📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Dividend Income

A quick, and probably, straight forwards query.


For the first time we are going to invest in to a GIA and I'm trying to get my head around whether the income will be interest or dividends.

A Money Market fund will be interest, I get that, but what about Bond Funds? Is the income form those classed as interest or dividends?

My thinking is interest so if it is what about the likes of Personal Assets or Capital Gearing?


BTW - It's dividends I want not interest and the timescale is short in as much as it will move across to an ISA in April.

 
Thanks

Comments

  • EthicsGradient
    EthicsGradient Posts: 1,296 Forumite
    Sixth Anniversary 1,000 Posts Photogenic Name Dropper
    If the fund holds 60% or more of its assets in bonds, it's taxed as interest.

    Tax on dividend income and capital growth - Aviva

    The fund should tell you which, if it's unclear (I believe Vanguard keeps their LifeStrategy 40 fund at just over 40% shares, so that it's taxed as dividends - but check if you do choose it).
  • wmb194
    wmb194 Posts: 5,032 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    edited 23 August at 2:05PM
    If the fund holds 60% or more of its assets in bonds, it's taxed as interest.

    Tax on dividend income and capital growth - Aviva

    The fund should tell you which, if it's unclear (I believe Vanguard keeps their LifeStrategy 40 fund at just over 40% shares, so that it's taxed as dividends - but check if you do choose it).
    That's for OEICs, for investment trust type companies it depends on where they're domiciled or whether it's specifically declared as an interest payment. 

    If domiciled in Britain then it can be a dividend but ITs can also pay interest so you need to check the declaration. 

    If the IT is domiciled abroad e.g., some debt ITs are domiciled in Jersey and Guernsey then it's the 60% test you mention in your post (see the Foreign Notes for SA).

    PNL is domiciled in Britain - has a GB ISIN - and it's most recent dividend was declared as a dividend so I wouldn't class that as interest.

    Capital Gearing is also domiciled in GB but its most recent dividend declaration has the gotcha you need to watch out for:



    https://www.londonstockexchange.com/news-article/PNL/dividend-declaration/17142460

    https://www.londonstockexchange.com/news-article/CGT/dividend-declaration/17058969

    https://www.gov.uk/government/publications/self-assessment-foreign-sa106
  • poseidon1
    poseidon1 Posts: 1,514 Forumite
    1,000 Posts Second Anniversary Name Dropper
    AlanP_2 said:
    A quick, and probably, straight forwards query.


    For the first time we are going to invest in to a GIA and I'm trying to get my head around whether the income will be interest or dividends.

    A Money Market fund will be interest, I get that, but what about Bond Funds? Is the income form those classed as interest or dividends?

    My thinking is interest so if it is what about the likes of Personal Assets or Capital Gearing?


    BTW - It's dividends I want not interest and the timescale is short in as much as it will move across to an ISA in April.

     
    Thanks


    You should note there are fundamental differences between unit trust funds ( OEICS) and Investment Trusts (such as Capital Gearing and Personal Assets).

    Irrespective of an Investment Trust's core holdings, any income distributions are always dividends liable to tax at dividend rates.

    So in the case of Twenty four select Monthly income, an investment trust wholly invested in bonds and bond derivatives, the monthly distributions are dividends.

    Accordingly, if you are solely interested in receiving dividends ( rather than interest) you can't go wrong with Investment Trusts.
  • Eco_Miser
    Eco_Miser Posts: 4,879 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    edited 23 August at 5:48PM
    poseidon1 said:

    You should note there are fundamental differences between unit trust funds ( OEICS) and Investment Trusts (such as Capital Gearing and Personal Assets).

    Irrespective of an Investment Trust's core holdings, any income distributions are always dividends liable to tax at dividend rates.

    So in the case of Twenty four select Monthly income, an investment trust wholly invested in bonds and bond derivatives, the monthly distributions are dividends.

    Accordingly, if you are solely interested in receiving dividends ( rather than interest) you can't go wrong with Investment Trusts.
    Except that the post above yours (from wmb194) shows an income distribution from Capital Gearing which is part interest and part dividend.
    Eco Miser
    Saving money for well over half a century
  • ColdIron
    ColdIron Posts: 9,909 Forumite
    Part of the Furniture 1,000 Posts Hung up my suit! Name Dropper
    HICL, domiciled in the UK, pays part dividend and part interest
  • wmb194
    wmb194 Posts: 5,032 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    poseidon1 said:
    AlanP_2 said:
    A quick, and probably, straight forwards query.


    For the first time we are going to invest in to a GIA and I'm trying to get my head around whether the income will be interest or dividends.

    A Money Market fund will be interest, I get that, but what about Bond Funds? Is the income form those classed as interest or dividends?

    My thinking is interest so if it is what about the likes of Personal Assets or Capital Gearing?


    BTW - It's dividends I want not interest and the timescale is short in as much as it will move across to an ISA in April.

     
    Thanks


    You should note there are fundamental differences between unit trust funds ( OEICS) and Investment Trusts (such as Capital Gearing and Personal Assets).

    Irrespective of an Investment Trust's core holdings, any income distributions are always dividends liable to tax at dividend rates.

    So in the case of Twenty four select Monthly income, an investment trust wholly invested in bonds and bond derivatives, the monthly distributions are dividends.

    Accordingly, if you are solely interested in receiving dividends ( rather than interest) you can't go wrong with Investment Trusts.
    SMIF is domiciled in Guernsey so I'd say its distributions should be treated as interest.

