UOkay REITs and Property Authorised Funding Funds (PAIFs) pay a particular type of dividend often known as Property Revenue Distribution (PIDs).
The UK tax system treats PIDs as property letting earnings. Consequently they’re taxed at larger charges than odd dividend earnings.
Simply to complicate issues additional, REITs and PAIFs might pay a mixture of PIDs and odd dividends.
The fund ought to make it clear how a lot you obtain of every kind in your dividend voucher.
As with odd dividends, the tax you’ll pay in your PID earnings will depend on:
- Whether or not you obtain the earnings inside a tax shelter (an ISA or a pension)
- Your private earnings tax charge
As all the time shopping for your property investments inside a tax shelter is the best way to go when you’ve got the spare capability for them.
Be aware: Specialist property index trackers (such because the iShares ETF with the ticker IUKP) funds pay odd dividends not PIDs. That’s as a result of they aren’t UK REITs or PAIFs. They might obtain PIDs from UK REITs that they maintain. However by the point the earnings reaches you as a shareholder within the tracker fund it’s a dividend.
Property Revenue Distributions inside a tax shelter
You don’t pay tax on PIDs held inside tax-sheltered accounts.
Nevertheless, in contrast to odd dividends which are paid gross (that’s with no tax deducted), PIDs are typically paid with 20% tax deducted.
Which means the tax already paid must be clawed again.
Your tax-sheltered account must be issued with a 20% tax credit score related along with your PID earnings.
The dealer that runs your ISA or pension ought to use this to reclaim the tax paid from the taxman.
Discover we stated “ought to”.
Twice!
Preserve your eyes peeled to make sure your PID tax is being reclaimed by your dealer. Typically they neglect.
It may possibly take 4 to 6 weeks after the PID is credited to your account for the reclaimed tax to show up as money.
PIDs outdoors of tax shelters
Are you holding your PAIF and receiving your PIDs outdoors of a shelter?
Sounds painful!
And tax-wise it’s, in comparison with should you’d held it inside an ISA or a SIPP.
You’ll must work out what tax is due in your PIDs and different share earnings while you submit your annual self-assessment tax return. (Avoiding all of the resultant tedious paperwork is cause sufficient to justify an ISA.)
The very first thing to know is that PIDs don’t profit from the tax-free dividend allowance.
Most UK taxpayers should pay the usual charges of earnings tax on PIDs:
- 20% – primary charge
- 40% – larger charge
- 45% – further charge
(Charges can range should you’re a Scottish or Welsh taxpayer.)
You need to obtain your PIDs with a 20% withholding tax already deducted.
- Fundamental-rate taxpayers don’t have anything additional to pay
- UK higher-rate payers owe HMRC one other 20% of the gross quantity
- Further charge payers should cough up 25%
If the 20% deduction means you’ve overpaid tax then you possibly can declare it again from HMRC.
This will apply as an illustration in case your PID earnings falls inside your private allowance, or inside a sub-20% earnings tax band.
Don’t document your PIDs in your tax return as odd dividends. HMRC’s tax return notes supply additional steering.
By the way, non-resident shareholders could possibly declare again a number of the withholding tax that’s pre-paid on UK REITs.
That’s attainable should you reside in a rustic that lets you declare again a portion of withholding tax on UK securities. See this explainer from HMRC.
