Investments outside an ISA/SIPP

pip895

I have reasonably large investments siting outside tax shelters. My total income is above the personal allowance but below the Personal allowance + starting rate for savings level.

I have invested in a number of etfs which are very efficient from a fee perspective but I think I might have shot myself in the foot on the tax front as the yield is classed as foreign income (the etfs are domiciled in Ireland). I don't believe therefore that they can be offset against the savings starter rate - which will cost me 20%.

Is this the case or have I misunderstood something?
If I am right, would I be better off selling the etf's and buying global ITs which I think will give income allowable against the savings starter rate?

ColdIron

No dividends, foreign or domestic, can be offset against the Starting Rate for Savings which, as its name implies is for interest on savings. I assume you have equity ETFs and not bonds. The only thing you are likely to achieve is not having to worry about Excess Reportable Income

https://monevator.com/excess-reportable-income/

pip895

Yes it is equity rather than bonds but on the government web site it states:-

Savings covered by your allowance
Your allowance applies to interest from:
bank and building society accounts
savings and credit union accounts
unit trusts, investment trusts and open-ended investment companies
peer-to-peer lending
trust funds
payment protection insurance (PPI)
Your allowance also applies to interest from:
government or company bonds
life annuity payments
some life insurance contracts

Is it different for the savings allowance as opposed by the starter rate??

Prism

No its for savings income only. However you can also earn £2000 in dividends tax free each year so you might well be fine

ColdIron

pip895 wrote: »

unit trusts, investment trusts and open-ended investment companies

The Starting Rate for Savings only applies if your investments pay interest. Bond ETFs or predominantly bond funds (typically in excess of 60%) may pay interest. If your investments are equities they will pay dividends and therefore not be covered by the Starting Rate for Savings, although you have a separate £2,000 allowance on your dividends
https://www.gov.uk/tax-on-dividends

pip895 wrote: »

Is it different for the savings allowance as opposed by the starter rate??

If you mean the Personal Savings Allowance, again this only applies to interest. Again the clue's in the name. If you are a basic rate taxpayer you will pay 7.5% tax on the dividends above £2,000 and not 20% income tax

pip895

OK Thanks for that, I probably have under £2000 but its pushing up against that - 7.5% is quite a bit better anyway - presumably it doesn't matter that the dividends are "foreign" income - they are still covered by the £2000 allowance?

It might be a good idea to transfer some of it to fixed interest if I find I am over the limit...

colsten

ColdIron wrote: »

No dividends, foreign or domestic, can be offset against the Starting Rate for Savings which, as its name implies is for interest on savings. I assume you have equity ETFs and not bonds. The only thing you are likely to achieve is not having to worry about Excess Reportable Income

https://monevator.com/excess-reportable-income/

Did you mean can not be offset?

ColdIron

pip895 wrote: »

presumably it doesn't matter that the dividends are "foreign" income - they are still covered by the £2000 allowance?

Broadly this is the case for most collective investments you are likely to encounter. However if your foreign dividends are in excess of £300 you should record them separately on your self assessment. All the details you need ought to be on your consolidated tax report supplied by your investment platform

pip895 wrote: »

It might be a good idea to transfer some of it to fixed interest if I find I am over the limit...

Don't let the tax tail wag the investment dog. If you have to pay tax hen 7.5% is a rate that most people could live with

ColdIron

colsten wrote: »

Did you mean can not be offset?

No
I meant 'No dividends, foreign or domestic, can be ...' and not 'No. Dividends, foreign or domestic, can be ...'

Perhaps another way of expressing it might be:
'No dividends (foreign or domestic) can be ...' or even 'No dividends can be ...'

It's a grammatical minefield out there and don't get me started on the Oxford comma

colsten

ColdIron wrote: »

No
I meant 'No dividends, foreign or domestic, can be ...' and not 'No. Dividends, foreign or domestic, can be ...'

Perhaps another way of expressing it might be:
'No dividends (foreign or domestic) can be ...' or even 'No dividends can be ...'

It's a grammatical minefield out there and don't get me started on the Oxford comma

Ah right, of course!!!! DOH. My mind is totally polluted from reading Twitter and Facebook postings from people who do not have any punctuation in their repertoire! Profuse apologies that I forgot that you're not one of them

ColdIron

Yes
I too find I have to switch gear between Twitter (an outrage machine) and forum posting. I have never found a use for facebook