There are IMPORTANT tax planning decisions when leaving the UK. Below we explain key points when closing your company and leaving the UK.
Unexpected Tax to Pay
When you leave the UK, any dividend payments you make from your company may be taxable in the country you are moving to. Also, these payments may continue to be taxable in the UK even after you have already left. With some tax planning, this may be entirely avoidable.
Dividend Payments
You are required to put all dividends paid in the tax year you leave, into your UK personal tax return – even if they were paid after you left the UK. Potentially any dividends paid after you have left the UK may also be taxable in the country you have moved to. Once you have left the UK, AND once the UK moves into a new tax year (06 April of each year) then in most cases your liability to UK tax will cease.
If you are returning to Australia, please get in touch with your account manager to discuss your situation, as there may be tax implications with regards to dividends paid out while you are still in the UK.
Dividend Payments – Taxed as Capital Gains
Once your company has ceased to trade and you have started the process of winding up the company (Acknowledgement of submission of the DS01 form by Companies House), then any dividends subsequently paid are treated differently for UK tax purposes. Any dividends paid to you, up to a maximum £25,000, will be taxed as a capital gain in the UK. If a single penny more than £25,000 is paid out in this way, the whole lot is taxed as a dividend – so its important to get advice on this when planning to close down your company to avoid an unexpected dividend tax bill.
Also, the UK tax rules for capital gains payments may be different to that of dividends if you leave part way through a tax year. If split year treatment applies (speak to us, or see the Statutory Residence Test from the HMRC for more details), then any capital gains paid after you left the UK are NOT taxable in the UK.
IMPORTANT
If you have lived in the UK for less than 4 of the last 7 years, then any capital gains paid after you left the UK are NOT taxable in the UK, even if you return to the UK at some point in subsequent tax years. And if you have lived in the UK for at least 4 of the last 7 years, then any capital gains paid after you have left the UK become taxable if you return to the UK before 5 full tax years have elapsed.
Tax years are also important. Once you have left the UK, once a new tax year starts (06 April), then generally any UK-derived income/ gains is no longer taxable in the UK. Exceptions of course apply, like rental income, and capital gains on residential property. Speak with us about any potential UK-derived income you may have once you have left the UK.
And don’t forget, regardless of whether any dividend payments are taxable in the UK or not, if you make the payment while tax resident of a different country, the payment may be taxable in that country.
Example 1
Kelly ceases to trade in the UK on 5 December, having lived in London for 6 years. She leaves the UK and returns to Australia. She makes the final dividend payment of £22,000 to herself a month later on 05 January. She must declare this final dividend in her UK personal tax return because the dividend was paid in the same tax year she left. The dividend is taxed as a capital gain in the UK. She will also be required to declare the dividend income on her Australian personal tax return – Please note, this will be taxed as a foreign DIVIDEND, not a capital gain.
Example 2
Kelly ceases to trade in the UK on 5 December, having lived in London for 6 years. She leaves the UK and returns to NZ. She makes the final dividend payment to herself a few months later on 10 April. She is not required to declare the dividend on any UK personal tax returns however she may also be required to declare the dividend income on her NZ personal tax return.
Note: As far as we are aware, South African residents are not required to pay tax on dividends from UK Companies, so in Example 2 above if Kelly had moved to South Africa the dividends will not be declared in the UK, and will not be taxable in South Africa.
Example 3
Bree ceases to trade in the UK on 5 December. She leaves the UK on 23 December and returns to New Zealand, having lived in the UK for five years. She makes the final dividend payment of £15,000 to herself just before she leaves on 20 December. This is treated as a capital gain for tax purposes in the UK. She will not need to declare this dividend payment on her New Zealand tax return as the payment was made before she took up New Zealand tax residency.