent.
The 20 per cent rate applicable to savings income is what 'Dom-Dum' recognises as the middle rate for savers domiciled in the United Kingdom, although there are significant exceptions. Such savers are denied the 20 per cent rate by section 1A(1AA)(b), Taxes Act 1988 so far as concerns 'equivalent foreign income', meaning income chargeable under Schedule D, Case V, consisting of any such dividend or distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were United Kingdom resident.
Remittances by non-domiciled individuals are denied access to the 20 per cent rate for savings income by section 65(5), Taxes Act 1988, otherwise available under section 1A of the Act. The matter is confused because domiciled persons not on the remittance basis are allowed the 20 per cent lower rate on overseas income corresponding to that chargeable in the United Kingdom under Schedule D, Case III, other than annual payments and easements.
The answer, sadly, is affirmative. – Lane.
Dom-Dum' is confused about what will happen to the dividends entered on pages F1 and F2 of the 1999-2000 tax return.
If Don were of United Kingdom domicile, the entries would indeed go in box 6.2 for the interest and 6.2A for the dividends. But the dividends in box 6.2A are not within Schedule F, which covers dividends from companies resident in the United Kingdom. If Don is of United Kingdom domicile, the company paying the dividend is still resident outside the United Kingdom. The dividends are within Case V of Schedule D.
As Don is of foreign domicile, his Case V income is subject to the remittance basis under section 65(5), Taxes Act 1988. But, subject to that, it is Case V income as before and will be taxed at the same rates as before. The income goes in box 6.4 as stated. – Lois Anwin.
Extract from reply by 'Man of Kent':
The client may wish to consider paying all the dividends and interest concerned into an Isle of Man deposit account. Then, when a remittance is desired, he can close the account and remit all or some of the capital. The interest accrued and the balance of the capital can be used to start a new deposit account. In that way, he is not importing income.
Editorial note. It seems clear that the lower rate of income tax does not apply to income taxed on the remittance basis because this is clearly stated by section 1A(4)(a), Taxes Act 1988. Giles Clark's established work Offshore Tax Planning states that the Schedule F rates are also not available to such income, quoting section 1B, Taxes Act 1988 although the exact reasoning here is less clear. There is a principle (referred to in Whiteman at paragraph 22.10) that the remittance basis is a limitation on the arising basis and is not therefore operated in order to increase the tax chargeable. Obviously the principle can be overridden by statute and it seems to be the case that it has been with the Schedule F rates, on the basis that remitted foreign dividends are excluded from section 1A(3)(b) by section 1A(4), Taxes Act 1988.
