Tax Return Time - UK Equities, Non UK Equities, and REITs

[Bobwood]

I have a few questions which I'm trying to answer prior to completing my return for the last tax year. Firstly, some context. All my investments are in 'investment companies' such as ITs and REITs. Prior to the last tax year, they were all nicely sheltered within an ISA.

Last year I decided to use my £2,000 dividend allowance to supplement the income I receive from the natural yield of my ISA investments and chose what I thought were suitable investments for the purpose of consuming this £2,000 tax break.

Having now looked at my tax certificate from my platform provider I find that the three are in fact all categorised differently:

UK Equities - Henderson Far East Income Ltd. (HFEL)

Non UK equities - John Laing Environmental Asset Group (JLEN)

Property Income Distribution - Regional REIT (RGL)

The first of the three, HFEL, is straightforward and the dividend will count towards my £2,000 dividend allowance.

My questions relate therefore to the other two.

For JLEN, do I simply enter that in my Tax Return as income from overseas equities, and if so, does it also contribute to my £2,000?

For Regional REIT, I have read that the 'dividend' is in fact a distribution of income and should be entered on my tax return as 'Other income' and taxed at my marginal income tax rate, and not treated as a dividend at all. This clearly significantly impacts the desirability of holding such an investment outside of an ISA for income seekers. Can anyone validate this (see 'Tax treatment of investors' https://www.out-law.com/topics/tax/prop ... -of-reits/)

Thanks in advance.

[Alaric]

For Regional REIT, I have read that the 'dividend' is in fact a distribution of income and should be entered on my tax return as 'Other income' and taxed at my marginal income tax rate, and not treated as a dividend at all. This clearly significantly impacts the desirability of holding such an investment outside of an ISA for income seekers.

That's always been so, ever since REITs were first introduced. I would have though that they are mainstream enough to deserve their own box on the Tax Return, rather than being shoe-horned into "Other". Tax will have been withheld at source, so there's nothing additional to pay if you are a basic rate payer.

Some REITs will pay both a PID (Property Income Distribution) and a normal one. Annoyingly some Brokers don't flag receipts as PIDs until the annual tax statement, so you have to consult the Company website to get the categorisation if you keep a running record.

[Bobwood]

For Regional REIT, I have read that the 'dividend' is in fact a distribution of income and should be entered on my tax return as 'Other income' and taxed at my marginal income tax rate, and not treated as a dividend at all. This clearly significantly impacts the desirability of holding such an investment outside of an ISA for income seekers.

That's always been so, ever since REITs were first introduced. I would have though that they are mainstream enough to deserve their own box on the Tax Return, rather than being shoe-horned into "Other". Tax will have been withheld at source, so there's nothing additional to pay if you are a basic rate payer.

Some REITs will pay both a PID (Property Income Distribution) and a normal one. Annoyingly some Brokers don't flag receipts as PIDs until the annual tax statement, so you have to consult the Company website to get the categorisation if you keep a running record.

Thanks Alaric.

I've looked on RGL's website and it seems that recent dividends have all been paid as PIDs which is also what my platform has shown them as: http://www.regionalreit.com/~/media/Fil ... 3-2018.pdf

I wonder how many other REIT investors are aware of this, or am I the only naive one?

[PinkDalek]

For JLEN, do I simply enter that in my Tax Return as income from overseas equities, and if so, does it also contribute to my £2,000?

I don't know enough about JLEN itself, but for foreign dividends (in total) exceeding £300 the Foreign pages https://assets.publishing.service.gov.u ... 6_2019.pdf are to be used.

If £300 or less use box 6 (and 7 if applicable) https://assets.publishing.service.gov.u ... 0_2019.pdf

Yes, foreign dividends are assessed as UK dividends for the £2,000 dividend allowance (which is an effective band as against an allowance).

For Regional REIT, I have read that the 'dividend' is in fact a distribution of income and should be entered on my tax return as 'Other income' ...

Yes, property income distributions (pids) are not dividends as you say and are not therefore eligible for the dividend allowance.

I wonder how many other REIT investors are aware of this, or am I the only naive one?

I wouldn't say naive (after all, you are asking about it) but it does come up from time to time. Both here and on other TLF boards.

