kempiejon wrote:Is there a tiny tax advantage buying XD so as not to pay the stamp duty on the dividend you're about to receive? ...
Yes, but it really is
tiny. E.g. if you buy £1,000 worth of a share when it's just still cum-dividend and receive a £30 dividend on it, you pay 0.5% of £1,000 = £5.00 stamp duty on it. If you instead wait until just after it has gone ex-dividend, the price of those same shares can be expected (all else being equal) to drop to £970 and you've still got the difference of £30 in the bank to compensate you for not receiving the £30 dividend later, and the stamp duty is only 0.5% of £970 = £4.85. So you make a tax saving of 15p on a £1000 investment, which is a 0.015% tax saving.
It becomes a bit more significant if the holding isn't tax-sheltered and the non-tax-sheltered holdings earn enough dividends to exceed the dividend allowance, so that Income Tax and possibly CGT are involved. For a basic-rate taxpayer, buying cum-dividend means that the £30 dividend attracts 7.5% Income Tax, costing £2.25 on one's tax bill, while the £30 that stays in the bank if one buys ex-dividend doesn't attract Income Tax (*). That might be offset by the CGT effect of having spent £30 less on the same shares than if one had bought cum-dividend, making the gain £30 bigger and the tax bill at the basic-rate CGT rate of 10% up to £3.00 bigger if and when the gain is realised. But especially in a HYP, the gain might well not be realised before one dies (in which case CGT on it is forgotten and the IHT bill just depends on the value of the shares, not on what the unrealised gain on them was) or it might be realised in a tax year when it is covered by one's CGT allowance, and even if it is realised in a tax year when one ends up paying CGT on it, that CGT bill is probably many years in the future - all of which say that one should probably discount that expected £3.00 CGT saving from buying cum-dividend considerably. So the tax advantage of buying ex-dividend = 15p stamp duty + £2.25 Income Tax - something well under £3.00 CGT in this case - which is almost certainly positive but definitely at most £2.40. I.e. at most a 0.24% tax advantage, which is still pretty tiny but nothing like as low as 0.015%.
Move to higher- or additional-rate tax and the Income Tax rate on the dividends changes to 32.5% or 38.1%, while the CGT rate becomes 20%. That shifts the tax savings due to buying ex-dividend in otherwise-the-same-as-above circumstances to being definitely positive and at most £9.90 or £11.58 on the £1,000 investment, i.e. 0.99% or 1.158%. Still pretty small, but also quite an increase on the corresponding figure of 0.24% at basic rate.
So the tax savings from investing ex-dividend can be merely quite small rather than really tiny for a HYPer in the right (or should that be wrong?) tax circumstances. But those tax circumstances are probably quite uncommon - higher-rate taxpayer or above
and holding sufficient shares outside tax shelters for their dividends to exceed the dividend allowance. For others, and as far as stamp duty is on its own is concerned for everyone, the 0.015%ish tax advantage due to stamp duty is about as significant as a 0.1p fluctuation in the price of a share worth about 600-700p.
(*) Interest on it might, of course, but that happens more-or-less regardless of whether the £30 in the bank account just stayed there or arrived there as a dividend, except that it arrives a few weeks later in the second case and so earned corresponding less interest. But a few weeks of interest on £30 is a few pence at most, and tax on it even less, so we're talking ultra-tiny here!
Gengulphus
