Investing for Income (dividends and/or interest)

[DogNo1]

Gutenberg: You have a nice sense of humor. I'm continuing to ignore the crowd for a while and see if Berkowitz deploys his $2 Bn. cash windfall well. Then the trick will be to redeem my shares before the next monster distribution. He's plenty smart so I hope that he'll be able to grow the fund's value before I need cash.

There are plenty of free specialized American websites that list bonds, closed-end funds, master limited partnerships, etc. Morningstar is a good place to start. I get recommendations from the Lehmann Income Security Investor Newsletter.

So far as needing a pro to manage my income investments - doing my own investment in the past wound up with me shooting myself in the foot so often that I don't have a leg left to stand on so I'm leaving it up to Lehmann's firm LFFA.

[Naam]

Cash is king. Failing that, Australian banks and Telstra have good yields, although you have to be an Australian citizen to get the franking credits. Even without that, yield > 5%.

what are franking credits?

Franking credits I think are peculiar to Australia. The principle behind them is to eliminate double taxation of dividends in the hands of the company and the shareholder.

For example, I have a super fund which pays no tax on earnings in the pension phase. I might get a half-yearly dividend of $2000. If the dividend is fully-franked, the franking credit will be around $700. So at the end of the financial year, after the accountant puts in the super funds' tax return, I get a cheque back from the tax department for $700.

If I am paying tax, my assessable income will be reduced by $700. Australian investors love franking credits, obviously.

interesting! thanks for the explanation.

[ArranP]

just come off the phone with HMRC in the UK.

HMRC require non-residents to submit a self assessment to declare interest received from UK corporate bonds and pay UK tax on that interest.

HMRC do not requrie non-residents to declare or pay tax on Interest received from offshore corporate bonds.

Edited February 10, 2016 by ArranP

[Naam]

just come off the phone with HMRC in the UK.

HMRC require non-residents to submit a self assessment to declare interest received from UK corporate bonds and pay UK tax on that interest.

HMRC do not requrie non-residents to declare or pay tax on Interest received from offshore corporate bonds.

rubbish! i am holding UK domestic corporate bonds since many years and never paid a single penny taxes. presently i hold Prudential.

if taxes would apply, yield on UK corporates would be skyhigh and London's financial district a graveyard.

[ArranP]

Are you from the UK Naam?

[ArranP]

just come off the phone with HMRC in the UK.

HMRC require non-residents to submit a self assessment to declare interest received from UK corporate bonds and pay UK tax on that interest.

HMRC do not requrie non-residents to declare or pay tax on Interest received from offshore corporate bonds.

rubbish! i am holding UK domestic corporate bonds since many years and never paid a single penny taxes. presently i hold Prudential.

if taxes would apply, yield on UK corporates would be skyhigh and London's financial district a graveyard.

Maybe it is because I am British ? HMRC have stated that as a non-resident, I must declare and pay tax on interest received from UK corporate bonds, have they got this wrong ?

The HMRC "Deduction of tax" manuals are here http://www.hmrc.gov.uk/manuals/saimmanual/saim9000.htm , the ones towards the end of the list deal with interest paid overseas :

SAIM9200 Payment of interest overseas

SAIM9210 Payment of interest overseas: exceptions to obligation to deduct

SAIM9220 Payment of interest overseas: borrowing by United Kingdom permanent establishment of overseas company

SAIM9230 Payment of interest overseas: borrowing from UK permanent establishment of overseas company

SAIM9240 Payment of interest overseas: loan where both recipient and payer are outside the UK

SAIM9250 Payment of interest overseas: loan documentation

SAIM9260 Payment of interest overseas: bond documentation

SAIM9200 - Payment of interest overseas Overview

• A non-resident is taxed on UK-source income.
• When any person pays yearly interest to a non-UK resident, they are obliged to deduct income tax from the payment and account for that tax to HMRC in accordance with ITA07/S874(2). This obligation can be removed or changed if the benefits of a double taxation agreement are successfully claimed - and (from 1 April 2004) by making a claim under TIOPA10/S182. This obligation applies to companies, local authorities and individuals.
• The tax is the liability of the non-resident recipient: deduction from payment is the collection mechanism for income taxes on non-residents who do not have a taxable presence in the UK.

However ....

