PIDs instead of Divdends-Taxation

Judesman

I have shares in a REIT. Today I have received a Property Income Distribution as well as a div. This is the first time this has happened and the PID has tax deducted at 20%. I also see tht from 2017-2018 tax year there is a Property Income Allowance of £1000. The question is would I be able to lodge a Declaration of Eligibility for Gross PID Payments from a REIT with the company registrar because my income from the PIDs will be less than £1000?

xylophone

http://www.britishland.com/investors/dividends/reits-dividends-and-uk-tax
may help.

Judesman

Many thanks. I think this article appeared before the current tax year and the introduction of the new Personal Allowance. I am wondering if, as an individual investor, I might be able to lodge a tax exemption form with the registrars and obtain a gross payment in future. Perhaps I will just lodge the form and see what happens.

xylophone

http://www.phpgroup.co.uk/investors/dividends/reit-dividends-uk-tax.aspx

As far as I can see, as an individual investor holding a REIT outside an ISA, you would have to reclaim any overpaid tax through HMRC.

Judesman

Funnily enough this is the company I am talking about and I think I might be able to lodge a beneficial owner declaration with the registrar on the grounds that my income would be below the £1000 personal allowance for property income.

The web site states:

"As part of the 2016 Budget, the government announced that the Finance Bill 2017 will contain legislation providing that, from April 2017, UK resident individuals will be entitled to a £1,000 property income allowance (in addition to the usual personal allowance). Where an individual’s property income falls below the threshold there will be no requirement to declare the income for tax purposes."
I am taking that to mean that my income is covered by the allowance and that no tax is payable.

xylophone

Yes, but it doesn't say that individual shareholders qualify for gross payment.


Best to check with the registrar.

https://www.gov.uk/government/publications/income-tax-new-tax-allowance-for-property-and-trading-income/income-tax-new-tax-allowance-for-property-and-trading-income


Here is New River Retail information dated August 2016 which post dates the Budget.

http://www.nrr.co.uk/docs/default-source/Investor-Centre-Documents/2016/newriver-reit-plc---consequences-of-reit-taxation-for-shareholders.pdf?sfvrsn=0


Have a look at this one from Capita (for New River)

http://www.nrr.co.uk/docs/default-source/Investor-Centre-Documents/reit-letter-for-beneficiaries.pdf?sfvrsn=2

2. The shareholders who qualify for gross payment are principally UK resident companies, UK public bodies, UK charities, UK
pension funds, and the managers of ISAs, PEPs and Child Trust Funds. Most shareholders, including all individuals and all non-UK
residents, do not qualify for gross payment and should not complete this form.

Judesman

I read the HMRC document and tried to phone the number at the bottom of the page but there seems to be a permanent message about nobody being able to answer my call so I have emailed Mr page for advice. It will be interesting to see if I ever get a reply.
Once again the New River document pre-dates the HMRC announcement and I have downloaded the declaration form and had a look at 7 SI 2006/2867. This is the original legislation re REITs and seems to simply say that REITs must deduct withholding tax from payments to shareholders. I might have a word with the registrars but I think they will say that I have to talk to an accountant or they might even make a guess at an answer.

I am relying on this: "Where an individual’s property income falls below the threshold there will be no requirement to declare the income for tax purposes." I really want to submit a declaration in the way that we used to be able to submit an R85 for building Society Interest. A reply from Mr Page might be helpful.

Thanks for all your thoughts. There must be quite a lot of us with this problem.

bowlhead99

Until they actually pass a bill saying that that funds and investment trusts distributing property investment income don't have to withhold tax from individuals (or individuals making certain declarations) you are stuck with it, because at the moment the rules say they must deduct unless you fit into a qualifying category of entities that can get paid gross.

So, while you don't need to generally declare income you received that isn't taxable because it falls into your allowance, if you have had something deducted off your gross income that you want to claim back for whatever reason, you'll need to tell HMRC - just like you've always had to do since PIDs were introduced.

Judesman

Thanks Bowlhead, so you are saying that whilst I might not be liable to pay the tax the only way to recover it is to reclaim it and not claim an exemption in the first place. A short clause in the Finance Bill, introducing the allowance, adding individuals as a qualifying category might have saved HMRC a lot of work but life isn't that simple.

bowlhead99

At the moment you can't claim an exemption because an individual (unless investing through a tax wrapper such as ISA or pension) is not generally exempt from paying tax on property income.

So it would need multiple stages of law or regulation to say this group of people generally need to pay tax and have it deducted at source as an anti avoidance measure BUT actually investment funds should provide administrative support for hundreds of individual taxpayers whereby if they sign up this particular form declaring that they expect to cover their PID income with their allowances (even though the funds themselves don't even know at the start of the year how much PID they are going to be able to pay the person...) then all the funds can break their individual investors out into a group with forms and a group without, and track separately what needs to be withheld or not withheld on each distribution event, and make sure it all gets applied and reported perfectly with no complaints.

That sounds like a headache. Especially as the investor base changes on a daily basis (or even several times a second in the case of a REIT traded on an exchange). Eg Mr Judesman might join the fund in May, not provide a form, leave the fund by selling out the next day, then come back in August and provide a form, leave again, then come back in December again without a form and via a different broker but this time receive a dividend before leaving again by March. And leave the fund to pick up the pieces and do the right reporting and withholding, making sure he was identified as the same investor each time and the form provided in August was linked to his status on the investor register in December albeit he is investing through a different nominee that time.

That sounds like a pain for investment houses to deal with. With an R85, there were a lot more people affected and individuals were dealing directly with the banks /BSs directly, and the banks were much bigger than most investment houses so could set up things for large volumes of customers at a low cost per customer. Whereas, property income is more of a niche and people interact with investment groups through a variety of intermediaries.

So, being a special snowflake who wants his investment house to not withhold tax like they withhold it for all other individuals from UK and overseas, is not something that would be particularly popular with the investment houses. For a lot of people, 20% would be the right amount to pay anyway so is quite convenient for it to be done automatically and just have the investment house hold back from all individuals.

Judesman

I understand what you say but HMRC insists that each individual is responsible for checking that they are paying the correct amount of tax. In the circumstances I do not see why an infrequent investor with a small amount of PID income should not register for gross income. In the example you have given where an investor is in and out of the market, then I agree such a registration might prove problematic but at the end of the day it is the taxpayer who is responsible for paying the correct amount of tax. I have written to HMRC so we will see what they say, if I ever get a reply. In the event that I do I will update this thread. Thanks for your thoughts.