Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to monabri,Dod101,Anonymous,Gersemi,robbelg, for Donating to support the site

BHP special dividend

Practical discussions about equity High-Yield Portfolios (HYP) for income
Forum rules
Tight HYP discussions only please - OT please discuss in strategies
Arborbridge
Lemon Quarter
Posts: 3265
Joined: November 4th, 2016, 9:33 am
Has thanked: 615 times
Been thanked: 1043 times

Re: BHP special dividend

#198156

Postby Arborbridge » February 1st, 2019, 12:54 pm

Snorvey wrote:With all this BHP dividend chatter I thought I'd better check in to my account and see what was going on.

Well that's a nice surprise on a chilly morning (although it distorts the normal January income figures somewhat).

Cheers BHP!


Well, it has helped me a little, because my January income was actually down on January 2018 - after this is may be marginally up.

Arb.

PinkDalek
Lemon Quarter
Posts: 4201
Joined: November 4th, 2016, 1:12 pm
Has thanked: 982 times
Been thanked: 1123 times

Re: BHP special dividend

#198163

Postby PinkDalek » February 1st, 2019, 1:26 pm

monabri wrote:BHP refer to it as a special. Indeed, the title of the posting is "BHP special dividend". However, It does look like it's a return of capital.

The real question for me is what do I put on the tax return as my shares in BHP are held in a non-ISA account. How much hassle/cost am I going to be prepared to go through with if HMRC decides to challenge my view that it is a capital return, especially when the company is calling it a special dividend? ...


I've seen nothing to indicate the "Special Dividend" should be treated as anything other than a dividend for UK Income Tax purposes. Being Self Assessment, it is not down to HMRC to challenge your treatment in the first instance. Rather, it is down to you to attempt to get it right in the first place.

BristolDave
Posts: 20
Joined: November 15th, 2016, 9:17 am
Has thanked: 8 times
Been thanked: 4 times

Re: BHP special dividend

#198166

Postby BristolDave » February 1st, 2019, 1:29 pm

Well, it has helped me a little, because my January income was actually down on January 2018 - after this is may be marginally up.

Arb.

Possibly the Sainsbury effect - they paid their final dividend in December this time round. Normally January

Arborbridge
Lemon Quarter
Posts: 3265
Joined: November 4th, 2016, 9:33 am
Has thanked: 615 times
Been thanked: 1043 times

Re: BHP special dividend

#198173

Postby Arborbridge » February 1st, 2019, 1:50 pm

BristolDave wrote:Well, it has helped me a little, because my January income was actually down on January 2018 - after this is may be marginally up.

Arb.

Possibly the Sainsbury effect - they paid their final dividend in December this time round. Normally January


Yes, certainly SBRY didn't help, though I appreciate I've already had it, and one can't have it twice! I think I may have shot myself in the foot with some other changes of my own too. It'll all come out in the wash - but it would have been nice to start the year positively "up".

csearle
Lemon Quarter
Posts: 1982
Joined: November 4th, 2016, 2:24 pm
Has thanked: 1189 times
Been thanked: 464 times

Re: BHP special dividend

#198278

Postby csearle » February 1st, 2019, 9:21 pm

This special has pushed my annual dividend income over £10K for the first time ever. I feel like investing the cost of a bottle of Champagne into my HYP!

Chris

kempiejon
Lemon Quarter
Posts: 1108
Joined: November 5th, 2016, 10:30 am
Has thanked: 5 times
Been thanked: 230 times

Re: BHP special dividend

#198353

Postby kempiejon » February 2nd, 2019, 11:01 am

csearle wrote:This special has pushed my annual dividend income over £10K for the first time ever. I feel like investing the cost of a bottle of Champagne into my HYP!
Chris

I love those milestones in HYPing, I remember when mine was enough for a few bills like TV licence, car insurance, fuel bills etc eventually enough for most of my fixed payments. I record my 12 month rolling dividend as a % or my target annual costs and annual wants.

evilbungle
Lemon Pip
Posts: 50
Joined: February 13th, 2017, 4:51 pm
Has thanked: 13 times
Been thanked: 17 times

Re: BHP special dividend

#198406

Postby evilbungle » February 2nd, 2019, 3:33 pm

kempiejon wrote:
csearle wrote:This special has pushed my annual dividend income over £10K for the first time ever. I feel like investing the cost of a bottle of Champagne into my HYP!
Chris

I love those milestones in HYPing, I remember when mine was enough for a few bills like TV licence, car insurance, fuel bills etc eventually enough for most of my fixed payments. I record my 12 month rolling dividend as a % or my target annual costs and annual wants.