SAIM9260 - Payment of interest overseas: bond documentation

Redemption clause

• The commercial expectation is that interest on international bonds will be paid without deduction of tax. For example, the Eurobonds exemption under the UK legislation was introduced in order to provide for gross payment on qualifying cross-border bond issues. Bond documentation will normally include a clause permitting the issuer to redeem the bonds early in the event that a withholding tax obligation is imposed in respect of interest payments.

Edited February 10, 2016 by ArranP

[ArranP]

http://moneyweek.com/how-does-tax-affect-your-bonds-93972/

How does tax affect your bonds?

First off, income tax. Interest received worldwide on both government bonds (“gilts”) and corporate bonds is taxable if you are a UK resident – someone who spends more than half of the tax year in Britain. For non-residents, only interest earned in Britain is taxed. Interest income on gilts and most corporate bonds is paid without tax deducted (“gross”), so you have to declare it on your tax return

[Naam]

Maybe it is because I am British ? HMRC have stated that as a non-resident, I must declare and pay tax on interest received from UK corporate bonds, have they got this wrong ?

yes!

income tax. Interest received worldwide on both government bonds (“gilts”) and corporate bonds is taxable if you are a UK resident

[ArranP]

Maybe it is because I am British ? HMRC have stated that as a non-resident, I must declare and pay tax on interest received from UK corporate bonds, have they got this wrong ?

yes!

income tax. Interest received worldwide on both government bonds (“gilts”) and corporate bonds is taxable if you are a UK resident

For non-residents, only interest earned in Britain is taxed. Interest income on gilts and most corporate bonds is paid without tax deducted (“gross”), so you have to declare it on your tax return

Edited February 11, 2016 by ArranP

[Naam]

you have to declare it on your tax return

on WHAT tax return? do non-residents file tax returns?

[ArranP]

you have to declare it on your tax return

on WHAT tax return? do non-residents file tax returns?

I am a non-resident, HMRC require that I submit a self assessment if I receive UK derived income.

[Naam]

you have to declare it on your tax return

on WHAT tax return? do non-residents file tax returns?

I am a non-resident, HMRC require that I submit a self assessment if I receive UK derived income.

go ahead and self assess, you have my blessing

[ArranP]

it would be better that my thai partner buy the UK bonds, she does not submit a self assessment.

[topt]

it would be better that my thai partner buy the UK bonds, she does not submit a self assessment.

Have you decided how you will buy - IE through which broker?

If you do not have one than I am not sure you could set one up in the UK in your Thai partner's name. If an offshore broker than why bother as who would know........

[ArranP]

Good point, have you the names / websites of any offshore brokers ?

[NUUM]

you have to declare it on your tax return

on WHAT tax return? do non-residents file tax returns?

I am a non-resident, HMRC require that I submit a self assessment if I receive UK derived income.

They'll require you to submit one for every-coming year once you get onto their 'mailing list'.

You only need to submit a UK tax return if you know you have a UK tax liability to pay or if HMRC send you one to fill-in.

If you have no additional UK tax to pay over, and don't want to claim any refund via a SA form, then no need to voluntarily submit one, unless you want to get onto HMRCs Christmas card list...

[ArranP]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

[Naam]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

my heart goes out for you. i will cry myself into sleep tonight

[partington]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

You do know that bond interest, every other kind of interest, and stock dividends are disregarded income for non-residents? This means that if you have no other income in the UK, and do not apply your personal allowance , tax is limited to that withdrawn at source, if any.

What this means is: if you do not claim a personal allowance, dividends and bond interest arising in the UK are tax FREE for non-residents. As far as I am aware this law has not changed since 2015 and the advice you got from the HMRC is wrong.

Link and relevant quote below from 2015 HMRC advice leaflet:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2015

"How is investment income charged to tax

With the exception of income from property in the UK and investment income connected to a trade in the UK through a permanent establishment, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income. This restriction does not apply in the overseas part of a split year.

[...]

‘Disregarded income’ includes:

• interest and alternative finance receipts from banks and building societies
• dividends from UK companies
• income from unit trusts
• income from National Savings and Investments
• profits from public revenue dividends
• profits or gains from transactions in deposits
• certain social security benefits, such as State pensions or widows’ pensions
• taxable income from purchased life annuities except annuities under personal pension schemes"

EDIT: to correct first sentence and to link to HMRC page giving numbered citations to relevant sections of UK tax law:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

Edited February 14, 2016 by partington

[ArranP]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

my heart goes out for you. i will cry myself into sleep tonight

Its no different for me than it is for any UK national.