    From the Foreign Pages Notes 2025:


  • poseidon1
    poseidon1 Posts: 1,514 Forumite
    1,000 Posts Second Anniversary Name Dropper
    wmb194 said:
    poseidon1 said:
    AlanP_2 said:
    A quick, and probably, straight forwards query.


    For the first time we are going to invest in to a GIA and I'm trying to get my head around whether the income will be interest or dividends.

    A Money Market fund will be interest, I get that, but what about Bond Funds? Is the income form those classed as interest or dividends?

    My thinking is interest so if it is what about the likes of Personal Assets or Capital Gearing?


    BTW - It's dividends I want not interest and the timescale is short in as much as it will move across to an ISA in April.

     
    Thanks


    You should note there are fundamental differences between unit trust funds ( OEICS) and Investment Trusts (such as Capital Gearing and Personal Assets).

    Irrespective of an Investment Trust's core holdings, any income distributions are always dividends liable to tax at dividend rates.

    So in the case of Twenty four select Monthly income, an investment trust wholly invested in bonds and bond derivatives, the monthly distributions are dividends.

    Accordingly, if you are solely interested in receiving dividends ( rather than interest) you can't go wrong with Investment Trusts.
    SMIF is domiciled in Guernsey so I'd say its distributions should be treated as interest.

    From the Foreign Pages Notes 2025:



    I hold SMIF ( hence the specific reference ), on my GIA consolidated year end tax certificates ( from HL and II )  all distributions classified therein as 'Overseas Dividends' to be declared as such on  the supplementary self assessment  form SA106. 

    However, was a little surprised to see 1 or 2 trusts ( eg Capital Gearing) have the power to make hybrid distributions comprised of interest and dividends, where ( as in the case of Capital Gearing) a significant corporation tax advantage can be gained by doing so.

    Therefore  I retract my statement ( unreservedly), that all Investment Trusts are a safe haven for  dividend income if that is a specfic investor's requirement ( you live and learn!).
  • AlanP_2
    AlanP_2 Posts: 3,523 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 23 August at 9:30PM
    Thanks all, and there was me thinking I'd asked a simple question with an obvious answer that just hadn't registered with me.

    Naive on my part really given UK tax rules  :/


    I think I'll use City of London (CTY) as adding a bit more UK exposure aligns with our target geographic allocation.
  • masonic
    masonic Posts: 27,444 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    AlanP_2 said:
    A quick, and probably, straight forwards query.
    Perhaps not.
    AlanP_2 said:
    A Money Market fund will be interest
    I can think of an example of a money market fund that returns a capital gain instead of interest (at least in some years).
  • wmb194
    wmb194 Posts: 5,032 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    edited 23 August at 9:51PM
    poseidon1 said:
    wmb194 said:
    poseidon1 said:
    AlanP_2 said:
    A quick, and probably, straight forwards query.


    For the first time we are going to invest in to a GIA and I'm trying to get my head around whether the income will be interest or dividends.

    A Money Market fund will be interest, I get that, but what about Bond Funds? Is the income form those classed as interest or dividends?

    My thinking is interest so if it is what about the likes of Personal Assets or Capital Gearing?


    BTW - It's dividends I want not interest and the timescale is short in as much as it will move across to an ISA in April.

     
    Thanks


    You should note there are fundamental differences between unit trust funds ( OEICS) and Investment Trusts (such as Capital Gearing and Personal Assets).

    Irrespective of an Investment Trust's core holdings, any income distributions are always dividends liable to tax at dividend rates.

    So in the case of Twenty four select Monthly income, an investment trust wholly invested in bonds and bond derivatives, the monthly distributions are dividends.

    Accordingly, if you are solely interested in receiving dividends ( rather than interest) you can't go wrong with Investment Trusts.
    SMIF is domiciled in Guernsey so I'd say its distributions should be treated as interest.

    From the Foreign Pages Notes 2025:



    I hold SMIF ( hence the specific reference ), on my GIA consolidated year end tax certificates ( from HL and II )  all distributions classified therein as 'Overseas Dividends' to be declared as such on  the supplementary self assessment  form SA106. 

    However, was a little surprised to see 1 or 2 trusts ( eg Capital Gearing) have the power to make hybrid distributions comprised of interest and dividends, where ( as in the case of Capital Gearing) a significant corporation tax advantage can be gained by doing so.

    Therefore  I retract my statement ( unreservedly), that all Investment Trusts are a safe haven for  dividend income if that is a specfic investor's requirement ( you live and learn!).
    Be careful, you cannot fully trust broker tax certificate classifications. Then again HMRC’s unlikely to question anything.

    In my experience brokers don’t look into the nuances and sometimes even miss the obvious e.g., this year CMC Invest has classified all my GB and foreign domiciled IT and Irish ETF dividends as UK unit trusts. Apart from this being hopelessly wrong it doesn’t even offer OEICs/Unit Trusts… It also classified a LSE listed foreign company’s dividend as a UK dividend.

    i don’t use broker tax certificates to complete my SA, I keep my own records and make my own, more accurate, classifications.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 351.4K Banking & Borrowing
  • 253.3K Reduce Debt & Boost Income
  • 453.8K Spending & Discounts
  • 244.4K Work, Benefits & Business
  • 599.6K Mortgages, Homes & Bills
  • 177.1K Life & Family
  • 257.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.2K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.