UK WITHHOLDING TAX ON DIVIDENDS

A Sunday Times reader asks if she and her sister are liable to pay UK withholding tax on the proceeds of dividends from British bank shares they inherited. Neither sister works outside the home and they have no independent incomes, although both their husbands pay tax here at the higher rate.

“Since we do not pay tax, must we pay the UK withholding tax?” she asks.

The short answer is: Yes. There is no exemption from this tax, even though it exposes Irish shareholders in UK companies to double taxation – the UK tax plus the Irish tax of up to 41% if they are in the top bracket.

The sisters could earn up to €32,800 each in 2011 at the lower tax rate of 20%. Assuming each then transfers €9,000 to their spouses to reduce the amount of tax they pay at 41%, this still allows the sisters to earn €23,800 at the standard 20% rate. This should ensure the dividend proceeds, in turn, will be taxed at 20% – unless the sums are large enough to push them into the higher tax bracket.

The sisters are reminded they will have to fill in a tax return and pay any tax due by the pay and file deadline.