Dividend-oriented ITs with low/no dividend payout

[valueinvestor123]

Is anyone aware of any good ITs that invest in quality dividend-paying stocks but rollover/reinvest those dividends within the trust? Or is this not allowed?
This is for taxplanning/to utilise capital gains instead.
Thanks, vi123

[flyer61]

try FEET?

[valueinvestor123]

try FEET?

Thanks but this one seems to invest in emerging markets. I am looking for something like Schroder Income & Growth but without dividend payout.

[SalvorHardin]

Is anyone aware of any good ITs that invest in quality dividend-paying stocks but rollover/reinvest those dividends within the trust? Or is this not allowed?
This is for taxplanning/to utilise capital gains instead.
Thanks, vi123

It isn't allowed. This is because an Investment Trust must distribute at least 85% of its income otherwise it loses its tax benefits (the big one being that ITs aren't charged capital gains tax upon disposals).

As far as I am aware this is a requirement which has been in place for many years, though there is little about it online (at least that is freely available rather than on legal databases behind firewalls). The latest incarnation of this rule is in section 19 of the The Investment Trust (Approved Company) (Tax) Regulations 2011:

"An investment trust must not retain in respect of an accounting period an amount which is greater than 15% of its income for the accounting period."

http://www.legislation.gov.uk/uksi/2011 ... on/19/made

Investment companies on the other hand don't have to pay out income. But they don't get the CGT benefits (though some of these are set up in foreign jurisdictions where they don't pay CGT).

https://www.moneywise.co.uk/funds/inves ... nt-company

[Dod1010]

Well to be an investment trust, it must distribute at least 85% of its investment income each year so it can only roll over a maximum of 15%. Thus you cannot have a 'dividend oriented IT' with a low distribution policy.

What you can do is find a trust which has a fairly low yield (plenty of these around) but it will not then be dividend oriented. The alternative is to take the dividends and then roll them back into the trust, but you will need to look at your tax position on the dividend distribution. Of course hold them in an ISA or SIPP and you will pay no tax anyway.

ITs segregate the capital gains (realised and not) and revenue (Investment income) and the essence of a trust is that it must distribute at least 85% of the revenue each year so I do not think they will meet your requirement.

I see that SalvorHardin has beaten me to it but I will let my post stand

Dod

[Alaric]

Or is this not allowed?

HMRC have been wise to attempts which try to convert income into capital for a number of years. You only get a non-dividend paying IT where the underlying investments don't generate income, or not enough to pay the expenses and charges.

Even offshore funds have to agree to report income regularly to the holder and HMRC. If they don't the entire gain on sale might be assessed as taxable income rather than taxable gain.

[Lootman]

Or is this not allowed?

HMRC have been wise to attempts which try to convert income into capital for a number of years. You only get a non-dividend paying IT where the underlying investments don't generate income, or not enough to pay the expenses and charges.

Even offshore funds have to agree to report income regularly to the holder and HMRC. If they don't the entire gain on sale might be assessed as taxable income rather than taxable gain.

There are offshore funds that do not pay out income and, being beyond UK jurisdiction, they are free to do that if their local jurisdiction allows it. These are sometimes referred to as non-distributing or roll-up funds, since all cashflows that are generated internally are rolled up into the net asset value.

As you note, the gains on an eventual sale may be subject to income tax rather than capital gains tax. Whether that is a good or bad thing depends on individual circumstances. If your tax rate is going to be lower later, or if you plan to leave the UK in the future, they might work well. Meanwhile there is no tax to pay nor even any need to report or disclose the holding at all.

That said I'd probably just choose a fund that is naturally low-yielding and/or which pays its expenses from income rather than capital. I might look at traditionally low-yielding sectors like tech and biotech, which many UK investors are under-weight in, precisely because of the emphasis on dividends that UK investors historically have had.

[Parky]

F&C High Income B (FHIB) pays out a capital repayment rather than a dividend.

[Lootman]

F&C High Income B (FHIB) pays out a capital repayment rather than a dividend.

In fact most split-capital investment trusts will have different share classes including classes that pay no dividend such as capital shares and zeroes. But they will have a different risk/reward profile than an ordinary share or IT.

If you really were desperate to avoid dividends then you could use options which, as far as I have seen, are only ever taxed as capital gains. You could buy long-dated options on index futures and ETFs, for instance, and roll them over every 2-3 years. But again, there are other factors, costs and risks to be considered with such an approach.

[GJHarney]

If you take the low divi rather than no divi route then would Nick Train managed Finsbury (FGT) fit the bill, good quality divi paying equities but the lowest divi payout in the AIC sector on account of the emphasis being put on growth?

[Hariseldon58]

Not relevant to investment trusts directly..

There are ETFs that reinvest income but they still have a reportable income event.(excess reportable income) The information is not always obvious and the brokers will not alert you to this.

The income deemed to be paid 6 months after the end of the accounting period.