Foreign dividends converted to shares at source

If not sold within the tax year - do I need to declare for self assessment?

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I have received foreign dividends during 2021-22 which were converted to actual shares at source and would appreciate if someone could confirm if I am under an obligation to declare the value of these as part of self assessment foreign dividends income for that tax year although I have not sold these shares yet.

Many thanks in advance for any advice, and yes I am late in the day seeking guidance with the SA deadline tomorrow!!

Replies (8)

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By FactChecker
30th Jan 2024 20:04

"Late in the day" is an understatement worthy of an award.

But, assuming that you're referring to what are more commonly called 'Stock/Scrip dividends', then your question:
"if someone could confirm if I am under an obligation to declare the value of these as part of self assessment foreign dividends income for that tax year although I have not sold these shares yet?"
... has the simple answer of Yes.

The fact that you've not sold them yet has no bearing on whether there is a liability to income tax (although capital gains tax may well be a separate issue when you finally do so).

There are always exceptions (relating to the type of holding for instance) but, in essence, a dividend was declared on your shares - which generates a value (div x no of shares). That value is liable to income tax regardless of whether you received it as cash, or elected to take it instead in further shares.

Thanks (2)
Stepurhan
By stepurhan
30th Jan 2024 20:15

The filing deadline for 2021-22 was nearly a year ago. You are a bit beyond late in the day.

But, as has already been said, absent missing detail of an unusual "conversion" to shares, you should treat it as dividends received that are immediately used to purchase new shares.

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By Jane Wanless
30th Jan 2024 22:17

It depends on the terms of the scheme - whether the shares are DRIP or SCRIP shares. If Scrip, the shares don't count as income but there's no CGT cost. From the 2023 return notes:
"Do not include:
• distributions from the liquidation of
a foreign company
• distributions from a foreign company that return
your capital interest or are in the form of its
own stocks and shares
• stock dividends or bonus shares from a stock
dividend issue made by a foreign company"

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By Bengo50
25th May 2024 15:08

I have shares in an Employee Stock Purchase Plan with a US company. I was employed by the UK subsidiary company. I receive dividends which I reinvest at source ( a DRIP). I contacted HMRC and was advised that this section of FN7 (Notes to SA106) meant that income tax does not apply. My dividends are greater than my allowances. This is not consistent with this posting.
I cannot find any clear guidance on this.
Can you help.

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Replying to Bengo50:
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By kim.shaw-and-co.com
25th May 2024 21:45

Bengo50 wrote:

I have shares in an Employee Stock Purchase Plan with a US company. I was employed by the UK subsidiary company. I receive dividends which I reinvest at source ( a DRIP). I contacted HMRC and was advised that this section of FN7 (Notes to SA106) meant that income tax does not apply. My dividends are greater than my allowances. This is not consistent with this posting.
I cannot find any clear guidance on this.
Can you help.

Whilst there can be factors which complicate analysis arising from any "employee share" arrangement, if you already hold 'actual' unrestricted securities in respect of which the reinvested dividends are initially received under a DRIP arrangement (however the initial 'pre-dividend' underlying shares were originally acquired) then it is likely that foreign dividend income has been received as (the first) part of the DRIP.

HMRC explain their view of Dividend Reinvestment Plan (DRIP) arrangements here : https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm17005

The dividends are not distributions in the form of stocks or shares, and nor are they "stock dividends or bonus shares from a stock dividend issue made by a foreign company". They are regular cash dividends, the proceeds of which are then used to acquire further shares (the second step in the DRIP).

There is nothing in FN7 to suggest that foreign dividend income would not arise to be included in your Return in these circumstances, so I am not sure why you were led to think income might not need to be declared. Perhaps whoever you spoke to at HMRC didn't understand the precise nature of the transactions you have outlined and has 'jumped to a conclusion' that is inappropriate ?

Your 'cost of acquisition' of the further shares acquired under the DRIP would be the value of the reinvested dividend(s) received.