I will look forward to that, At the moment I can just about cover the cost of my morning coffees :-)

OLTB
Lemon Slice
Posts: 988
Joined: November 4th, 2016, 9:55 am
Has thanked: 825 times
Been thanked: 344 times

Re: BHP special dividend

#198415

Postby OLTB » February 2nd, 2019, 4:33 pm

kempiejon wrote:
csearle wrote:This special has pushed my annual dividend income over £10K for the first time ever. I feel like investing the cost of a bottle of Champagne into my HYP!
Chris

I love those milestones in HYPing, I remember when mine was enough for a few bills like TV licence, car insurance, fuel bills etc eventually enough for most of my fixed payments. I record my 12 month rolling dividend as a % or my target annual costs and annual wants.


Same here! I am creeping towards having my first dividend that exceeds £500 (except for specials) and wonder which HYP constituent it will be (I think it will be either SSE/VOD/Persimmon). A few years to go yet I think, but it'll be great when it happens.

Cheers, OLTB.

Gengulphus
Lemon Quarter
Posts: 2965
Joined: November 4th, 2016, 1:17 am
Been thanked: 1523 times

Re: BHP special dividend

#198488

Postby Gengulphus » February 2nd, 2019, 10:37 pm

Arborbridge wrote:
BobGe wrote:
raythekiwi wrote:Capital for me since it made the company smaller. As when they spun off S32.

AFAIUI, both are 'income' for UK tax purposes.

HMRC tax purposes are not, though, the same as HYP record keeping purposes. The the latter we need avoid any attribution which might give a false picture, either for looking back, or looking forward.

FWIW, my view is that a HYPer should look at just about any corporate action from the point of view of what it's expected to do (*) to their future dividend income if they don't do anything about it, and act or not act accordingly. (Base that on what one thinks can reasonably be expected, not on things that one only hopes for or fears - for instance, if a company is doing a rights issue to fund an acquisition, I would treat all opinions about the quality of the acquisition and how well it will be integrated with a good deal of caution, and in particular treat the management's views on that as very likely to be optimistic. The acquisition's existing performance is chickens that have already hatched and can reasonably be expected to have its effect on the company's dividend-paying ability; the possible effect of it after integration into the company is not and basically should not be counted, or at the very least not counted anywhere near fully.)

One needs to take both the effect of the corporate action on expected future dividend payments and the change it's expected to produce to the shareholder's number of shares into account. Other than that, one just needs to know what normal practice is about future dividend payments per share and assume that's what's expected unless the company says otherwise:

(A) For dividends paid without an accompanying consolidation, it is that ordinary dividends set a baseline for the dividend per share the company expects to pay in future and special dividends leave it unchanged from whatever it was before.

(B) For consolidations (or splits) that are made without an accompanying dividend, it is that the company will adjust its baseline for future dividends per share to compensate for the reduction (or increase) in the number of shares and so cause no change (or very minor changes only, due to rounding effects) in the shareholder's expected future dividend income - e.g. a 1-for-2 consolidation will be accompanied by a doubling of the company's baseline for future dividends per share.

(C) For dividends paid with an accompanying consolidation (which are generally special dividends, though I don't guarantee absolutely always), it is that the company will reduce its baseline for future dividends per share so that a shareholder who reinvests the dividend in the company's shares at the prevailing market price will end up with unchanged (or only changed in a very minor way) expected future dividend income, as a result of having somewhat more shares but a somewhat lower dividend per share.