UK source income is taxable, i.e. income from UK bonds, interest received from loans to UK companies, income from renting UK property, its all taxable. The only exception I know of so far is dividends, dividends received from UK companies is classified as "dis-regarded income" by HMRC, there is no UK tax liability.

I also need to check with HMRC what the position is regards my Thai partner buying UK corporate bonds, and will report back when I get the answer.

[ArranP]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

You do know that interest and bond dividends are disregarded income for non-residents? This means that if you have no other income in the UK, and do not apply your personal allowance , tax is limited to that withdrawn at source, if any.

What this means is: if you do not claim a personal allowance, bond dividends and interest arising in the UK are tax FREE for non-residents. As far as I am aware this law has not changed since 2015 and the advice you got from the HMRC is wrong.

Link and relevant quote below from 2015 HMRC advice leaflet:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2015

"How is investment income charged to tax

With the exception of income from property in the UK and investment income connected to a trade in the UK through a permanent establishment, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income. This restriction does not apply in the overseas part of a split year.

[...]

‘Disregarded income’ includes:

• interest and alternative finance receipts from banks and building societies
• dividends from UK companies
• income from unit trusts
• income from National Savings and Investments
• profits from public revenue dividends
• profits or gains from transactions in deposits
• certain social security benefits, such as State pensions or widows’ pensions
• taxable income from purchased life annuities except annuities under personal pension schemes"

EDIT: link to HMRC page giving numbered citations to relevant sections of UK tax law:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

Also this one.

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM9200.htm

SAIM9200 - Payment of interest overseas

Overview

A non-resident is taxed on UK-source income.

When any person pays yearly interest to a non-UK resident, they are obliged to deduct income tax from the payment and account for that tax to HMRC in accordance with ITA07/S874(2). This obligation can be removed or changed if the benefits of a double taxation agreement are successfully claimed - and (from 1 April 2004) by making a claim under TIOPA10/S182. This obligation applies to companies, local authorities and individuals.

The tax is the liability of the non-resident recipient: deduction from payment is the collection mechanism for income taxes on non-residents who do not have a taxable presence in the UK.

Banks and Building Societies pay interest net of tax , this is maybe why interest received from a bank is classified as "dis-regarded income", however interest/coupon received from a bond is paid gross of tax and this is possibly why HMRC require that the recipient i.e. bond holder declare and pay the tax. I will follow up with HMRC and report back.

This is something I have looked at, because I would quite happily load up my UK business with offshore-loans to reduce its profit, however HMRC are aware of this and as you can see require all UK business to deduct tax from the interest payment.

Edited February 14, 2016 by ArranP

[partington]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

You do know that interest and bond dividends are disregarded income for non-residents? This means that if you have no other income in the UK, and do not apply your personal allowance , tax is limited to that withdrawn at source, if any.

What this means is: if you do not claim a personal allowance, bond dividends and interest arising in the UK are tax FREE for non-residents. As far as I am aware this law has not changed since 2015 and the advice you got from the HMRC is wrong.

Link and relevant quote below from 2015 HMRC advice leaflet:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2015

"How is investment income charged to tax

With the exception of income from property in the UK and investment income connected to a trade in the UK through a permanent establishment, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income. This restriction does not apply in the overseas part of a split year.

[...]

Disregarded income includes:

• interest and alternative finance receipts from banks and building societies
• dividends from UK companies
• income from unit trusts
• income from National Savings and Investments
• profits from public revenue dividends
• profits or gains from transactions in deposits
• certain social security benefits, such as State pensions or widows pensions
• taxable income from purchased life annuities except annuities under personal pension schemes"

EDIT: link to HMRC page giving numbered citations to relevant sections of UK tax law:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

Also this one.

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM9200.htm

SAIM9200 - Payment of interest overseas

Overview

A non-resident is taxed on UK-source income.

