Noob dividends questions

[AppleCrumble]

Hi.

As I've maxed out my ISA and my pension I've invested in income funds using a non-sheltered trading account. I've not done this before so I don't know how things work with regards to dividends.

1. How are dividends paid out? As cash directly into my trading account? Can I just reinvest in more units immediately?
2. When are dividends typically paid out? Is it different for every fund?
3. Will my platform most likely notify me when they are paid out? Will they send me a statement each time and/or an end-of-year statement?
4. If my dividends total over the allowance (currently £2000) do I contact HMRC once we're into the next tax year?

Thanks for your help.

[EthicsGradient]

1. How are dividends paid out? As cash directly into my trading account? Can I just reinvest in more units immediately?

If you haven't opted for dividend reinvestment, then yes, cash in your trading account. How platforms handle reinvestment can vary a little, but you can set them up for automatic reinvestment (possibly with a minimum amount). I assume these funds are investment trusts or ETFs; if they're OIECs, you decide on accumulation units (effectively automatic reinvestment) or income (which is for those who want to receive the cash) when you buy them.

2. When are dividends typically paid out? Is it different for every fund?

Yes, different for all. OEICs may only be yearly (and some may not pay at all, if their stocks are very growth-oriented, so their charges eat up whatever meagre dividends they get). Some, and some ITs and ETFs, may be half yearly, and some quarterly.

3. Will my platform most likely notify me when they are paid out? Will they send me a statement each time and/or an end-of-year statement?

Depends. My SIPP tells me whenever a dividend is paid, and I assume they'd do that for a non-sheltered account too; my non-sheltered doesn't.

4. If my dividends total over the allowance (currently £2000) do I contact HMRC once we're into the next tax year?

I guess you should; they had another reason to contact me first, and since then, they've told me to do self-assessment ever since. Not doing so would be illegal; I suspect the small print of your end-of-year statement will remind you of your obligation.

[AppleCrumble]

I assume these funds are investment trusts or ETFs; if they're OIECs, you decide on accumulation units (effectively automatic reinvestment) or income (which is for those who want to receive the cash) when you buy them.

They're OEICs. It was suggested elsewhere to buy income units for a non-sheltered account in order to easily differentiate between dividends and capital growth for tax purposes.

[EthicsGradient]

I'm not sure if many platforms would do automatic reinvestment on income OIECs, since they'd expect you to use accumulation units for it. But they might, just to allow you to change without having to switch unit types.

[JohnB]

Every broker seems to be different. Iweb send dividend to my bank account instantly, Hargreaves Lansdown hide them in a dividends account and only sweep then into my cash account at the end of the month. Neither are very good at emailing me when the money appears.

If you have dividends over 2k, best to volunteer to HMRC to do a Self Assessment tax return. Brokers are good at providing tax year summaries you can use.

[jonesa1]

AJ Bell always notify me when dividends (in my case from ITs) are paid into my dealing account, the money sits in the account as cash until I do something with it. There is a re-investment option. If your tax affairs are simple (in my case the income is just from PAYE pension and dividends), there may be no need to fill out a full self assessment. Instead you can simply tell HMRC (by phone, by letter, or on their website) your estimated dividend income for the current tax year (to avoid significant over / under payments) and update the estimate at the end of the tax year.
https://www.gov.uk/log-in-register-hmrc-online-services

Andrew

[ursaminortaur]

3. Will my platform most likely notify me when they are paid out? Will they send me a statement each time and/or an end-of-year statement?

Depends. My SIPP tells me whenever a dividend is paid, and I assume they'd do that for a non-sheltered account too; my non-sheltered doesn't.

For a non-sheltered account the broker should also produce a consolidate tax certificate (containing details of income and dividends paid out during the last financial year). This will usually be produced a couple of months into the next financial year.
An online broker should notify you about the availability of the consolidate tax certificate but you would probably have to login and download it rather than expecting it to be sent to you.

Note though that this will just be reporting on what the broker sees and hence won't give a full picture of your tax liability if your non-sheltered trading account includes funds with accumulation units.

[Alaric]

won't give a full picture of your tax liability if your non-sheltered trading account includes funds with accumulation units.

Wouldn't they still have to send the Tax Certificate, showing the amounts accumulated?

For Accumulation units, the appearance of the amounts on the Tax Certificate can sometimes be the only way you find out what the dividend had been.

[ursaminortaur]

won't give a full picture of your tax liability if your non-sheltered trading account includes funds with accumulation units.

Wouldn't they still have to send the Tax Certificate, showing the amounts accumulated?

For Accumulation units, the appearance of the amounts on the Tax Certificate can sometimes be the only way you find out what the dividend had been.

I've never bought funds with accumulation units outside of a tax wrapper so maybe wrong on this but I thought that the only way to separate out income from capital gains in the accumulation units was using information directly from the fund provider rather than information which an online broker would have and be able to include in their consolidated tax certificate.

[Alaric]

I've never bought funds with accumulation units outside of a tax wrapper so maybe wrong on this but I thought that the only way to separate out income from capital gains in the accumulation units was using information directly from the fund provider rather than information which an online broker would have and be able to include in their consolidated tax certificate.

I've held accumulation units directly and received a tax certificate every year from the fund managers. When I consolidated the holdings with an online Broker, I continued to receive the same information, only this time from the Broker, presumably based on notifications from the fund managers. I believe it's a legal requirement to supply this informations, applying as it does to every Company that pays dividends.

[EthicsGradient]

I've held accumulation units directly and received a tax certificate every year from the fund managers. When I consolidated the holdings with an online Broker, I continued to receive the same information, only this time from the Broker, presumably based on notifications from the fund managers. I believe it's a legal requirement to supply this informations, applying as it does to every Company that pays dividends.

Yes, all online brokers have to provide this - and the split, for Group 2 units bought during a reporting period that ended in the tax year, between taxable income and equalisation. Only someone with the exact date you bought it (ie the broker, in this case) would be able work that out.

[XFool]

Every broker seems to be different. Iweb send dividend to my bank account instantly

As iWeb is actually HSDL, doesn't that mean you have that option turned on in your account? The default (with HSDL) is for dividends to accumulate in the trading account.

Then again, if your "bank account" is a Halifax one, perhaps it's different.

[JohnB]

Money gets sent to my Nationwide account. I can't remember the config option