Those are all default assumptions that one can pretty safely make if the company hasn't said something more explicit - it is a good idea to check that the company hasn't done that! It only happens quite rarely that a company does say something more explicit, but it does happen: the example I can easily bring to mind is United Utilities in June/July 2008, when they announced in their final results that "In light of the sale of UUE and the proposed £1.5 billion return of value to shareholders, the dividend per share from 2008/09 will be reduced by 30% compared with the proposed 2007/08 dividend per share" and what the "In light of ... the proposed £1.5 billion return of value to shareholders, ..." actually meant was that they would reduce the baseline payment per share according to (C) above and then make the 2008/09 dividend payment 30% less than that reduced baseline. (One explanatory note I should probably add is that that example was actually a 'B share scheme' with consolidation rather than a special dividend with consolidation. Such 'B share schemes' were however basically just special dividends that were somewhat more expensive to administer for the company, but gave shareholders the choice of whether to treat the payment as income or as a capital repayment for tax purposes. For any other purpose, one can treat 'B share scheme' and 'special dividend' as synonymous - not that one needs to these days, as a tax law change a few years ago made such 'B share schemes' ineffective for tax purposes, and they fell out of use because the taxation choice they offered was essentially their only purpose.)

The only other things I think one needs to know are that for case (C), the company obviously cannot use a "prevailing market price" that is appropriate for all shareholders who choose to reinvest the special dividend in the company's shares (one can of course quite freely choose to reinvest it in another share, or just to take it as bonus spending money), since they'll reinvest at different times. I imagine that there's a standard formula for exactly what share price they use - at a guess, the opening share price on the day after the shares have simultaneously been consolidated and gone 'ex' the special dividend overnight - but I have no actual knowledge what it is. So there will be shareholder-specific reasons why the effect of reinvesting the special dividend might lead to the shareholder not expecting exactly the same dividend income from the holding as they expected from it before, which also include the effects of trading costs, possibly of taxation of the special dividend, and fractional share effects if their holding doesn't consolidate exactly. (The last of those also applies to case (B).)

The short version of all that is: by default, the effect of a special dividend with share consolidation should be to leave your expected future dividend income from the holding roughly unchanged (within a few percent either way, assuming the holding is reasonably big) if you reinvest the special dividend in the holding, and your expected future dividend income from the whole HYP very nearly unchanged (within a few tenths of a percent either way).

If you choose instead to reinvest it in something else, it's your responsibility to get that decision right and your lookout if you don't, of course... And the same basically goes for choosing to take it as bonus income to be spent on living costs (or other non-investment purposes) - it's essentially the same choice as choosing to do the same with takeover proceeds, or with sales proceeds after (rather more actively) voluntarily selling, just (usually) on a smaller scale.

Note I'm not saying that making such choices is 'wrong' in any way. It isn't, and I've made them myself even for a comparatively big amount of money: there are a number of cases over the years where I have decided that I shouldn't reinvest takeover proceeds or should even make voluntary sales from my HYP because I had a higher-priority use for the cash elsewhere than further growing, or even maintaining, the value of my (admittedly very big) HYP. I'm quite certain those decisions were right for me in my circumstances at the time! What I'm also quite certain of, though, is that having a clear understanding of what it was actually going to do to my HYP was important in making those decisions - and so I am saying what I believe that understanding should be.

Unfortunately, that understanding is generally obfuscated by the fact that when a company does a special dividend with share consolidation, the company is treating the special dividend as a return of capital (so each share represents less capital invested in the company and so is worthy of less in the way of dividends), which it then 'hides' with the consolidation so that it doesn't appear in the share price and dividend-per-share records so as not to spook investors, but the taxman is treating it as income, pure and simple...

I do think that the company's view (at least implied, and sometimes explicitly stated by calling it a return of capital) of it as being a capital payment and therefore not bonus income is the better one for a HYPer to follow when looking at how their HYP is doing. But if your HYP is taxable (i.e. not held in ISAs or other tax shelters), do follow the taxman's "a dividend is income, regardless" view for tax purposes such as doing tax returns - it really is very well established, and you'll be on a hiding to nothing if you effectively try to claim that a company can make a dividend something other than income just by calling it a "return of capital" or suchlike (if that worked, huge numbers of owners of small private companies would be very interested!). Companies can make payments to shareholders that count as capital payments and not as income (Rolls-Royce has been doing so for years, for instance), subject to various company law restrictions, but any company that does so won't call the payment a "dividend"!