When any person pays yearly interest to a non-UK resident, they are obliged to deduct income tax from the payment and account for that tax to HMRC in accordance with ITA07/S874(2). This obligation can be removed or changed if the benefits of a double taxation agreement are successfully claimed - and (from 1 April 2004) by making a claim under TIOPA10/S182. This obligation applies to companies, local authorities and individuals.

The tax is the liability of the non-resident recipient: deduction from payment is the collection mechanism for income taxes on non-residents who do not have a taxable presence in the UK.

Banks and Building Societies pay deduct interest at source, this is maybe why interest received from a bank is classified as "dis-regarded income", however interest/coupon received from a bond is paid gross of tax and this is possibly why HMRC require that the recipient i.e. bond holder declare and pay the tax. I will follow up with HMRC on monday and report back.

This is something I have looked at, because I would quite happily load up my UK business with offshore-loans to reduce its profit, however HMRC are aware of this and as you can see require all UK business to deduct tax from the interest payment.

This isn't correct. The wording of the tax law says "limited to tax withheld at source, IF ANY" clearly stating that this applies even if no tax is ever withheld at all. In the leaflet and citation guidelines which refer to "interest" no interest is specifically excluded except that involved in a business partnership that you yourself are involved in.

Although SAIM9200 declares the non-resident is responsible for the tax liability, the disregarded income rules make this liability zero.

However if you are running a UK business you likely have a large income arising in the UK, and so you probably want to claim your personal allowance.

These exclusions, as pointed out, only apply if you declare that you are not claiming your personal allowance, otherwise interest and dividend income are fully taxable.

I always claim my personal allowance because I have other taxable income (rent) in the UK, and my dividend /bond interest income is small, so claiming the allowance results in no tax liabilty.

There comes a tipping point where interest /dividend income becomes big enough to make it worth not claiming your personal allowance and getting this income tax free, but I don't think I'll ever get there.

[chiang mai]

ArranP: my advice is that you pay more attention to what Partington has written, he is correct.

[ArranP]

HMRC confirmef, if i buy UK corporate bonds as a non-resident, i am liable to pay tax on the interest received from those bonds.

You do know that interest and bond dividends are disregarded income for non-residents? This means that if you have no other income in the UK, and do not apply your personal allowance , tax is limited to that withdrawn at source, if any.

What this means is: if you do not claim a personal allowance, bond dividends and interest arising in the UK are tax FREE for non-residents. As far as I am aware this law has not changed since 2015 and the advice you got from the HMRC is wrong.

Link and relevant quote below from 2015 HMRC advice leaflet:

https://www.gov.uk/government/publications/non-residents-and-investment-income-hs300-self-assessment-helpsheet/hs300-non-residents-and-investment-income-2015

"How is investment income charged to tax

With the exception of income from property in the UK and investment income connected to a trade in the UK through a permanent establishment, the tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source. If the tax charge is limited in this way, personal allowances will not be given against other income. This restriction does not apply in the overseas part of a split year.

[...]

Disregarded income includes:

• interest and alternative finance receipts from banks and building societies
• dividends from UK companies
• income from unit trusts
• income from National Savings and Investments
• profits from public revenue dividends
• profits or gains from transactions in deposits
• certain social security benefits, such as State pensions or widows pensions
• taxable income from purchased life annuities except annuities under personal pension schemes"

EDIT: link to HMRC page giving numbered citations to relevant sections of UK tax law:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

Also this one.

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM9200.htm

SAIM9200 - Payment of interest overseas

Overview

A non-resident is taxed on UK-source income.

When any person pays yearly interest to a non-UK resident, they are obliged to deduct income tax from the payment and account for that tax to HMRC in accordance with ITA07/S874(2). This obligation can be removed or changed if the benefits of a double taxation agreement are successfully claimed - and (from 1 April 2004) by making a claim under TIOPA10/S182. This obligation applies to companies, local authorities and individuals.

The tax is the liability of the non-resident recipient: deduction from payment is the collection mechanism for income taxes on non-residents who do not have a taxable presence in the UK.

Banks and Building Societies pay deduct interest at source, this is maybe why interest received from a bank is classified as "dis-regarded income", however interest/coupon received from a bond is paid gross of tax and this is possibly why HMRC require that the recipient i.e. bond holder declare and pay the tax. I will follow up with HMRC on monday and report back.