If the DRIP is a special arrangement only offered to current employees by virtue of their employment with the UK subsidiary, and not to other shareholders on similar terms, and under this you acquire further shares at a discount , you might need to consider whether any element of discount gives rise to an immediate charge to tax (and UK NIC) as employment income at the time of reinvestment. More pertinently, perhaps, your UK employer likely ought to be considering (or would have already considered) that....

With regard to the 'first step' in the DRIP, if the shares on which the dividend entitlement arises are regular tradeable shares which you could dispose of in the markets it is very likely, in my view, that foreign dividend income has been received under the arrangement. Assuming this is the case, you would follow the guidance in SA106-Page FN7 and include details of the dividends received in Columns A to F, after having regard to the double tax treaty to the extent it is relevant to the foreign dividend income received.

Foreign dividends are taxed at the dividend tax rate unless you are a remittance basis user, in which case there is no allowance and they are taxed at savings rates instead at the time of remittance. If you were, there would be different questions to consider ...

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Replying to Bengo50:
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By FactChecker
25th May 2024 22:36

The problem with anything based on "I contacted HMRC and was advised that .." is that they are never keen to give that advice in writing and anyway never feel beholden to what one support/helpline person may have said.

To be fair, a phone-call is unlikely to cover all the relevant factors (including the questions that you didn't ask because you didn't know they were relevant) ... so a bit like posting on a public forum really!

If you want reliable guidance then you need to appoint a paid adviser, who should have the knowledge demonstrated by @kim.shaw-and-co.com.
Whoever you select can then sit down with you to extract all the pertinent details and provide you with the implications of various options.

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Replying to FactChecker:
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By Bengo50
29th May 2024 14:08

Thank you for the information. My conclusion is that the foreign dividend received on the shares (unrestricted) in my Employee Stock Purchase Plan is subject to UK dividend tax with an offset for US tax paid. The fact that I reinvest the dividend in purchasing more shares is irrelevant. I have the option to take cash.
Hence the HMRC guidance on the phone was not correct. My call to HMRC was a follow up to a letter sent earlier asking detail questions. I will write again to HMRC and ask for a written response.

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Replying to Bengo50:
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By kim.shaw-and-co.com
29th May 2024 14:47

Bengo50 wrote:
Hence the HMRC guidance on the phone was not correct. My call to HMRC was a follow up to a letter sent earlier asking detail questions. I will write again to HMRC and ask for a written response.

Sounds like you are likely correct in your analysis. You could alternatively simply declare the further income and make the relevant DTR claim if that is your conclusion. Better still, take advice under engagement of a person qualified to give it to you (and that does not include HMRC by the way !)

The whole point of Self Assessment is that you make the decision as to what you as a taxpayer think (suitably advised if you are unsure) and then HMRC are free to disagree. HMRC are not there to give you free advice on the law, they can only express a view which in the end they will very likely not be bound by and can change their minds later.

Case law is full of examples where taxpayers' cases relying on written views and opinions of HMRC are thrown out - even HMRC Guidance is of little if any value when decisions are taken in relation to a matter that is contentious, and cannot be relied on to defend a stance taken that is incorrect. All it might do is lessen the likelihood of penalties being imposed in future in addition to the tax and interest due. They are bound by almost nothing they commit to writing by way of Guidance other than the outcome of a concluded settlement or formal Compliance Check into a Return.

It is your responsibility to interpret the law correctly in relation to self assessment - not theirs - hence why the person to whom your questions ought to be posed is a paid accountant or tax lawyer (as appropriate) who carry insurance for the advice they give. That person can also help you make protective disclosure(s) in the 'Other Information' part of your Self Assessment Return as a safeguard against future penalties for careless, negligent or deliberate behaviour if your Return turns out to be incorrect.

What redress do you think you would have against HMRC if they wrote to you with incorrect information and you were later found to owe tax having relied on it ? I think you can likely guess the answer ....

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