IT income - 'dividend' or 'savings' income for tax purposes??

[AleisterCrowley]

I hold/held some ITs in my non-ISA dealing account- SMT and CTY
I have always assumed that the dividends from the above are taxed as dividend income rather than savings income.
But now I read (whilst digging for something else):
https://www.gov.uk/apply-tax-free-interest-on-savings
"Personal Savings Allowance
Interest covered by your allowance
Your allowance applies to interest from:
-bank and building society accounts
-savings and credit union accounts
-unit trusts, investment trusts and open-ended investment companies "
...etc


Surely not ???


Looking at Which, I found the following;
https://www.which.co.uk/money/tax/incom ... vidend-tax
"Dividend taxes don't just apply to income from shares. You'll also have to pay it on the income you get from funds that invest in shares on your behalf.

So for holdings in investment funds or investment trusts, you'll need to pay the dividend tax if they are investing in equities.

But if you hold bond funds, which effectively lend to companies and governments by buying their debts, that income counts as interest and will be taxed as savings income."
The Which extract seems to make more sense - but I take the HMRC guidance as definitive...usually
So which is it?
TIA , AC

[DrFfybes]

Some Funds Pay Dividend Income, others pay Interest. TBH I never worked out why, I just took it as read and choose accordingly.

HL's site tells you which they pay, and it will appear on your consolidated tax cert as well under the relevant category, or at least it should do

[AleisterCrowley]

Where does it specify on the HL site?
https://www.hl.co.uk/shares/shares-sear ... -shares-5p
They both appeared on my HSDL tax certificate, mixed in with all the single company stuff

[XFool]

I hold/held some ITs in my non-ISA dealing account- SMT and CTY
I have always assumed that the dividends from the above are taxed as dividend income rather than savings income.

The above two are undoubtedly both taxed as dividends.

But now I read (whilst digging for something else):
https://www.gov.uk/apply-tax-free-interest-on-savings
"Personal Savings Allowance
Interest covered by your allowance
Your allowance applies to interest from:
-bank and building society accounts
-savings and credit union accounts
-unit trusts, investment trusts and open-ended investment companies "
...etc

So if an investment trust pays out an interest payment it will be taxed as interest. With the overwhelming number of ITs this is not the case as they pay dividends. Possibly, if there were Bond only ITs, their pay-outs would be classed as interest payments. I do not know the situation with REITs.

[DrFfybes]

Where does it specify on the HL site?
https://www.hl.co.uk/shares/shares-sear ... -shares-5p
They both appeared on my HSDL tax certificate, mixed in with all the single company stuff

For Funds, you can sort...
https://www.hl.co.uk/funds
and in 'more filters' you can choose for one paying interest or dividends.

AFAIK all ITs and ETFs pay Dividends, as they are Listed Companies. On the one you mention is you scroll down it says "Dividend yield" and "Dividend Frequency", which means it pays Dividends

Paul

[Lootman]

Where does it specify on the HL site?
https://www.hl.co.uk/shares/shares-sear ... -shares-5p
They both appeared on my HSDL tax certificate, mixed in with all the single company stuff

For Funds, you can sort...
https://www.hl.co.uk/funds
and in 'more filters' you can choose for one paying interest or dividends.

AFAIK all ITs and ETFs pay Dividends, as they are Listed Companies. On the one you mention is you scroll down it says "Dividend yield" and "Dividend Frequency", which means it pays Dividends

Paul

Yes, I think that is right. I recall being invested in a bond fund but its payouts were treated as dividends and not interest. Maybe handy as dividends are taxed at a lower rate. But in any event as you said before, just go by whatever the consolidated tax certificate says.

[AleisterCrowley]

It doesn't actually say on the tax certificate I get from HSDL, but as mentioned the ITs are in with all the single company stuff, no differentiation

I've certainly always declared SMT/CTY as dividend income.
I think the HMRC site is perhaps ambiguous - should be something like:
-unit trusts, investment trusts and open-ended investment companies where income is paid as interest rather than as a dividend
Or just ...."as applicable" on the end
???

[DrFfybes]

It doesn't actually say on the tax certificate I get from HSDL, but as mentioned the ITs are in with all the single company stuff, no differentiation

With ii (and HL if I remember corectly) there is a front page with the total on (ii list 'UK Equity Dividend', 'UK Unit Trust Dividend', and 'UK Unit Trust Interest'), and then several pages with a breakdown of payments from each investment. My last ii Tax Cert was about 20 pages. Confusingly Overseas Income isn't even mentioned until page 15 or so, which means it is easy to miss it if you don't realise you have non UK shares (like SONG)

[Alaric]

Possibly, if there were Bond only ITs, their pay-outs would be classed as interest payments. I do not know the situation with REITs.

There are a handful of Bond and loan based ITs, some paying both dividends and interest.

REITs pay part of their distributions as "Property Income Dividend (PID) " This is likely to have had tax withheld at 20%.

Brokers and Registrars (if assets held diretly) are required to tell you about tax withheld and classification for tax purposes if no tax has been deducted.

[Gersemi]

Where does it specify on the HL site?
https://www.hl.co.uk/shares/shares-sear ... -shares-5p
They both appeared on my HSDL tax certificate, mixed in with all the single company stuff

My HSDL tax certificate starts with a section headed "UK Equities". The next line has various headings, including one that says "Dividend rate" and ends with the "amount payable", as with you this includes both ordinary company stocks and Investments Trusts. I think it is safe to assume these are dividend payments. On my certificate the next section is "Non-UK Equities" - the last column is "Net Dividend paid". Of course these go in the foreign income section on the tax return. I have no interest paying investments so no section for this. The H-L tax certificate is a lot clearer with the total of each type of income listed and then a breakdown later.

