Lloyds Banking Group special dividend tax return help

I am doing my 2016/17 short tax return.

Lloyds paid 2 ordinary dividends, but also a special dividend which was amalgamated with one of the ordinary dividends.

They say it is "a capital distribution in the form of a special dividend"

Is this a return of capital? If it is, am I right in thinking it is not subject to income tax? Would I therefore need to subtract it from the ordinary dividend?

This may not be relevant this year due to the £5000 tax free dividend allowance, however I still want to understand as the allowance, I believe, drops to £2000 next year and you never know when a similar situation might occur.

Any help appreciated.

Comments

  • It may well be relevant as the £5000 dividend allowance isn't actually an allowance as such but a new rate band and several categories of people will have extra income tax to pay becuase of the dividends even when less than £5,000.

    So for example if you're an older married pensioner, liable to pay the high income child benefit charge or have income over £100,000 (with dividend income included) you will have extra tax to pay even if the dividends are less than £5,000.
  • polymaff
    polymaff Posts: 3,903
    First Anniversary Name Dropper First Post
    Forumite
    caper7 wrote: »
    They say it is "a capital distribution in the form of a special dividend"

    Is this a return of capital?

    Have Lloyds not given you advice on accompanying documentation?

    I'm no expert, but I would have thought that for an on-going company to give you something you could treat as a capital gain they would have had to pass a special resolution and that stamp duty might be involved. Have you any evidence of either of these?

    That word "dividend" smacks of you receiving income paid out of the company's assets, not of some scheme - and there are schemes - designed to pay out revalued share capital.
  • bowlhead99
    bowlhead99 Posts: 12,295
    Name Dropper First Post First Anniversary Post of the Month
    Forumite
    They had more capital in the business than they needed after doing their reviews of the various regulatory rules and the projections and stress testing they did. So they decided to send some cash back out to the investors.

    The use of the phrase 'capital' in this context is something you could think of as the bottom half of their balance sheet - shareholders' funds: share capital, share premium, the sum of all retained profits and other reserves. But the payment of the special dividend still comes out of retained profits just like the normal dividends - as you can see from their accounts. They're not buying back their share capital or doing anything that gets you special 'capital gains' treatment. What you have received by way of dividend in May 2016 is still 'income' to you.
  • caper7
    caper7 Posts: 153
    First Post First Anniversary Name Dropper Combo Breaker
    Forumite
    Thank you so much Bowlhead99.

    Am I right in thinking the same applies to National Grid's recent special dividend also?
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards