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Dividends on Jersey domiciled investment trusts

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Tortoise1000
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Dividends on Jersey domiciled investment trusts

#102045

Postby Tortoise1000 » December 6th, 2017, 10:22 am

Does the tax man treat dividends on a Jersey domiciled trust the same as other UK investment trusts? I am thinking of buying Aberdeen Asian Income outside of an ISA. I am wondering whether the dividends will just go in with other ITs on my tax return, or whether there is something complicated about it being in Jersey. I try to keep my tax return simple by buying anything tricky inside my ISA, and having just straightforward things outside it.

There must be something unusual about this one, otherwise why would Aberdeen have it domiciled in Jersey? I should be most grateful if anyone could explain.

T

Alaric
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Re: Dividends on Jersey domiciled investment trusts

#102056

Postby Alaric » December 6th, 2017, 10:38 am

Tortoise1000 wrote:Does the tax man treat dividends on a Jersey domiciled trust the same as other UK investment trusts?


In terms of actual tax, it's the same. It would just be lumped in with everything else counting towards the £ 5000/ £ 2000 tax limit. You are however expected to report the total separately from the domestic and from memory if your total "foreign" income exceeds £ 500, you are expected to analyse it by country. Broker end of year dividend statements should give you the breakdown.

I'm not sure why they would choose to base in Jersey. It may be that it's easier to reclaim or not pay withholding taxes. Perhaps it's easier to retain investment trust status if Jersey based.

Tortoise1000
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Re: Dividends on Jersey domiciled investment trusts

#102058

Postby Tortoise1000 » December 6th, 2017, 10:42 am

Oh, Jersey is foreign, is it? Hmm.

T

Lootman
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Re: Dividends on Jersey domiciled investment trusts

#102060

Postby Lootman » December 6th, 2017, 10:47 am

Alaric wrote:I'm not sure why they would choose to base in Jersey. It may be that it's easier to reclaim or not pay withholding taxes. Perhaps it's easier to retain investment trust status if Jersey based.

One reason is that is saves UK corporation tax. (Since investment trusts are structured as companies they can be liable to UK corporation tax). An IT based outside the UK won't pay it. Apparently that makes more of a difference when the IT invests in foreign income-producing assets, which is why some Asian income ITs are domiciled there.

There is also no stamp duty when you buy a Jersey IT.

I'm less sure about difference in withholding taxes. Insofar as there are foreign withholding taxes it can actually be helpful to hold such a fund in a taxable account as some taxpayers can get a credit for the withheld amount against other dividend taxes they pay. But I prefer to keep them in an ISA so that I don't have to do the separate reporting that you mentioned.

helfordpirate
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Re: Dividends on Jersey domiciled investment trusts

#102086

Postby helfordpirate » December 6th, 2017, 12:02 pm

Tortoise1000 wrote:There must be something unusual about this one, otherwise why would Aberdeen have it domiciled in Jersey? I should be most grateful if anyone could explain.


Prior to 2009, although it was tax efficient for UK domiciled ITs to hold equities, the income from other assets such as fixed income, derivatives and REITS was liable to corporation tax. As a consequence a lot of trusts that were focussed on income - for example, as in this case, holding high yield corporate bonds and asian REITS went offshore.

In 2009, the rules were changed so UK domiciled trusts could avoid corporation tax to the extent that income from these other assets were actually distributed to shareholders.

In general, the witholding tax treatment within a UK domiciled fund will be much better as the UK has many DTT - whereas Jersey has many fewer (though it does have China, HK and Singapore). The board of this IT have presumably considered the appropriate domicile and concluded that it is still to the benefit of shareholders to remain Jersey domiciled. (Though of course corporate governance in Jersey may not be to the same standards as in the UK.)

Tortoise1000
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Re: Dividends on Jersey domiciled investment trusts

#102144

Postby Tortoise1000 » December 6th, 2017, 2:15 pm

Thank you for these clear explanations, helfordpirate, Lootman and Alaric. Much appreciated.

T


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