This is something I have looked at, because I would quite happily load up my UK business with offshore-loans to reduce its profit, however HMRC are aware of this and as you can see require all UK business to deduct tax from the interest payment.

This isn't correct. The wording of the tax law says "limited to tax withheld at source, IF ANY" clearly stating that this applies even if no tax is ever withheld at all. In the leaflet and citation guidelines which refer to "interest" no interest is specifically excluded except that involved in a business partnership that you yourself are involved in.

Although SAIM9200 declares the non-resident is responsible for the tax liability, the disregarded income rules make this liability zero.

However if you are running a UK business you likely have a large income arising in the UK, and so you probably want to claim your personal allowance.

These exclusions, as pointed out, only apply if you declare that you are not claiming your personal allowance, otherwise interest and dividend income are fully taxable.

I always claim my personal allowance because I have other taxable income (rent) in the UK, and my dividend /bond interest income is small, so claiming the allowance results in no tax liabilty.

There comes a tipping point where interest /dividend income becomes big enough to make it worth not claiming your personal allowance and getting this income tax free, but I don't think I'll ever get there.

we start from from the Savings and investment income manual 1170 :- .

SAIM1170 - Savings and investment income: non-residents http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

Limit on the tax liability on savings and investment income of non-residents

Chapter 1 of Part 13 of ITA07 limits the liability to income tax of non-UK residents. ITA07/S811 provides that a non-UK resident’s income tax liability is limited to the sum of

..... leads to .....

Income Tax Act 2007 - Part 14 - Chapter 1 http://www.legislation.gov.uk/ukpga/2007/3/part/14/chapter/1

811Limit on liability to income tax of non-UK residents

(1)This section applies to income tax to which—

(a)a non-UK resident, other than a company, is liable, or

(b)a non-UK resident company is liable as a trustee.

(2)Subsection (1) is subject to section 812 (case where limit not to apply).

(3)The non-UK resident's liability to income tax for a tax year is limited to the sum of amounts A and B.

(4)Amount A is the sum of—

(a)any sums representing income tax deducted from the non-UK resident's disregarded income for the tax year (see section 813),

..... leads to.....

813 Meaning of “disregarded income”

(1)For the purposes of this Chapter income arising to a non-UK resident is “disregarded income” if it is—

(a)disregarded savings and investment income (see section 825)

..... leads to ......

825 Meaning of “disregarded savings and investment income”

(1) For the purposes of this Chapter income is “disregarded savings and investment income” if—

(a)it is chargeable under Chapter 3 or 5 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies and stock dividends from UK resident companies), or

(b)it is within subsection (2) and is not relevant foreign income.

(2) Income is within this subsection if it is chargeable under—

(a)Chapter 2 of Part 4 of ITTOIA 2005 (interest),

..... leads to ....

Income Tax Act 2005 - Part 4 - Chapter 2 http://www.legislation.gov.uk/ukpga/2005/5/part/4/chapter/2

369 Charge to tax on interest

(1)Income tax is charged on interest.

(2)The following sections extend what is treated as interest for certain purposes—

section 372 (building society dividends),

section 373 (open-ended investment company interest distributions),

section 376 (authorised unit trust interest distributions),

section 379 (industrial and provident society payments),

section 380 (funding bonds), and

section 381 (discounts).

Only interest from S369 is "dis-regarded income".

Unlike interest from S369, interest from corporate bonds is paid gross of tax, I suspect this is the reason why HMRC require that I pay the tax.

[partington]

This still seems incorrect to me. The term "interest" clearly refers to more than what is described in 369(2) above, which I suppose is what you mean?

369(1) refers to "interest" and (2) extends what "interest" is taken to mean but isn't meant to be an exclusive definition of what "interest" means.

Bank interest, for example, is clearly "interest", but is not mentioned at all in 369(2). It is however specifically mentioned as "disregarded income" in the HMRC guidelines. Bond interest is also not mentioned specifically in 369(2)but I think this also can't be taken to mean that it isn't disregarded income.

I also don't think that whether an interest is taxed at source or not affects whether it falls under disregarded income, since the wording clearly includes interest where tax has not been withheld at source ("if any" in the advice leaflet above).

