UK Tax on Foreign Dividends

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If you are a citizen of the UK, you must pay UK income tax on foreign dividends from overseas shares.

How are dividends taxed in the UK?


If you have your shares in a foreign company, you can receive dividend payments. Thus, they can earn dividend income every year without any requirement to pay taxes. Depending on the year, the dividend allowance ranges from £2,000 to £5,000 per year.

Taxpayers do not need to pay tax on dividend income that falls in the category of the personal allowance, it is an income allowance that a person earns every year without any tax. People get a dividend allowance each year and pay tax on dividend income that exceeds their dividend allowance. Depending on the year, the dividend allowance ranges from £2,000 to £5,000.

UK citizens can benefit from a tax-free dividend allowance of £2,000 per year. Dividend income above £2,000 is subject to income tax.

Moreover, any dividend income that falls within the personal allowance is tax-free. The personal allowance is £12,570, and it is first applied to non-dividend income.


How do foreign tax credits work on foreign dividends?


The amount of tax you must pay on dividends over the allowance depends on your income tax band. It ranges between 7.5 and 38.1%.

If you already have paid foreign tax on income or capital gains that are also taxed in the UK, you can claim tax credit relief.


How to Protect Foreign Dividends with Tax Credits?


Before making any investment, you must consult a professional tax specialist. To make this process easier, many countries have agreements with the UK. The agreements may vary by country.

In many circumstances, the HMRC provides a tax credit to investors to offset the amount paid to foreign tax entities.

The primary goal of foreign tax credits is to avoid double taxation, which occurs when taxes are paid in multiple countries on the same income.

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