[BBLSP1]

I've looked on RGL's website and it seems that recent dividends have all been paid as PIDs which is also what my platform has shown them as: http://www.regionalreit.com/~/media/Fil ... 3-2018.pdf

I wonder how many other REIT investors are aware of this, or am I the only naive one?

A non-PID element was paid by RGL during tax year 18/19:

My records show a non-PID of 0.245p paid on 12Apr18 (as shown in your link), together with PIDs of 2.205p on 12Apr18 and 1.85p on each of 13Jul18, 15Oct18 and 21Dec18. Each PID being paid at 80% of these figures as described below.

From the RGL website:

The tax treatment of PID and non-PID dividends differs. PIDs are taxable as UK property income in the hands of tax-paying shareholders, but treated separately from any other property letting income which a shareholder may receive. PID dividends are normally paid after deduction of withholding tax at the basic rate of income tax (20%), which the REIT pays to HMRC on behalf of the shareholder.

Non-PID dividends are treated in exactly the same way by shareholders as ordinary dividends paid by UK (non-REIT) companies. From 6 April 2016 the notional 10 per cent tax credit has been abolished and replaced with a dividend allowance, which will apply to the ordinary, non-PID dividends received by UK resident shareholders who are subject to UK income tax. This allowance does not apply to the PID element of dividends.


Also, regarding HFEL, according to my records HFEL was Jersey domiciled up to 31 August 2018. Hence for tax year 18/19 the dividends are non-UK up to that date (the payments on 31 May & 31 Aug) and UK thereafter (payments on 30 Nov & 28 Feb). Happy to be corrected on this.

[PinkDalek]

Quoting from RGL

PIDs are taxable as UK property income in the hands of tax-paying shareholders, but treated separately from any other property letting income which a shareholder may receive.

Not only are they treated differently (as against separately), Pids do not qualify as Profits of a property business for the purposes of the £1,000 property and trading income allowance.

[Bobwood]

I've looked on RGL's website and it seems that recent dividends have all been paid as PIDs which is also what my platform has shown them as: http://www.regionalreit.com/~/media/Fil ... 3-2018.pdf

I wonder how many other REIT investors are aware of this, or am I the only naive one?

A non-PID element was paid by RGL during tax year 18/19:

My records show a non-PID of 0.245p paid on 12Apr18 (as shown in your link), together with PIDs of 2.205p on 12Apr18 and 1.85p on each of 13Jul18, 15Oct18 and 21Dec18. Each PID being paid at 80% of these figures as described below.

From the RGL website:

The tax treatment of PID and non-PID dividends differs. PIDs are taxable as UK property income in the hands of tax-paying shareholders, but treated separately from any other property letting income which a shareholder may receive. PID dividends are normally paid after deduction of withholding tax at the basic rate of income tax (20%), which the REIT pays to HMRC on behalf of the shareholder.

Non-PID dividends are treated in exactly the same way by shareholders as ordinary dividends paid by UK (non-REIT) companies. From 6 April 2016 the notional 10 per cent tax credit has been abolished and replaced with a dividend allowance, which will apply to the ordinary, non-PID dividends received by UK resident shareholders who are subject to UK income tax. This allowance does not apply to the PID element of dividends.


Also, regarding HFEL, according to my records HFEL was Jersey domiciled up to 31 August 2018. Hence for tax year 18/19 the dividends are non-UK up to that date (the payments on 31 May & 31 Aug) and UK thereafter (payments on 30 Nov & 28 Feb). Happy to be corrected on this.

Thank you BBLSP1, and you are indeed correct, I had missed that non-PID payment right at the commencement of the tax year as I didn't buy RGL until the summer.

With regard to HFEL, again I didn't buy this until part way through the tax year and accordingly the only dividend payments I received were the Nov and February ones, both shown as UK Equities on my Tax Certificate.

Along with JLEN, it looks like my choice of these three ITs were not quite as simple, or suitable for the intended purpose, as I originally thought.

[Alaric]

it looks like my choice of these three ITs were not quite as simple

You shouldn't really think of REITs as ITs. They are just property development and ownership companies which have been awarded a special tax treatment. They were first introduced as long ago as when when Gordon Brown was Chancellor.

https://www2.deloitte.com/content/dam/D ... g-2014.pdf