I'm not sure your position is quite tenable given that HMRC give, as an example of disregarded income, a type of interest (bank interest) which is not mentioned specifically in section 369 (2), and was not taxed at source:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

"Lorenzo is resident in Italy, but has two bank deposit accounts in the UK. He has made a declaration in respect of one of them that he is not ordinarily resident in the UK (see BAM44030), so he receives interest on this account with no tax taken off. He has not made a declaration in respect of the second account, so he receives net interest. In 2006-07, he receives gross interest of £5,400 on the first account, and net interest of £220 (gross interest £275 less tax £55) on the second. He has no other UK income.

All of the bank interest is disregarded income, so the UKs taxing rights on Lorenzos income is limited to the £55 that has been deducted at source."

Edited February 14, 2016 by partington

[ArranP]

This still seems incorrect to me. The term "interest" clearly refers to more than what is described in 369(2) above, which I suppose is what you mean?

369(1) refers to "interest" and (2) extends what "interest" is taken to mean but isn't meant to be an exclusive definition of what "interest" means.

Bank interest, for example, is clearly "interest", but is not mentioned at all in 369(2). It is however specifically mentioned as "disregarded income" in the HMRC guidelines. Bond interest is also not mentioned specifically in 369(2)but I think this also can't be taken to mean that it isn't disregarded income.

I also don't think that whether an interest is taxed at source or not affects whether it falls under disregarded income, since the wording clearly includes interest where tax has not been withheld at source ("if any" in the advice leaflet above).

I'm not sure your position is quite tenable given that HMRC give, as an example of disregarded income, a type of interest (bank interest) which is not mentioned specifically in section 369 (2), and was not taxed at source:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

"Lorenzo is resident in Italy, but has two bank deposit accounts in the UK. He has made a declaration in respect of one of them that he is not ordinarily resident in the UK (see BAM44030), so he receives interest on this account with no tax taken off. He has not made a declaration in respect of the second account, so he receives net interest. In 2006-07, he receives gross interest of £5,400 on the first account, and net interest of £220 (gross interest £275 less tax £55) on the second. He has no other UK income.

All of the bank interest is disregarded income, so the UKs taxing rights on Lorenzos income is limited to the £55 that has been deducted at source."

I acknowledge, Lorenzo, has declared his is non-resident yet he receives is his interest from the bank gross. This contradicts my current understanding, I will ask HMRC.

[ArranP]

This still seems incorrect to me. The term "interest" clearly refers to more than what is described in 369(2) above, which I suppose is what you mean?

369(1) refers to "interest" and (2) extends what "interest" is taken to mean but isn't meant to be an exclusive definition of what "interest" means.

Bank interest, for example, is clearly "interest", but is not mentioned at all in 369(2). It is however specifically mentioned as "disregarded income" in the HMRC guidelines. Bond interest is also not mentioned specifically in 369(2)but I think this also can't be taken to mean that it isn't disregarded income.

I also don't think that whether an interest is taxed at source or not affects whether it falls under disregarded income, since the wording clearly includes interest where tax has not been withheld at source ("if any" in the advice leaflet above).

I'm not sure your position is quite tenable given that HMRC give, as an example of disregarded income, a type of interest (bank interest) which is not mentioned specifically in section 369 (2), and was not taxed at source:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

"Lorenzo is resident in Italy, but has two bank deposit accounts in the UK. He has made a declaration in respect of one of them that he is not ordinarily resident in the UK (see BAM44030), so he receives interest on this account with no tax taken off. He has not made a declaration in respect of the second account, so he receives net interest. In 2006-07, he receives gross interest of £5,400 on the first account, and net interest of £220 (gross interest £275 less tax £55) on the second. He has no other UK income.

All of the bank interest is disregarded income, so the UKs taxing rights on Lorenzos income is limited to the £55 that has been deducted at source."

How do you interpret this article http://moneyweek.com/how-does-tax-affect-your-bonds-93972/

For non-residents, only interest earned in Britain is taxed. Interest income on gilts and most corporate bonds is paid without tax deducted (“gross”), so you have to declare it on your tax return

[partington]

This still seems incorrect to me. The term "interest" clearly refers to more than what is described in 369(2) above, which I suppose is what you mean?

369(1) refers to "interest" and (2) extends what "interest" is taken to mean but isn't meant to be an exclusive definition of what "interest" means.

