Returns of capital

hi community, i could have just googled it but am hoping someone can talk in layman’s terms and explain what this particular form of dividend means and what are it’s implications (if any). input from @t212 staff is also also welcome given they are the ones classing this as dividends.

thank you

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Unless I am not understanding your question, I will try answer below:

Some companies pay dividends to entice new/existing investors, after a certain date period if you hold the stock, you get these dividends paid direct to you. Which you have.

  1. You have received £0.15p in dividends for the stock DHT Holdings. This get’s added to your free funds to be used however you would like.

  2. If this was not done through an ISA Account - then you will have to keep a record for capital gains tax, as you only are allowed a certain amount per year of dividend payments before you have to pay tax thereafter.

Hope that helps. Congrats on the free £0.15p - don’t spend it all at once :wink:

lol, thanks. i have been hearing the pennies dropping since the last couple of weeks. i can now buy a meal deal :rofl:

jokes apart, i do know the concept of dividends. what i don’t get is the “return of capital” part. how is different from ordinary dividend? normal dividends are expressed like this on T212 as opposed to the screenshot i poseted previously

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Not the foggiest - I assume it may be something tied to it being a fractional share purchase, but honestly no idea. Maybe the T212 team will let you know further, but it may just be a different style of wording that was used. Or maybe it’s because the share price is in $ and converted back to gbp it equates to that amount of capital?
Sorry can’t offer much more than that - never paid that much attention in all honesty :sweat_smile:

In general, return of capital is not taxed with withholding tax as opposed to ordinary dividends. MLP companies for example usually distributes dividends as return of capital.

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what are MLP companies?

Quoting from https://www.investopedia.com/terms/m/mlp.asp,

Master limited partnerships (MLPs) are a business venture that exists in the form of a publicly traded limited partnership. They combine the tax benefits of a private partnership—profits are taxed only when investors receive distributions—with the liquidity of a publicly-traded company

MLPs are situated to take advantage of cash flow, as they are required to distribute all available cash to investors

Quarterly distributions from the MLP are not unlike quarterly stock dividends. But they are treated as a return of capital (ROC), as opposed to dividend income. So, the unitholder does not pay income tax on the returns. Most of the earnings are tax-deferred until the unitholder sells their portion.

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thank you. i should check if i’m being charged WHT on these MLPs.

1 more question. how does one know, the lazy way, whether a company is an MLP? i know about LPs and LLPs but i’m assuming this isn’t similar.

an easy way is to wait until they pay dividend and see what T212 class it as but that’s the long winded way. anything easier?

You can try to check investor relations webpage of the company or make a google search which includes the company name and the keyword “mlp”. If a company is an MLP, it is usually easy to find out.

As I understand it, at least in the case of NBMI, they are selling the company assets (shares/stakes in other companies), and returning the value of the sold assets to NBMI shareholders, in a sort of reverse split, whereby the board compulsorily buys back shares at a price based on the value of assets held then cancels the bought shares. In effect, it is a controlled winding down of the company in such a way as to keep the market share price reasonably stable during the process. As assets are sold and shares bought back and cancelled, the number of tradeable shares falls, maintaining the ratio of assets/shares.

Question to T212
Return of Capital for NBMI

I noticed in the latest payment (19/6/24) the transaction type is simply marked as “Dividend”. Previous similar transactions had the type set to “Return of Capital”.
Does this mean that the “Dividend” transaction will be liable for UK income tax, but if the type was “Return of Capital”, it would be liable for UK capital gains tax? Who allocates the transaction type, T212 or NBMI or it’s agents? If the wrong transaction type has been used, can it be corrected?

Despite the payment type being a ‘Dividend’ instead of ‘Return of capital,’ dividend distributions are not subject to any withholding tax due to NBMI’s country of incorporation (Guernsey).

Thank you, I can see that next year’s tax return is going to require close attention.

I thought we cannot buy MLPs anymore?

I sold out of Allience Bernstein due to it.