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When my circa £7000 "special dividend" gets paid into my investment cash portfolio does anybody know at what point I would have to pay capital gains tax?
A
Why would you pay CGT ?
Because isn't it above the 2K threshold? Sorry confused.
Ade
I think you mean dividend tax. CGT is something different
Yes sorry thats what I mean. At what point is the dividend tax payable? When withdrawing from the investment account or when its paid into the investment account from Tesco?
2k threshold is for 'income' dividend.
If you are counting this asset sale as being income then you would be making a donation to UK plc of 7.5% above the threshold.
unless you are a higher rate tax payer
Thank you. I guess what I'm saying is that the special dividend is getting paid into the "cash" part of my shareholdings and not into my bank account. So is the tax payable if and when I withdraw it? Or when its credited to my stocks and shares cash holding account? Ive never gone over the 2k tax dividend limit before so its never reared its head for me.
A
If normal dividends income is normally paid straight into your bank account, then that may suggest that your provider is classing it as a return of capital.
Ade....if you look at the gov.uk link Tig sent about an hour ago that outlines the process you need to follow very clearly, it is paid via your tax payments through the following financial year , not necessarily a one-off payment...you have to inform HMRC you have exceeded your limit and are liable to pay tax. Have a look at the link, it really is a one-pager and pretty clear.
It’s a normal dividend and in no way a return of Capital! Book cost on holdings are the same. Anyone who has a dividend that must be taxed should pay it and be glad of their chicken dinner, cos everybody who got a dividend is a winner!! It’s money you never had before and last time I checked tax rate was much less than 100%. Hell.....if it was I could do some real damage and you would all know it!! Wink wink, nudge nudge ;)
Longtimeinvestor I find your manner and insults regarding people asking questions as not having brains and being thick quite obnoxious and rude. You are not the oracle on this share, or I imagine, anything at all. People are genuinely asking questions and giving their opinions. If you are so clued up then I do not see why you need to read this board or contribute as you obviously are privy to every bit of information already. I suggest that you lay off other people on this board or go and have a time out. Maybe have a nice walk tomorrow to clear the head.
Ade - I suspect a fair few shareholders will unwittingly go over the £2000 tax free dividend allowance. It was previously £5000 before the then chancellor Philip Hammond pared it down ruthlessly after many invested large sums based on the assumption the then £5000 was likely to be permanent.
That oversight on the possibilty of exceeding the allowance will be despite the lowering in dividend income due to the Covid crisis. About half the firms Im invested in (about 6 companies) cancelled their divis completely and have so far mentioned nothing about when they are likely to resume eg Taylor Wimpey,Redrow (though Persimmon had a sizeable divi)
The huge Tesco SD is illustrative of the swings and roundabouts that is inherent share investment for income. Alrhough to be fair there have been a fair few opportunities for capital gains when the market was at its bottom last year eg Royal Mail, Royal Dutch Shell.
Agreed Equilibrium although I learn a lot from LTINV whether its good or bad. Hes probably a bit miffed over the reduction in his share holding as we all are. It would have been nice to have the SD as a "free dollop" and taxation free, but we may have paid for it via a huge drop in Tescos share price as is usual just after payment of divis.
As it happens, and onward improvement the share price has held up well so far and is "promising" a rise, given the potential for a very good final years results.
Eq
If you don't like an answer to your 14.07 post, which obviously has embarrassed you by exposing the inaccuracies contained within it ,then that is something you need to deal with , rather than try and deflect away from the issue. If you are going to post then try for it not to have flaws.
EQ
I shall repeat my reply to your 14.07 post. Let me know what you don't like about it.
eq
''Longtimeinvestor - looking at the sp over the last few years, when was the 51p added in value to it? ''
The value from the Asian asset sale was incorporated into the Tesco market cap.The share price has not reached near 300p in recent times. I had earmarked to sell some shares at 270p which it also hadn't reached. You may be looking at a graph that has been put out by the return/consolidation as per the link showing the share price at over 300p just a couple of weeks ago.
https://uk.finance.yahoo.com/quote/TSCO.L?p=TSCO.L&.tsrc=fin-srch
The Tesco share price has held up well since the start of the Covid 19 market sell off mainly due to the asset sale and what was to be done with the proceeds.
I don't often disagree with LTI (ducking and dodging a lightning bolt :-) ) but I still don't see this as being a return of capital. Firstly, Tesco has shaped this in such a way as to meet the HMRC rules. On this, given their track record, Tesco will have crossed Ts and dotted Is with the agreement of HMRC. No way will they push boundaries with this. Secondly, think about it. The special dividend comprises two parts. The capital element, a portion of the NAV for the two businesses and the profit element, the amount of money that was paid over and above the value of the asset. The profit element, which was detailed in the original circular, should surely be treated as a dividend in the usual sense of the word.
For once, I was disappointed with the gov.uk web site. It doesn't mention SIPPs as being a tax wrapper for dividends. Neither could I find the term Special Dividend or Return of Capital in this context.
RW
I did say what I am classing it as ,rather than what HMRC would say it is.
It is clearly not income derived from the operational business, it comes from an asset sale.
In the US, more often than not a special dividend would be used as a means to 'return capital' , but can be specified by the company as being a 'capital gain ' or 'income'.
Unfortunately Tesco have not set up a 'B' share scheme which would have been appropriate in this case, so as to give the investors a choice to have the proceeds as a return of capital.
So it is a conflict between what HMRC may see it as and what morally it really is.
I would contest the paying of income tax on what I see as not being income.
I certainly haven't paid income tax on similar returns from asset sales, but they may have (can't remember) all had a 'B' share schemes.