Tax on investment funds domiciled in Ireland

aroominyork

In November I received a dividend payment for CG Absolute Return which I bought a few months earlier in a GIA. I wrote to Interactive Investor asking if part of the distribution should be considered equalisation. They replied “The payment is reported as a foreign interest payment by our custodian. Your transaction history will show the payment as a dividend, however when you receive your consolidated tax certificate at the end of the UK tax year, this payment will be reported on your "Foreign dividend interest schedule". This is because the fund is incorporated in Ireland. There is no equalisation payment to report on this dividend.”

I am confused by this. Distributions are either interest (if holdings are >60% fixed interest) or dividends (if <60% fixed interest). The term "Foreign dividend interest " combines both terms. The fund’s website says the distribution is a dividend, but does the fact that it is domiciled in Ireland affect how HMRC views it? Am I liable for tax at the 20% income/interest rate or the 8.75% dividend rate (assuming basic rate)? And if it is a dividend why is there no equalisation?

Jeremy535897

The distributions are dividends, according to the website. If your total dividends, including UK dividends, in 2022/23 are £2,000 or less, there is no UK tax to pay. For dividends above this figure, the dividend rates apply, whether the dividends are UK or overseas. I suspect the expression "foreign dividend interest" means "foreign dividends and interest". Equalisation does not always arise on a dividend. 

aroominyork

I received just over £2k from CGAR so it tips me into tax. What determines whether equalisation is applied? Why isn't it standard process?

Jeremy535897

See https://www.hl.co.uk/help/funds-shares-and-other-investments/funds/income-and-dividends/what-is-equalisation

aroominyork

Jeremy535897 said:

See https://www.hl.co.uk/help/funds-shares-and-other-investments/funds/income-and-dividends/what-is-equalisation

Understood, but it doesn't resolve why a fund I bought in September and which went ex-div on 1 November for a once yearly dividend doesn't have an element of equalisation in the distribution.

Jeremy535897

aroominyork said:

Jeremy535897 said:

See https://www.hl.co.uk/help/funds-shares-and-other-investments/funds/income-and-dividends/what-is-equalisation

Understood, but it doesn't resolve why a fund I bought in September and which went ex-div on 1 November for a once yearly dividend doesn't have an element of equalisation in the distribution.

All you can do is ask them why there is no equalisation payment.