HMRC exchange rates for dividends - use the date Vanguard says, or the date the platform says?

EthicsGradient

Vanguard ETFs have just paid a dividend. They say the payment date was 31st March; Interactive Investor have listed it as 1st April on my account (and it hasn't cleared yet, so there's no question that it didn't become available to me until April). For ETFs that distribute in dollars, we have to use the HMRC rates for a conversion to put on a tax return - which have changed from 1.4051 in March to 1.3721 in April. Should we use the March, or April, figure?

dales1

Personally, I declare to HMRC the sterling amount (of the foreign dividend) that I actually received in my (sterling) broker's account. No conversion is required.

I think we only have to resort to HMRC conversion rates as a backstop eg if the dividends are received in a dollar-denominated account.

Dales.

PS for some, this may be the Fifth quarterly dividend of the UK tax year !

Thrugelmir

There's no guarantee that dividends paid will reach the designated account on the actual payment date. Is the ETF domiciled in Eire? 

EthicsGradient

Yes, the ETF is domiciled in Ireland, and Interactive Investor credits the dividend to my account in dollars - I then have the choice of converting it to pounds (which I have always done), or I could use it to purchase something denominated in dollars. While I can point to an exchange rate I receive for the conversion, that's my own transaction (which I could do many days later, if I chose; this year, thanks to the bank holidays, that won't actually happen until the new tax year), so I don't think that counts as when I received the income, and it still would have been income if I had used it as dollars.

So I think I do need to use an HMRC exchange rate.

underground99

EthicsGradient said:

 - I then have the choice of converting it to pounds (which I have always done), or I could use it to purchase something denominated in dollars. While I can point to an exchange rate I receive for the conversion, that's my own transaction (which I could do many days later, if I chose; this year, thanks to the bank holidays, that won't actually happen until the new tax year), so I don't think that counts as when I received the income, and it still would have been income if I had used it as dollars.

The income you earn is what it's worth in pounds when you get it, and you're right that if you delay exchanging the dollars to pounds you will ultimately receive an amount of pounds related to that later spot rate, which isn't something that's relevant in determining how much income you earned. In other words, the fact you chose to hold some dollars for a while before buying sterling with them can't mean your earlier income becomes a different amount of sterling ; the income is recognised as being worth what it's worth whenever you get it, not what it's worth when you choose to buy pounds with what you got.

To figure out what it's worth when you get it, HMRC would give you the choice to either use an average rate for the year to apply to all your income, or to use the relevant rate at the time of each transaction; you should be consistent in which approach you use and shouldn't mix methods to cherry-pick between transactions. 

But:

So I think I do need to use an HMRC exchange rate.

...there is no requirement to use HMRC's published monthly rates that they give to businesses for customs and vat purposes. If you are going with the 'rate at the time of each transaction' method, you can use any official rate for the date. For example, you look at your broker statement which shows a receipt for $100 with value date 1 April, then get the spot rate for 1 April from the FT, and say that's your sterling equivalent for your tax return. HMRC won't have a problem with that as it's fully supported by an audit trail and reliable source.

EthicsGradient

Thanks - the consensus seems to be that it's the date I received the dividend in my platform account, rather than the date announced by Vanguard.

I've compared the conversion using the HMRC monthly rates for the 5 dividends this tax year, and the Bank of England's daily spot rate here: http://www.bankofengland.co.uk/boeapps/iadb/Rates.asp , and the amount in pounds comes out about 2% less for the BoE rates (a function, I suppose, mainly of the general rise of the pound, between the time HMRC sets a rate for a month ahead and when the precise date in it is). Assuming 1st April's rate will be about the same as 31st March (the latest available at the moment), there's not much difference from the April 2021 HMRC figure; but the April 2020 rates were about 6% different.

So I suppose I'll use the BoE rates; which is also fairer, since I didn't get to convert until the rises in the pound had happened, so I had ended up with the smaller figure in practice.