One of the less commented upon challenges of this legislation is that this represents a significant tax hike for non-residents who are in receipt of UK dividend income?
Hey there Mrs Blue…
Take the example of Mrs Blue who is the Managing Director of Blue Group.
Blue Group is a UK fashion retailer, with a number of different brands, and operates thousands of shops in the UK. Mrs Blue is the majority shareholder. She doesn’t work in the business, and is resident in Monaco. She likes living there and also likes taking multi-million pound dividends each year. Her husband, Sir Percival Blue, commutes between Monaco and London.
At the moment, the presence of the 10% notional tax credit is extremely significant. Why? Well, because it is deemed to constitute the deduction of basic rate tax ‘at source’
Why might this be relevant? Well, a non-UK resident individual such as Mrs Blue will have no further liability to UK tax over and above this deduction. This is regardless of the level of income she earns.
What about from 6 April 2016?
Well, the removal of the tax credit is highly significant. It means that Mrs Blue will be subject to income tax at her marginal rate of tax on the amounts received. In other words, it opens up the higher rate and additional rate (32.5% and 38.1%) of tax.
The 6th of April 2016 could be a ‘Blue’ Monday in Monaco… Well, Wednesday.