(*) Ultimately, of course, it's about what it actually does do to their dividend income. But at the time that one has to make any decisions about whether to act (and if so, how), that's unknown, and so what it's expected to do is the best information available.

Gengulphus

bluedonkey
2 Lemon pips
Posts: 201
Joined: November 13th, 2016, 3:41 pm
Has thanked: 153 times
Been thanked: 40 times

Re: BHP special dividend

#198560

Postby bluedonkey » February 3rd, 2019, 12:01 pm

Gengulphus,

What's your view regarding the BHP special dividend? I think perhaps (A), do you agree?

BD

Gengulphus
Lemon Quarter
Posts: 2965
Joined: November 4th, 2016, 1:17 am
Been thanked: 1523 times

Re: BHP special dividend

#200086

Postby Gengulphus » February 9th, 2019, 10:40 am

bluedonkey wrote:What's your view regarding the BHP special dividend? I think perhaps (A), do you agree?

Are you asking which of my categories (A), (B) and (C) the BHP special dividend falls into? The answer is definitely (A), because it is a dividend paid without an accompanying consolidation. However, that is a matter of fact, not opinion - which suggests that in asking for my view, you're really after something other than that simple fact... Trying to look for what that something else might be:

I wrote that list in order to say what "normal practice is about future dividend payments per share" for some types of corporate action (by no means all types - I didn't address rights issues, bonus issues or tender offers, for instance). Since the company has called it a "special dividend", I said that the normal practice would be that the company doesn't treat it as setting an expectation for dividends it will pay in future. I suppose it is technically a matter of opinion that that is what normal practice is, but it's an opinion that I'm very certain about - with the caveat that companies can and sometimes do explicitly say that they're doing something else, such as in the case I mentioned of United Utilities in 2008. As far as I am aware, though, BHP haven't made any such explicit statement, and they have said that it's being done to pay what's left of their proceeds from their "sale of its Onshore US assets" - which like any asset sale, is essentially one-off in nature: they might sell assets again, but not those assets! So I'd be highly surprised if the company were to do anything other than treat it as a one-off payment to shareholders, setting no expectation of it being repeated in the future - it's possible that they will sell other assets in the future and pay the proceeds to shareholders similarly, of course, but that's only a possibility, not something one should expect.

So my view on how HYPers should regard the BHP special dividend, which may be what you're really after, is that they should treat it as bonus income - a welcome addition to the current year's income, but unlike an increase in a company's ordinary dividends, not one that one should expect to be repeated in future years.

I should add that for dividends paid without consolidations, the distinction between ordinary and special dividends is not always clear-cut: a few companies do things like paying what they call a "special dividend" (or "capital return dividend" or some other wording - anything described as something other than an "ordinary dividend" or unqualified "dividend" is best treated as a special dividend IMHO) regularly every year, or stating a dividend policy that explicitly talks about paying them regularly. That rather blurs the message: calling it a special dividend implies that it's not setting an expectation for future dividends, but their behaviour or stated policy says it does... Those companies require the HYPer who wants to get an idea about their HYP's future dividend income to make a judgement call - and about all I feel I can say about that is that I personally have a general preference for erring on the pessimistic side and sometimes being pleasantly surprised over erring on the optimistic side and sometimes being unpleasantly surprised.

Note that all of this so far is basically about what it's reasonable for the HYPer to expect the company to pay in the future - which is something that basically ought to be of considerable interest to all HYPers other than the pay-no-attention-whatsoever-to-my-investments type like the original 'Doris' (who as that link indicates, might or might not have had a HYP).

But for some HYPers, taxation of their HYP is also of interest (not by any means all HYPers, as many have their HYPs entirely inside tax shelters). For tax purposes, all that matters is whether a payment from a company is of capital or income nature, which determines whether it's handled by CGT or by Income Tax, and if income, what type of income (dividend income generally being taxed at lower rates than other types). The basic rule for that is simple: if the company describes it as a dividend of any type when they pay it to you, it's dividend income; if not, it isn't.

