US REIT Tax in UK

Does anyone know how US REIT dividends and capital gains are taxed if you are a UK investor? I know that REIT dividends can be paid out as PID’s (Property income distribution) which I believe are taxed like normal income but I would like to know how to work out the tax on dividends from US REITs when filing my tax return.

Thanks

I assumed that it was taxed as a normal company, free within ISA other than the withholding tax, and normal taxes on distributions and capital gains outside the ISA

Ok, that would make it a lot easier, I have just read about them often paying their dividends out as something called PID’s and they are taxed like normal income from a job (20% lower rate etc) so wasn’t sure if It changed the way you pay tax on them compared to a normal dividend

Yes REIT dividends are taxed as normal income, you’ll be taxed once (at 15% I believe) when you get paid as its international income… after that you are taxed at the usual income rate…

So if you have DRIP active you will still need to hold a record how much REIT dividend income you have received and keep a % set aside for taxes…

My advice if your unsure is to talk to an accountant to make sure you have everything set up…

Yes that’s exactly what I thought!

My plan is to get in contact with an accountant to go through everything before I start collecting dividends so i know exactly how everything is taxed and so I can easily calculate it each year

Thanks

if your just starting out it will take some time before it starts to have any real impact on its own. for now it will basically be classed as a 2nd income (assuming you also have a job)

Yeah I won’t be effected for a while but I want to be clear with the tax rules before I start so I can track and record everything from the beginning and know i’m doing it correctly.

I do have a job so yeah it will be my second income, does this mean I record it differently or just file for self assessment and record the income from dividends and any capital gains (In the future when I exceed the allowances)?

PIDs are UK REITs only.

US REITs are subject to 15% withholding tax, which will be automatically applied.

Oh ok if that’s the case it makes it a bit easier to work out the tax.

How is it taxed on the UK side once outside the 2k allowance? It will be taxed 15% in US then how do I file it to HMRC in the UK, is it as normal income?

this link might prove useful: https://www.britishland.com/investors/dividends/reits-dividends-and-uk-tax

Cheers for the link!

That answers for UK REIT’s, it’s just the US ones now, I know they get taxed at 15% in the US before you receive them so my question is are they then further taxed in the UK when outside the 2k allowance or ISA?

UK has a double taxation treaty with the US to prevent paying tax twice. what you will likely see is the withholding tax is taken before it comes to you and then tax is applied according to your account type. based on your income etc that its being treated as and the status of your W8-BEN form. if it doesn’t fall under your 2k dividend limit its possible that it might fall under your 12k+ capital gains limit. its something particular to REITs I never looked into as all my interactions with them will occur inside my ISA

Yeah that’s it, REIT’s are different to standard dividends which is why i had questions about them. I think I will get in contact with an accountant to confirm how they are taxed so that I 100% know how to file them in the future once my allowance is used up.

Thanks for your help!

@Dao and @trading212.bourse

I read this article as an investor of BLC via T212 ISA .

does this mean T212 as the manager of ISA are able to apply for exemption from UK withholding tax (20% taxed at source) and be paid PID gross?

I am wondering , if so, would it be more advantageous?
what , if any, is T212 role in securing the exemption?

As a last question, does the PID mean you lose the tax-free wrapper affect of income received in ISA?
That would be a pity and may as well consider PID received into ISA as not dividends (as subject to separate tax).

I always thought so longs you do not exceed £20k of proceeds in Stocks & Shares ISA allowance OR earn >= £2k (do not breach the tax-free threshold/dividend allowance) you pay zero tax on dividends.

@regional11 I have looked into REITs more and found the information I was lacking before.

The UK does not have any witholding tax so there is nothing to get exemption for on that front. they have the PIDs instead which fall under income tax for regular investers hence the 20% at basic rate, with those who earn more paying larger % on their PID (higher rates at 40% and additional at 45%), alongside whatever portion is paid as dividends. ISA accounts won’t face these taxes and will receive the gross payment.

Many places use the Term “withholding tax” for UK companies out of convenience due to being easier to understand internationally.

The ISA does what it says on the wrapper and should protect payments to you from any and all taxes by the HMRC. so holding a UK REIT in an ISA ensures all money paid to you is received by you. either directly or through reclaiming tax from the HMRC.

It is always more advantageous to trade within an ISA when the option is available, as the only restriction is how much you can deposit each tax year.

my suppporting source: https://www.sharesmagazine.co.uk/article/reducing-dividend-tax-the-reit-way

TLDR;

If you hold British Land Company, LSE: BLND in an ISA account and they paid a gross dividend of 40p in PID+dividend, you will receive all 40p. it depends on your ISA manager whether payments will be received gross, or net with taxes reclaimed and paid up to 8 weeks later. but you will get all of it.

the most advantageous share to hold in an ISA is a REIT because the company doesn’t first have to pay a 19% corporation tax and you don’t need to pay any taxes on the dividends/PIDs paid to you from the remainder.

ISA’s only count the money you pay in to your allowance, and not the amount your receive in payment, whether that is £20 or £20,000,000. you don’t pay any tax on money earned inside an ISA, whether that be capital gains, dividends or PIDs. PIDs just often have the uncertainty regarding when you will receive the full payment.

to know specifically, we would need to ask T212 how they handle PIDs inside ISAs.

@Dao
Truly superb and exceedingly helpful information. Thank you !

I read somewhere else the ISA allowance also does not impact the £2k dividend allowance and so effectly you have annual £22k tax free dividends/earnings, provided you are using an ISA.

yes could we clarify with T212 what to expect in their handling of BLC’s in particular as well as in general PIDs inside ISA ?

@Tony.V is this something you could help with?

@regional11 You’ll receive the gross PID in an ISA.

Thank you, David, for clarifying. It gives me great comfort that UK REIT’s received into an ISA is paid by the REIT company in full and protects from any varying tax treatments (i.e. entirely tax-free whether that be a dividend or other income (property) on the self-assessment tax return).

What a relief, no headaches in that respect and definitely makes me favour further REIT investments.