UK Tax on Foreign Dividends

Do you live in the UK but own shares in an overseas company? You’ll need to know about UK tax rules on foreign dividends.

Although tax treatment of foreign dividends is relatively straightforward, it may get complicated when other countries levy their own taxes on foreign income.

Let’s dive into the details to help you find out the basics of UK tax on foreign dividends. Read on for everything you need to know, including how to declare foreign dividends on your tax return.

And if you need to manage money for investments between countries, make sure to check out Wise. It lets you hold, convert, send and receive 40+ currencies all in one place, making it ideal for Brits with international investments.

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What are foreign dividends?

When you buy shares in a company, you may receive dividends. These are payments made to shareholders from the company’s profits, often on an annual basis. It’s most common for dividends to be paid in cash, but they can also be granted as extra shares in the same company. Not all listed companies pay dividends, however.

Foreign dividends are exactly the same, but are paid by companies based in other countries.

Let’s imagine you live in the UK and buy shares in a US company like technology giant Apple. If you receive an annual dividend from the company as a shareholder, this is considered a ‘foreign dividend’ for tax purposes.

Foreign dividends are considered a little differently by UK tax authorities compared to other types of foreign income. This includes income from wages if you work abroad, rental income if you have overseas properties or income from pensions held abroad.

How are dividends taxed in the UK?

As a UK taxpayer, you can earn a certain amount of dividend income each year before you need to pay tax on it.

According to HM Revenue & Customs (HMRC), each person gets a Personal Allowance each year. This is the amount of income you can earn in total over the year, before you need to pay tax. Any dividends you earn that fall under your Personal Allowance are tax-free.¹

You also get a Dividend Allowance on top of your Personal Allowance. This gives you some extra tax relief of any dividend-related income that falls outside of your Personal Allowance.¹

The tax rules are the same for dividends earned from both UK and foreign companies.

Dividend allowance in the UK

The Dividend Allowance in the UK for the tax year 2024-2025 is £500.¹

This means that for any dividends you earn above your Personal Allowance within the year, you’ll have a £500 tax-free allowance too.

To help you calculate your tax, it’s also useful to know that the Personal Allowance in the UK for 2024-2025 is £12,570.²

How to declare foreign dividends on tax return?

If you don’t usually complete a Self Assessment tax return, you may be able to contact HMRC to report foreign dividends. They may be able to change your tax code so that the tax will be deducted from your salary or pension. You’ll only be able to do this though if you’ve earned under £10,000 in dividends throughout the year.¹

If your dividends are under the Dividend Allowance for the year, you don’t need to fill in a tax return or tell HMRC.¹

If you earn over £10,000 in foreign dividends or usually fill in a tax return anyway, here’s how to report it to HMRC:³

1. Make sure you’re registered for Self Assessment
2. On your tax return, record your foreign dividend income in the ‘Foreign’ section. There is a special section for ‘Foreign Dividends’.
3. You’ll need the three-letter code for the country your income derived from (i.e. where the company which paid the dividend is based). You’ll find a list in HMRC’s notes on this section.
4. Enter this code and the total amount in foreign dividends you earned for the tax year in question.
5. Fill in figures in GBP for ‘amount of income received before tax’ and the ‘foreign tax taken off or paid’ columns.

The tax rate you’ll pay depends on whether you’re a basic, higher or additional rate taxpayer:¹

• Basic rate - 8.75%
• Higher rate - 33.75%
• Additional rate - 39.35%.

It’s possible that you might pay tax on more than one rate. To work it out, you can add your total dividend income to your other income, and check HMRC’s guidance to see which tax band you fall into.¹

It’s important to consult with an accountant or tax law specialist to make sure you understand your obligations in the UK - as well as your tax liabilities in other countries.

Receive foreign income easily with Wise

If you receive foreign income from dividends or any other source, you might want to get yourself a Wise account.

With Wise, you can manage your money in 40+ currencies all in one place. You can get local account details to receive dividends and other income from overseas, and convert it to GBP or another currency for low fees and the mid-market exchange rate.

This means you’re not at the mercy of banks, which can pass on high fees and poor exchange rates for currency conversion.

You can also send money worldwide with Wise for low fees and great rates, which could be helpful if you want to make other investments elsewhere. All global transfers are fast, secure and trackable, so you can send with confidence.

It’s the ideal solution for Brits with investments, business interests or income-generating activities in other countries.

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After reading this article, you should have a better understanding of how UK tax on foreign dividends works.

But don’t forget that tax is a very complicated subject. The amount of tax you pay depends on several factors, particularly your personal circumstances.

This is why it’s strongly recommended that you speak to a tax specialist for tailored advice to help you understand your tax obligations.

This guide does not constitute tax advice. Get professional tax advice and guidance from your lawyer or tax advisor when filling your self-assessment.

Sources used:

Sources last checked on date: 16-Oct-2024