[Nocton]

It's very simple - just look at your payment voucher.
All my ITs including SMT say "Dividend Confirmation" or "Dividend Payment" at the top.

[tjh290633]

I seem to recall that there was a ruling that, if more than a certain proportion of an organisation's income came from interest, then the dividend was counted as interest and taxed accordingly.

This certainly applied to some unit trusts back in the Dark Ages, which held a high proportion of fixed interest stock. Whether the same applies in the case of UCITS, I cannot say.

TJH

[AleisterCrowley]

Where does it specify on the HL site?
https://www.hl.co.uk/shares/shares-sear ... -shares-5p
They both appeared on my HSDL tax certificate, mixed in with all the single company stuff

My HSDL tax certificate starts with a section headed "UK Equities". The next line has various headings, including one that says "Dividend rate" and ends with the "amount payable", as with you this includes both ordinary company stocks and Investments Trusts. I think it is safe to assume these are dividend payments. On my certificate the next section is "Non-UK Equities" - the last column is "Net Dividend paid". Of course these go in the foreign income section on the tax return. I have no interest paying investments so no section for this. The H-L tax certificate is a lot clearer with the total of each type of income listed and then a breakdown later.

I've just got a single section 'UK Equities', with date, name/holding, dividend rate, tax credit (£0), and amount payable - this includes SMT/CTY so I guess that confirms it ?! Still find the HMRC wording confusing/ambiguous

[XFool]

I've just got a single section 'UK Equities', with date, name/holding, dividend rate, tax credit (£0), and amount payable - this includes SMT/CTY so I guess that confirms it ?! Still find the HMRC wording confusing/ambiguous

Whereas there really is no ambiguity about the two examples of ITs you gave - they both pay dividends as do most ITs, I have to say I find the same thing (ambiguous HMRC wording) every time I complete an annual HMRC SA online. Some of the wording confuses me no end and I never feel sure I can remember what I did last year, or whether the wording has or has not changed since last time.

[AleisterCrowley]

I've just got a single section 'UK Equities', with date, name/holding, dividend rate, tax credit (£0), and amount payable - this includes SMT/CTY so I guess that confirms it ?! Still find the HMRC wording confusing/ambiguous

Whereas there really is no ambiguity about the two examples of ITs you gave - they both pay dividends as do most ITs, I have to say I find the same thing (ambiguous HMRC wording) every time I complete an annual HMRC SA online. Some of the wording confuses me no end and I never feel sure I can remember what I did last year, or whether the wording has or has not changed since last time.

Yes, I normally have to go through HMRC stuff multiple times to get the 'right' answer..
Thanks for your help everyone

[gpadsa]

I have to say I find the same thing (ambiguous HMRC wording) every time I complete an annual HMRC SA online. Some of the wording confuses me no end and I never feel sure I can remember what I did last year, or whether the wording has or has not changed since last time.

The SA input prompts don't match the order and structure of the fields in the completed PDF form that can be printed at the end so last year I took screen shots of how I completed each SA page.

gpadsa

[SalvorHardin]

Watch out when it come to REITs because their Property Income Distributions (PIDs) aren't classed as dividends by HMRC. Instead they are "other income".

Here is an explanation from Land Securities website:

https://landsec.com/investorsshareholders-equity-investors/uk-reit-regime-and-dividends

Given that some REITs pay PID and ordinary dividends at the same time (e.g. Derwent London), it wouldn't be a complete surprise to see some brokers not separating them in their records.

[Lootman]

Watch out when it come to REITs because their Property Income Distributions (PIDs) aren't classed as dividends by HMRC. Instead they are "other income".

Here is an explanation from Land Securities website:

https://landsec.com/investorsshareholders-equity-investors/uk-reit-regime-and-dividends

Given that some REITs pay PID and ordinary dividends at the same time (e.g. Derwent London), it wouldn't be a complete surprise to see some brokers not separating them in their records.

Isn't it best to hold REITs in an ISA? Then not only do you not have to worry about their special tax treatment, but ISAs can still reclaim a tax credit for REITs in the way that they used to be able to do for ordinary shares?

[SalvorHardin]

Watch out when it come to REITs because their Property Income Distributions (PIDs) aren't classed as dividends by HMRC. Instead they are "other income".

Here is an explanation from Land Securities website:

https://landsec.com/investorsshareholders-equity-investors/uk-reit-regime-and-dividends

Given that some REITs pay PID and ordinary dividends at the same time (e.g. Derwent London), it wouldn't be a complete surprise to see some brokers not separating them in their records.

Isn't it best to hold REITs in an ISA? Then not only do you not have to worry about their special tax treatment, but ISAs can still reclaim a tax credit for REITs in the way that they used to be able to do for ordinary shares?

Yes, it is better to hold UK REITs in an ISA because the 20% PID tax deduction can be reclaimed. My holding of Derwent London shares are outside an ISA because I inherited them a few years ago and since it would take several years to transfer them into an ISA I haven't bothered (new ideas and topups invariably take priority with new ISA money).

There will be quite a few investors out there who own REIT shares outside ISAs because they owned them from before they converted to REITs (e.g. Land Securities converting to a REIT in 2007).

[DrFfybes]

?! Still find the HMRC wording confusing/ambiguous

The more I deal with them the more I believe they do it deliberately.

Obviously it can't be in order to keep their helpline people in work, because they don't seem to have any now, but it seems to help support an industry of advisers, experts, loophole finders, loophole closers, etc etc.

Or perhaps like many Govt depts, they like to keep things ambiguous in case they change their mind.

Dr"got 2 letters from pension providers today with revised payslips and my new tax code, which HMRC hadn't bothered to tell me about"F.