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Tax on dividends from Irish ETFs?

Tax | Income Tax Helpful? 6

Asked by sealover, submitted 13 November 2014.

Open Quote I have some Irish domiciled ETFs held in a non-ISA account. I listed the dividend income I received on my Tax Return, under foreign income. There are no Tax credits to offset against these dividends.

On my Tax Calculation, HMRC have deducted 20% tax on this income. I wonder if this is correct? The quoted yield is in the 3% region for the ETFs, a similar yield as Index Tracker Funds and Tracker Investment Trusts. Would the later be subject to a further 20% deduction on their dividends?

Please could you advise whether, for non-ISA holdings, I would be better off holding Tracker Funds and Tracker Investment Trusts rather than ETFs following the same index?
End Quote

Answered by Justin on 15 November 2014

I think there may have been a mistake here.

ETFs domiciled in Ireland are treated as being offshore funds. Up until 22 April 2009 UK residents receiving dividends from offshore funds were not entitled to a dividend tax credit, but from that date they have been allowed.

So in your case you should treat the dividends as having a tax credit and provided the dividends fall within your basic rate tax band there should be no further income tax to pay. If a higher rate taxpayer then a further 25% income tax will be owed.

I would contact HMRC and point out there appears to have been a mistake.

When holding offshore funds it’s also important to check whether they have ‘reporting’ status, as this affects how gains are taxed. Gains from funds with reporting status are taxed under the capital gains tax regime, just like UK investments. Gains from funds without reporting status are taxed as income, generally far less attractive.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .


Comment by sealover at 11:26am on 25 Nov 2014:

I have contacted HMRC who confirm what you say. They have now refunded the income tax incorrectly deducted.
Many thanks for your advice.


Comment by ivanopinion at 12:02pm on 03 Jul 2015:

Note that you also have to declare Excess Reportable Income for an offshore fund (even with reporting status).
http://monevator.com/excess-reportable-income/