Share this content

Creating additional dividend income on purpose

Where EIS relief has already been maxed out, can additional dividend income be created to offset

Didn't find your answer?

EIS relief requires an income tax liability to offset, otherwise the benefits of such an investment are minimised. 

But does HMRC care where a liability comes from?

I have made various EIS investments this year - a year in which my income tax liability will be low. Currently I have 20% more EIS relief to claim than taxable income.

I also have an self managed investment portfolio (brokerage account) which generates monthly dividends. In order to maximise EIS relief, can the investment portfolio essentially time the ex-dividend date of a fund or stock to create 'income'? Of course, the portfolio value itself will be lowered by the dividend amount creating a net zero position there, but might this be advantageous so by April 22, more 'income' has been realised than otherwise would have been?

In theory, one could create 'daily dividends' running down the fund to create taxable income. Ordinarily such a dividend capture strategy would be pointless, but the addition of EIS makes me ask the question.

Thanks!

 

Replies (20)

Please login or register to join the discussion.

avatar
By David Ex
08th Sep 2021 23:48

In your previous post, you said “Accountant recommended deferral (with no discussion)” so maybe worth having a chat with them as they know all about you and your finances.

Thanks (0)
Replying to David Ex:
avatar
By raharley0
09th Sep 2021 10:23

I will be sure to do that, but was also interested in thoughts here.

Thanks (0)
avatar
By Tax Dragon
09th Sep 2021 06:05

Your question isn't whether HMRC 'cares'; it's whether the rules regarding the EIS credit restrict the set off of that credit. (And even that is put in lay terms for convenience. To make it even more convenient, let's say you have an EIS credit in excess of your income tax liability, and that excess is £1,000. You generate an additional income tax liability of £1,000 on 'income'. Your question is: might you be prevented from offsetting the EIS credit such that you have to pay that £1,000?)

Now we've established the question (in lay terms) we can answer it: no. Well, I guess it's possible, if say you were an idiot and mucked it up; there's nothing inherent within the rules that I can think of that blocks the offset.

The questions back at you include: what advantage would there be to generating that £1,000 tax liability? Are you sure you are treating the brokerage account correctly for tax? Apart from the question you ask here, do you understand the EIS tax rules? Do you have an accountant (I think you would benefit from having one)?

Note: these are rhetorical questions as far as I'm concerned. I have no interest in the answers.

Thanks (1)
Replying to Tax Dragon:
avatar
By raharley0
09th Sep 2021 10:22

Yes, that is a better way of phrasing it thankyou.

"what advantage would there be to generating that £1,000 tax liability?"

EIS would then offset additional tax liability, whilst capital loss is accrued as a result of dividend capture. This is more efficient than doing nothing.

"Are you sure you are treating the brokerage account correctly for tax?"

Yes, it's nothing complicated to date.

Thanks (0)
Replying to raharley0:
avatar
By Wanderer
09th Sep 2021 10:32

raharley0 wrote:

Yes, it's nothing complicated to date.

You say that, but it may be more complicated than you think as when you say this:-
raharley0 wrote:
can the investment portfolio essentially time the ex-dividend date of a fund or stock to create 'income'?
personally I can't think of the relevance of an ex-dividend date. Care to enlighten us on that one?
Thanks (0)
Replying to Wanderer:
avatar
By raharley0
09th Sep 2021 10:51

The investment portfolio is not complicated 'to date'. It may become a little more complicated pursuing the below :)

Scenario 1: Investment portfolio is static and generates monthly dividends - let's say 8 months x £1000 going through to next April. £8000 income has been generated and dividend tax is liable at 7.5%.

Scenario 2: Investment portfolio buys and sell positions to capture not monthly dividends but weekly ones, by moving in and out of position on the ex-dividend date. Now £1000 a week income is being generated and obviously the capital is being reduced accordingly. This is known as 'the dividend capture strategy' and is usually pointless. See here: https://www.investopedia.com/terms/d/dividend-capture.asp

With scenario 2 more liability has been generated with with to reduce via EIS.

Thanks (0)
Replying to raharley0:
avatar
By Wanderer
09th Sep 2021 11:03

Well there you have it, you are not timing the ex-dividend date, you are timing the dividend date to increase income.

Thanks (0)
Replying to Wanderer:
avatar
By raharley0
09th Sep 2021 11:16

I'm not quite sure what your point is - do shares not need to be held on the ex div date to receive the dividend? So that is the pertinent date.
Anyway, that's not really the nub of my question.

Thanks (0)
Replying to raharley0:
avatar
By Wanderer
09th Sep 2021 11:43

raharley0 wrote:

So that is the pertinent date.

No, you are wrong. The dividend date is the pertinent date to establish timing of income for tax purposes, not the ex-dividend date.
Thanks (0)
My photo
By Matrix
09th Sep 2021 07:04

Strange thing to do, to make the investments in a year when you didn’t need the income tax relief.

You can organise your affairs in a way to minimise your tax. No idea how you create dividends or whether there are downsides of doing so but this is not an accounting/tax issue anyway.

Thanks (0)
Replying to Matrix:
avatar
By Tax Dragon
09th Sep 2021 07:19

Matrix wrote:

Strange thing to do, to make the investments in a year when you didn’t need the income tax relief.

Speaking as an accountant, not an investment/financial advisor, obvs.

Thanks (0)
Replying to Tax Dragon:
avatar
By raharley0
09th Sep 2021 10:16

Personally I make EIS investments based on the strength of a deal not to maximise income tax relief - but if that can be done too - great !

Thanks (0)
Replying to raharley0:
avatar
By David Ex
09th Sep 2021 10:45

raharley0 wrote:

Personally I make EIS investments based on the strength of a deal …

Which is very sensible, unlike taking tax advice from an anonymous Internet forum.

Thanks (1)
Replying to raharley0:
My photo
By Matrix
09th Sep 2021 16:02

raharley0 wrote:

Personally I make EIS investments based on the strength of a deal not to maximise income tax relief - but if that can be done too - great !

Must have been a great deal if it was attractive without the tax relief.

Thanks (0)
avatar
By Winnie Wiggleroom
09th Sep 2021 10:00

what about carry back?

Thanks (0)
Replying to Winnie Wiggleroom:
avatar
By raharley0
09th Sep 2021 10:15

carry back has already been maxed

Thanks (0)
avatar
By rmillaree
09th Sep 2021 12:56

I think i may possibly lost the plot here - i am guesing i have got the wrong end of the stick with regard to the question perhaps? (its not really an area i am fully up to speed) -

but i thought the default was that you could not use tax on dividend income to claim EIS relief - perhaps the OP is not trying to claim this? or perhaps this has been pointed out in the thread and missed it - apologies if that is the case - or if my thinking is missing the relevant point.

https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-inves...

Thanks (0)
Replying to rmillaree:
avatar
By Tax Dragon
09th Sep 2021 13:21

That comment proves that even an intelligent, knowledgable accountant can completely misread HMRC guidance.

What chance Clapham Uber Person?

Thanks (0)
Replying to Tax Dragon:
avatar
By rmillaree
09th Sep 2021 13:53

"That comment proves that even an intelligent, knowledgable accountant can completely misread HMRC guidance."
Thanks for that Tax Dragon i must admit my comments were posted on whim so as to speak - probably not over sensible albeit i did caveat my reponse somewhat- one for me to go away and do some proper research on when i get time.

Thanks (0)
avatar
By paul_scotland_5
09th Sep 2021 15:56

Wow, is the OP boring me or whar

'Ooh look at the size of my portfolio'

'Look how clever I am'

Bore off and pay someone who is interested

Thanks (4)
Share this content