I couldn’t find a feature for it so here goes: I live in a country, where dividends are taxed. Hence I’d like to avoid dividends as they create taxable income (cost and hassle when filling out tax forms). I’d wish for a function that informs me about upcoming dividend payments, so I can sell in advance and re-buy later. Would that be possible?
the problem with doing this is that you would incur capital gains/ income tax for all the buy/sells you do.
the reasonable approach to take would be to avoid acquiring dividend paying companies and build a portfolio around growth stocks instead that don’t pay out to shareholders. or if you still want access to those companies, perhaps an ETF that doesn’t pay dividends to you but puts them back into the ETF?
Someone mentioned recently on the forum that at least in the UK, you also pay taxes on dividends within an accumulating ETF.
See this thread which deals with the tax question AutoInvest - Join the BETA - #133 by Richard.W
Buying and selling does not incur income taxes in Switzerland (some conditions apply, but as a private individual it’s fine). And accumulation dividends I need to check again, probably I need to pay those… I’m new to this so I want to make sure I do this right.
@Betr Here is a link especially addressing Swiss tax rules.
Thanks! In that case I’ll try to shift to distributing etfs. They are more transparent to me in terms of the dividends that I need to pay taxes on.
Unfortunately distributing ETFs also pose a challenge in that they have taxable undistributed income too. See for instance
Here, for example is data for VNRT, a distributing ETF. There were 4 distributions, but also a fifth excess reportable dividend that is also taxable. It is tiny compared to the other dividends, but is supposed to be reported for tax regardless. It is deemed paid on 31 December. Unhelpfully, the 4 distributions shown in this report are not the 4 that all in a single UK tax year, so one has to refer to more than one of these reports if you need to check what dividends were paid out in a tax year.
Hi @Richard.W, just wondering if you have any similar articles for Irish tax rules? I’ve noticed that many of the links you provide on this platform lead to articles that are clear and concise. I’ve searched many articles through Google but can still be confusing so thought I’d Chance my arm and ask.
I’m sorry. I have not come across an article saying how Irish tax authorities treat the undistributed income of accumulating ETFs. We have learned from contributors to our forum that nations differ. Portugal and Belgium do not tax the undistributed income, but UK and Switzerland do. I will keep my eye out for something about Ireland.
Thanks for the insight, I highly appreciate it! That’s unfortunate and pretty annoying tbh… But ok, for the etfs I plan on switching to an other broker soon (there’s more options on other platforms) and plan to keep them to a minimum anyway. That way it’s not too much of a hassle to calculate taxes.
So I will keep my “normal” stocks on Trading212 for which the dividend payments are transparent.
I’d still prefer having a warning for these cases though as I want to avoid paying taxes on dividends.
I constantly face palm at the technicalities of the investment industry and how we ever expect newcomers in this gold rush zero commission era to know this when financial understanding is moderately low.
About 15/20 years When ETFs were in their infancy in the UK I had clients trading ETFs all the time without reference to their reporting status. Then they sell their holdings and are gobsmacked when our reports tell them they’ve just generated a 45% income tax bill. Few people ever expect to generate an income tax liability upon sale. CGT, fine, I feel most people understand that. But balls up your reporting status on your ETFs and… whoops…
Then, as you highlight, if they do ‘report’ you end up needing to explain ERI
Okay, thank you for the reply
- Thinking about ERI, I have always reported it as dividends. Then I read this here. Does it make sense to you?
“If a transparent reporting fund holds investments in other reporting funds then investors are also taxable on their proportionate share of any income reported but not actually distributed by the underlying fund (regulation 94(2)). This will become part of the excess to be reported by the transparent reporting fund. Such excess reported income is charged to tax as miscellaneous foreign income under Chapter 8 of Part 5 ITTOIA 2005 (regulation 97(2)), and it is chargeable at investors’ highest tax rate.”
Many offshore UK reporting Vanguard index funds are indeed invested in other offshore UK reporting Vanguard funds, as the above seems to envisage.
- Second thing. Vanguard says in respect of their offshore UK-reporting funds “If you have invested in any of these funds below and you’ve checked with HMRC that you do need to, then you may need to report your excess income. Excess reportable income can be found in our Report to Participants.”
I do not understand the proviso “and you’ve checked with HMRC”. Are there circumstances in which a taxpayer checks with HMRC and is told that she does not need to bother with reporting of excess income? I have been in the habit of doing so, paying dividend tax, and then increasing my cost basis by the amount so retained in the fund. But the Vanguard wording implies that maybe this is unnecessary for some taxpayers. Why might this be?
That makes absolutely zero sense to me.
As you say - why check? The rules surrounding why you would or indeed wouldn’t need to should be clear upfront. Excess is reportable. So report it. Agreed. Vanguard wording makes me query that logic.
Here is the Vanguard page.
Read “How do I know if I need to declare excess income?”
Any thoughts on question 1?
Yeah, just reading that HMRC page… I’d say you should be sticking it in the foreign income section of your self assesment tax return. Fun
Sounds very odd. Tax will be greater if the ERI has to be declared as foreign income rather than as foreign dividends. How is one to know what proportion of the excess income arises from the master fund, and what proportion from the funds it holds. Eg, Vanguard LifeStrategy 100% Equity Fund holds Vanguard Emerging Markets Stock Index Fund. Mind you, that may not be a good example as Vanguard Lifestrategy is GB domiciled. I can’t immediately think of an offshore Vanguard fund that holds another offshore Vanguard fund as one of its constituents, so maybe this issue does not arise in practice. I think I am safely out of this net in respect to my Vanguard ETF holdings since they are not funds of funds in the same manner as is Vanguard LifeStrategy.
I have had a reply from HMRC in respect of the advice printed by Vanguard and which was my question 2 above.
“If you have excess reportable income it must be reported on the foreign page of a self assessment return. You have correctly reported the income. We are unsure why Vanguard have put the caveat in their literature.”
Incidentally, I find that HMRC is very good about answering questions when approached via direct message on their Facebook page.