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Discussion Starter #1
Hello,

I am a US citizen/ resident, considering moving to the UK for a job. I have, and will continue to have, substantial dividends from US Exchange traded funds every year. I plan to leave there funds in the US if I take this role in the UK.

My question is: Will I have to pay UK dividend tax on my US investment income?

The UK maximum rate is 38.1%, while the US maximum rate is 20%, so this could be substantial.

I've always read that the US taxes worldwide income, but the UK does not. However, several sources seem to indicate that for non-domiciled residents, the UK does, in fact, tax worldwide dividend income.

Any sources that are current would be helpful.

Thanks.
 

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Tax if you’re non-domiciled
You do not pay UK tax on your foreign income or gains if both:

* they’re less than £2,000 in the tax year
* you do not bring them into the UK, for example you transfer them to a UK bank account

If this applies to you, you do not need to do anything.

Chapter 9 in HMRC’s guidance on ‘Residence, Domicile and the Remittance Basis’ explains the rules for bringing income or gains to the UK.
https://www.gov.uk/tax-foreign-income/non-domiciled-residents

On the other hand, I believe being taxed on the remittance basis means you’re not entitled to the Personal Allowance. The Guidance may clarify.
 

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Thank you for the response. Since the amount is over 2000 pounds, I went down a rabbit hole of remittances in that source. It appears that to NOT pay UK taxes on this income, I would lose my tax free allowances (so pay taxes on an additional 12500 pounds).

Does that seem correct?
 

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If you do not claim the remittance basis, the taxation of your income from your US EFTs is a little different from your summary.

Firstly, the income will be taxed as dividend income provided that -broadly- the underlying assets are equities rather than bonds. Otherwise the income will be taxed as interest income.

Secondly the UK gives a credit for the (notional) 15% US tax on the dividends.

Thirdly, the US then gives credit for the UK tax payable on the above basis.

It is correct that if you claim the remittance basis you lose your UK personal allowance and capital gains tax annual allowance.
 

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Thank you for the response. Since the amount is over 2000 pounds, I went down a rabbit hole of remittances in that source. It appears that to NOT pay UK taxes on this income, I would lose my tax free allowances (so pay taxes on an additional 12500 pounds).

Does that seem correct?
Yes. That’s the Personal Allowance, which you’re entitled to if you’re taxed on the arising basis (as most UK residents are).

In which case you’ll be liable for UK tax on your worldwide income, subject to US-UK treaty provisions. You can have a look at the treaty provisions at https://www.gov.uk/government/publications/usa-tax-treaties.

Be aware that the Saving Clause Article 1.4-5 limits treaty benefits for US citizens but you should be entitled to protection from double taxation; so if you check which country has the taxing rights on dividends (source country or residence country), that will tell you which country to pay tax to, and which country to claim foreign tax credit from.

Edit: My post crossed with the (better-informed) post from Dunedin, to whom I defer.
 

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I am a US citizen/ resident, considering moving to the UK for a job. I have, and will continue to have, substantial dividends from US Exchange traded funds every year. I plan to leave there funds in the US if I take this role in the UK.
In addition to responses already received, you should also ensure, at least as far as is possible, that the US domiciled ETFs you hold are HMRC 'reporting funds'. Otherwise you will face higher UK taxes on gains in these if/when you sell them while a UK resident.

HMRC's list of 'reporting funds' is here: https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds

There is a good selection of Vanguard's US domiciled ETFs on this list. Coverage for other US ETF providers might be spotty or non-existent, though. I haven't checked it in detail for any provider except Vanguard.

Finally, worth noting that the HMRC rules for non-reporting funds do not apply to anything you hold in US retirement accounts such as IRAs or 401ks. (And symmetrically, anything you might hold in UK retirement accounts is safe from the US's appalling PFIC tax rules.)
 
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