Tuesday 30 March 2010

Reclaim Lyxor ETF withholding tax?

Question
I have just received a dividend payment on my Lyxor ETF F100 which indicates a withholding tax has been applied.

Can I reclaim this tax ?Answer
Having just done some reading on this subject it’s messy to say the least!

I’ve not managed to find a definitive answer and Lyxor was a little vague when I called them, but my interpretation of the rules is as follows:

The Lyxor FTSE 100 ETF, while listed on the London Stock Exchange, is tax resident in France. Being an investment fund it doesn’t have to pay tax on its profits, but a 25% withholding tax is nevertheless deducted from the gross dividend when paid to non-residents, as would be the case with other French companies.

When a UK tax resident receives foreign dividends they can normally apply the 10% tax credit before paying basic rate tax of 10% or higher rate tax of 32.5%. So, as is the case with UK dividends, basic rate taxpayers have no further tax to pay while higher rate taxpayers effectively pay a further 25% tax on the dividend received.

However, this ignores the 25% French withholding tax and herein lays the confusion and potential problem.

Under the UK-French double taxation convention French withholding tax of up to 15% (of the gross dividend) can be credited against the UK liability. So this means that a basic rate taxpayer will have no further tax to pay on the Lyxor ETF and a higher rate taxpayer can only use up to 15% of the 25% withholding tax to credit against their additional tax bill. In both cases it is theoretically possible to reclaim the additional 10% of French withholding tax by sending the appropriate form to the French tax authorities.

From what I’ve managed to find out the form you need appears to be RF-5GB/5088 and can be obtained from the HMRC Residency Centre in Nottingham (0151 210 2222).

In all honesty, unless the sums involved are large the effort required to get a refund is unlikely to be worth it. Probably a better idea to switch to an ETF based in Ireland where there’s normally no withholding tax on ETFs.

If anyone reading this has tried to reclaim withholding tax in this scenario please let us know the outcome by posting below – thanks.

Read this Q and A at http://www.candidmoney.com/questions/question173.aspx

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