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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a client who moved to Germany 1st Aug 13 and resides

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I have a client who moved to Germany 1st Aug 13 and resides there permanently now. he operates his business through a UK company. The salary and dividends received from the UK company I understand that I still have to detail on his UK tax return as the income has come from a UK source. As he is resident in Germany he is also required declare this income in Germany. For the Dividends received he has gone into higher rate tax in the UK leading to a tax bill of £1,245. The German accountant has informed me that they can only credit (double taxation) 15% of tax paid, so owes 1340euros on this income also. My question is can I detail this amount of tax paid on his UK tax return to clear the £1,245 owed in the UK. Or does my client have to suffer paying higher rate tax in the UK of £1,245 plus an additional 1340 euros in Germany?

Which tax year are you referring to?
Customer: replied 3 years ago.

in the UK 2013/14 in Germany their return runs from Jan 13 to Dec 13.


Leave this with me while I draft my answer.
Customer: replied 3 years ago.

ok thank you.

Hi again.

In a tax year in which your client is non-UK resident for the whole tax year, say 2014/15, his UK tax liability on UK source dividends will be limited to the UK tax credit under the "income disregard" rules which you can read about in HS300 here. There will be no higher rate tax liability no matter how large the UK dividends unless he returns to the UK within five years of leaving if he is a material participator in the UK company paying the dividends (temporary non-UK residence rules). This is to prevent people moving abroad for a short period to avoid UK tax on large dividends.

In the tax year your client left the UK, 2013/14, he will be able to claim split year treatment but only if he is treated as UK resident under the Statutory Residence Test for that tax year. If he is treated as UK tax resident for 2013/14, the split year rules will divide the tax year in two, the 6 April 2013 to 1 August 2013 period and the 2 August 2013 to 5 April 2014 period. However, the disregarded income rules only apply to a full tax year of non-UK residence.

Article 10 of the UK/Germany tax treaty here deals with dividends. I cannot see the UK tax authorities allowing the tax paid in Germany to be offset against the UK higher rate tax liability on the UK dividends. However, whilst I am by no means an expert on the German tax system, I do have some experience of dual taxing and I would have thought that the UK higher rate tax might be deductible from the German tax payable as it is not the tax credit we are dealing with, it's the higher rate tax. It may be that where the income is fully taxed in the UK, it may be exempted from German tax, at least for the tax year of arrival in that country.

If your client received UK rental income, it would be taxed in the UK to the extent it exceeded his personal allowance and the tax paid in the UK would be deductible from any tax liability in Germany on the same income to the extent of the German liability. I see no reason why the same principle cannot apply in the tax year the taxpayer leaves the UK but is still taxable on dividends in the UK for that tax year.

As I said, I'm not an expert on the German tax system but I would have thought that there is some way of getting relief for the higher rate tax payable in the UK. As it says under the heading "Double tax relief and tax treaties" here, foreign taxes up to the level of the German tax liability may be credited against the German tax. It also says that treaty law overrides German tax law and Article 23 paragraph b) aa) of the tax treaty allows for credit for tax paid under the laws of the UK on dividends. I think the German accountant needs to do some more research.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.
Sorry Tony I accidentally pressed the wrong button. I was very happy with service can I alter this at all, again very sorry.

Thanks. You should be able to change your rating. Since you are happy with the answer, could you do that please so that I get paid for the answer.

If you cannot see how to do it, let me know and I'll ask just answer to do it for you.

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