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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: the scope of income tax, residence and overseas aspects

Marcus is a UK resident additional rate taxpayer. He receives foreign dividends of £10,000 gross, after which 15% foreign withholding tax of £1,500 was deducted. Using the dividend rates in the ATX-UK tax tables, and ignoring the dividend nil rate band, which is already used, what is the UK tax payable after double tax relief?

The UK tax payable is £2,435. UK tax at the 39.35% additional dividend rate is £3,935. Double tax relief is restricted to the lower of this and the £1,500 foreign withholding tax, so the credit is £1,500, leaving £2,435 payable.

  1. A£2,435Correct
  2. B£1,500
  3. C£3,935
  4. D£0

Explanation

UK tax on dividends at the additional dividend rate is £10,000 × 39.35% = £3,935. Foreign tax is £1,500, which is lower, so relief is £1,500. Tax payable is £3,935 − £1,500 = £2,435. £3,935 ignores relief.

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