Bank interest, for example, is clearly "interest", but is not mentioned at all in 369(2). It is however specifically mentioned as "disregarded income" in the HMRC guidelines. Bond interest is also not mentioned specifically in 369(2)but I think this also can't be taken to mean that it isn't disregarded income.

I also don't think that whether an interest is taxed at source or not affects whether it falls under disregarded income, since the wording clearly includes interest where tax has not been withheld at source ("if any" in the advice leaflet above).

I'm not sure your position is quite tenable given that HMRC give, as an example of disregarded income, a type of interest (bank interest) which is not mentioned specifically in section 369 (2), and was not taxed at source:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

"Lorenzo is resident in Italy, but has two bank deposit accounts in the UK. He has made a declaration in respect of one of them that he is not ordinarily resident in the UK (see BAM44030), so he receives interest on this account with no tax taken off. He has not made a declaration in respect of the second account, so he receives net interest. In 2006-07, he receives gross interest of £5,400 on the first account, and net interest of £220 (gross interest £275 less tax £55) on the second. He has no other UK income.

All of the bank interest is disregarded income, so the UKs taxing rights on Lorenzos income is limited to the £55 that has been deducted at source."

How do you interpret this article http://moneyweek.com/how-does-tax-affect-your-bonds-93972/

For non-residents, only interest earned in Britain is taxed. Interest income on gilts and most corporate bonds is paid without tax deducted (gross), so you have to declare it on your tax return

Don't know-bad article by someone who has never heard of disregarded income?- it's surprising how many people don't know about disregarded income, and that you can only take advantage of it if you don't claim a personal allowance.

I would follow the HMRC guidelines over a website any day!

[topt]

This still seems incorrect to me. The term "interest" clearly refers to more than what is described in 369(2) above, which I suppose is what you mean?

369(1) refers to "interest" and (2) extends what "interest" is taken to mean but isn't meant to be an exclusive definition of what "interest" means.

Bank interest, for example, is clearly "interest", but is not mentioned at all in 369(2). It is however specifically mentioned as "disregarded income" in the HMRC guidelines. Bond interest is also not mentioned specifically in 369(2)but I think this also can't be taken to mean that it isn't disregarded income.

I also don't think that whether an interest is taxed at source or not affects whether it falls under disregarded income, since the wording clearly includes interest where tax has not been withheld at source ("if any" in the advice leaflet above).

I'm not sure your position is quite tenable given that HMRC give, as an example of disregarded income, a type of interest (bank interest) which is not mentioned specifically in section 369 (2), and was not taxed at source:

http://www.hmrc.gov.uk/manuals/saimmanual/saim1170.htm

"Lorenzo is resident in Italy, but has two bank deposit accounts in the UK. He has made a declaration in respect of one of them that he is not ordinarily resident in the UK (see BAM44030), so he receives interest on this account with no tax taken off. He has not made a declaration in respect of the second account, so he receives net interest. In 2006-07, he receives gross interest of £5,400 on the first account, and net interest of £220 (gross interest £275 less tax £55) on the second. He has no other UK income.

All of the bank interest is disregarded income, so the UKs taxing rights on Lorenzos income is limited to the £55 that has been deducted at source."

How do you interpret this article http://moneyweek.com/how-does-tax-affect-your-bonds-93972/

For non-residents, only interest earned in Britain is taxed. Interest income on gilts and most corporate bonds is paid without tax deducted (gross), so you have to declare it on your tax return

Don't know-bad article by someone who has never heard of disregarded income?- it's surprising how many people don't know about disregarded income, and that you can only take advantage of it if you don't claim a personal allowance.

I would follow the HMRC guidelines over a website any day!

I agree. I have been non res for about 8 years but was unaware of the disregarded income until I read something about it on here last year or the year before and read up on it. Unfortunately it does not help me as I have rental income also and I am better off claiming the personal allowance.

[gk10002000]

I am a US citizen. In my "taxable" regular brokerage account I put all my monies into Tax free and AMT free Municipal bonds and Municipal bond Funds (NEA, PRTAX, PZA), and I also hold T. In my ROTH IRA I hold NLY, PRHYX, and PGX. In my Traditional IRA I hold PRHYX, NLY, BP, PFXF. My portfolio earns > 5% every year and much of it is tax free and some is tax deferred.

Edited February 15, 2016 by gk10002000