On April 6th, new UK taxation will be applied to dividends https://www.gov.uk/government/publications/income-tax-changes-to-dividend-taxation/income-tax-changes-to-dividend-taxation.
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With effect from April 6th: · Dividend tax free allowance of £5000. · 10% tax credit on dividends abolished. · UK basic rate of tax on dividends to be 7.5%. · Interest dividends to cease having 20% tax automatically deducted with effect from April 2017. All dividends prior to April 6th, dating back to 1999, are “notionally” pre-taxed at the basic rate of 10%. By notional, it means no tax has actually been applied and the investor receives the full dividend, but there is a notionally declared gross dividend based on the 10%. So for example if a company issues a 10p dividend, the investor gets the full amount, but for purposes of tax there is a notional gross dividend declared at 11.1p. So the investor has received 10p per share, with a gross amount payable on 11.1p, so a notional 10% tax credit has been paid according to the HMRC. As a result of the new tax changes, there is a dividend tax free allowance (capped at £5k), and all dividends after April 6th will no longer be notionally taxed at source, with the paid dividend being the total taxable sum. The new basic rate of tax on dividends has been set to 7.5%, for amounts exceeding £5k. In the above example the investor would still receive 10p, yet the tax liability would be on 10p, not 11.1p. Naturally, there are higher bands as well, depending on investor. |
How will this affect you?As a result of this change, and in order to ensure consistency, the fund data vendors have reviewed how net total return performance should be calculated going forward. With the basic rate of tax at 7.5%, it was decided that dividends will be netted down before being re-invested to ensure net performance reflects the basic rate of tax still. As such, net total return performance will reflect the deduction of basic rate tax of 7.5% for dividends on April 6th and onwards. We are also encouraging follow up discussions with the IA. The outcome of the change to net total return, will be reflected in standard fund performance reporting. This will not affect fixed interest based dividends which do have a real 20% withholding tax applied before receipt by the investor, and this will remain in place at this point in time.However, in the following tax year 2017, it has just been announced, the current 20% withholding tax removed from interest dividends, will be removed. This is a real withholding tax, where tax has been deducted at source. So at present for a 10p dividend issued, 2p will be deducted for tax credit, and 8p will be paid to investors. When this change occurs, the investor will receive the full 10p, aligning it with how equity dividends are about to be treated. It follows that net total return performance will adjust the dividends according to the basic rate of tax which is still expected to be 20%. |
Who do I contact if I have further questions or concerns?Please get in touch with your account manager or data relationship manager if you wish to address any thoughts or concerns.Alternatively, please email clientsupport@financialexpress.net who will be able to direct your inquiry. |