The "when they pay it to you" part of that is an important qualification, because the further removed you get from that, the more likely it is that the distinction between dividends and some types of dividend-like payments will get blurred - especially that between dividends and PIDs, which are the Property Income Distributions paid by REITs and are property income for tax purposes rather than dividend income (*). For instance, British Land normally pays PIDs and only very occasionally pays a dividend (the last time was in 2016, the time before that in 2012...). The tax vouchers / dividend confirmations I get with each payment is quite clear about whether the payment is a PID, but even the company's annual report very largely lumps them together as "dividends", with little mention of the PID/non-PID distinction, and I don't think I've yet seen a secondary data source that mentions it at all.

All of which is fair enough for the purpose of evaluating the company as an investment - the detail of the taxation distinction is of little or no interest to many investors, and the purpose of the secondary data sources (and even company reports to some extent) is generally to produce reasonably concise non-personalised summaries for investment purposes. But it is something to be aware of for anyone who specifically has a taxation issue in mind.

Anyway, as far as I can see at present, the BHP special has been paid completely normally as a dividend and so counts as dividend income for tax purposes. I can't actually see quite as far as I'd normally expect to be able to, but my nominee brokers have recorded it as a dividend payment and they will presumably have got information saying it's a dividend payment and not anything else from the company registrars. I do also have a holding in a CREST account, meaning that it's a registered shareholding and the company registrars tell me directly about the payment, and I did receive an email from them on January 30th saying that the "electronic payment information" for the "dividend" was available on their website (quotes just to indicate that those are the exact words the email uses, not to cast any doubt on what they mean. I'm 99% certain that it will just be a perfectly normal dividend confirmation, but I haven't picked it up yet (I tend to only get around to picking up such documents every few months) and when I tried just now, their site was giving me an "internal server error" message on any attempt to get information about the holding... So I'd normally expect to have the information that for tax purposes it really is a dividend payment directly from the registrars, which is as close to the horse's mouth as it gets, but I don't quite have that at present.

Hopefully the answer you're looking for is somewhere in all of the above!

(*) Though just to add to the confusion, in tax returns HMRC wants them entered in the "Other UK income not included on supplementary pages" section of the return (in a paper return or in the PDF you get at the end of submitting an online return) and not in the "UK property" supplementary pages, and when answering the questions during the online submission process, one needs to say "yes" to the question about other UK property and "no" to the question about UK property income. Which confused the hell out of me the first time I encountered it, knowing that PIDs counted as property income - there are perils to knowing too much! ;-)

Gengulphus

Alaric
Lemon Quarter
Posts: 3439
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 695 times

Re: BHP special dividend

#200088

Postby Alaric » February 9th, 2019, 10:53 am

monabri wrote: How much hassle/cost am I going to be prepared to go through with if HMRC decides to challenge my view that it is a capital return, especially when the company is calling it a special dividend? (How much tax will I pay on the the special ?).


If the Registrar or Broker send you a certificate saying that's it's a dividend for tax purposes, there's nothing to argue about.

It would taxed in the same way as any dividend, 0% if the total of all dividends is under £ 2,000 , 7.5% or higher for those taxed above basic rate.

PinkDalek
Lemon Quarter
Posts: 4201
Joined: November 4th, 2016, 1:12 pm
Has thanked: 982 times
Been thanked: 1123 times

Re: BHP special dividend

#200090

Postby PinkDalek » February 9th, 2019, 11:03 am

Gengulphus wrote:...
The "when they pay it to you" part of that is an important qualification, because the further removed you get from that, the more likely it is that the distinction between dividends and some types of dividend-like payments will get blurred - especially that between dividends and PIDs, which are the Property Income Distributions paid by REITs and are property income for tax purposes rather than dividend income (*). ...

(*) Though just to add to the confusion, in tax returns HMRC wants them entered in the "Other UK income not included on supplementary pages" section of the return (in a paper return or in the PDF you get at the end of submitting an online return) and not in the "UK property" supplementary pages ...



Merely to add, although PIDs are "generally taxable as profits of a UK property business for income Tax purposes" as per https://www.gov.uk/hmrc-internal-manual ... l/saim5330, they do not qualify for the fairly recently introduced (wef 6 April 2017) property and trading income allowance of £1,000, despite their treatment above, as PIDs are not relevant property income!


Return to “High Yield Portfolios (HYP) - Practical”

Who is online

Users browsing this forum: No registered users and 7 guests