Do I pay Income Tax on Investment Trust with no dividends (PCT in this case)

Maidavale

Something I can't quite figure out based on my own research...

I'm not entirely clear if Polar Capital Technology Trust (PCT) would be treated as an accumulation fund from a tax perspective? (if held outside of ISA / SIPP due to maxing these out - therefore in a standard taxable share account).

Does anyone know if an investment trust, such as PCT, which has a "0 %" dividend yield incurs any sort of income tax?  Or will I only ever pay capital gains tax on Polar Capital Technology?  What makes me suspicious is of course some of the holdings within PCT will be paying dividends so there is dividend income coming into the trust.

Thank You in advance if anyone could shed more light on this!

AnotherJoe

My understanding is that each year it will produce a certificate stating what the notional dividends are. This should come via your broker 

bowlhead99

It is not an accumulation fund.  It is a UK company operating as an investment trust so it follows the investment trust rules, which compel it to pay out at least 85% of its income just like other investment trusts do - but as it doesn't receive loads of dividend income, all the income that it does get is consumed by management fees and other operating costs ,so there is no net income to pay out as dividends. 

They have an April year-end and the April 2020 financial accounts aren't available yet, but the interim ones to October showed about 9.25m of investment income and bank interest income, but over 10m of costs including management fees, admin, interest, tax. So, nothing left to pay out as a dividend. 

Meanwhile they had £40m of realised and unrealised capital gains, so net assets still went up, but investment trusts are not compelled to cash-in their investments and distribute their realised and unrealised capital gains, or they wouldn't be able to grow over the long term - and you are not directly exposed yourself to those capital gains, because the corporate structure of the IT acts as a 'blocker' (the IT is making the gains from time to time, but you as an individual are not, unless you sell your shares in the IT).

As the IT is a UK company which didn't declare any dividends, you don't have any obligation to pay dividend tax. 

That's different from an OEIC which does declare a dividend allocation and you simply don't want the money so you choose the Accumulating class - the dividend allocation to you would still be taxable ; likewise a non-UK resident fund or ETF is likely to be registered with HMRC under the offshore funds regime, where it issues an annual report of undistributed income so that you can find out what you 'earned' and pay tax on it, without physically receiving the money. 

AnotherJoe said:

My understanding is that each year it will produce a certificate stating what the notional dividends are. This should come via your broker 

No. There are no 'notional dividends'. It is a UK investment trust that didn't pay any dividends - that's all there is to it.  In PCT's case there is no dividend allocated or distributed to you, and it's a UK company not an 'offshore funds regime' entity, so there is no reason to go looking for income to try to pay tax on it - you didn't get any.

AnotherJoe

Thanks BH. Every day is a learning day. 

 Awesome explanation as ever.