Income and Dividend taxes : Update

GenX0212

SadCodeMan said:

Actually, I take that all back. I think I am wrong. Sorry...

I just found this:
https://assets.publishing.service.gov.uk/media/5a81ed77e5274a2e87dc039a/ISA_guidance_notes_investor_dies_extract.pdf

Unfortnately there is a section which says:

12.10      When an investor dies on or after 6 April 2018 the savings of a deceased investor can continue to benefit from the tax advantages of an ISA during the administration period of the estate. Any interest, dividends or gains in respect of investments in a continuing account of a deceased investor that arise (which in general terms means ‘paid’) after the date of death to the date of closure of the ISA are exempt from tax (see paragraph 3.23 – 3.28). 

That does sound like any dividends paid after the closure are maybe not considered exempt.

I hope there is maybe enough tax allowance in the estate to cover the payment?

Thanks for this, looks like we will have to pay the Dividend Tax. If I had been aware there was a dividend due we could have held off closing the account but you live and learn. Not the end of the world..

GenX0212

Update:

Further to the thread above I submitted an informal letter to HMRC outlining the income received by the estate after death. The total received came to a little over £550 including approx £150 as a result of a dividend payment received from S&S ISA after closure.

I reported all the figures in detail and asked HMRC to confirm the tax owing. In their calculation however they have ignored the £150 from the ISA taking the amount owed down to £400 but they then went on to also demand payment of the £400 (which we paid promptly to avoid any penalties).

It leaves several questions though:

1. Were HMRC correct to exclude the £150 from the ISA?
2. Because the total they then calculated was less than £500 then were they correct to ask for payment?
3. Because the total calculated by HMRC was less than £500 then do I need to send R185 forms to the beneficiaries (one of whom is a higher rate tax payer).

many thanks.

Notepad_Phil

I don't know about 2 and 3, but for 1 presumably the ex-dividend date of the dividend(s) passed by whilst the fund/stock was still within the ISA, so even though it may have been paid out after the ISA was closed, the dividend itself still arose within an open ISA, so I would say that it does come under ISA protection.

If that was not the case then people just closing a s&s ISA would find themselves having to pay tax on dividends that got paid out after their ISA was closed, even though the dividend became due to them whilst their ISA was open.

Edited to ask whether you mentioned in your letter that the ISA dividend was paid after the ISA was closed. If you did then it seems the HMRC agree with my thoughts, but if you didn't then you maybe need to give them that bit of information and see whether their position changes.

GenX0212

Ignore q2 and q3, I was having a brain-fart!

The total estate income received was £3k, I was confusing it with the amount of tax owing which was less than £500

GenX0212

https://forums.moneysavingexpert.com/discussion/comment/81989169#Comment_81989169

yes I made it clear to HMRC that the dividend was received after the account had been closed, whether they read it properly is a different matter of course…