Is it worthwhile investing for dividend income

makfli

Just looking for a view on dividend investing . I have always favoured dividend investment style ie blue chip, high cap stocks paying 3%+ dividends . Usually check to see they are well covered and the company has a history of increasing dividends . However I am working on my 2014 income tax at the moment and the range of taxes on dividend income is bewildering. On Irish stocks the Withholding tax and Encashment tax deducted at source is credited back against income tax which is good. However UK taxes and Overseas taxes are not and it seems that the income from these sources are taxed again as income in Ireland.
I just creep in to the 41% tax band and then there is USC and PRSI…
Appreciate views.

alb

I thought there was no dividend withholding tax in the UK? I also heard something about being able to claim back tax withheld on dividends from countries which Ireland has a tax treaty with. I think it's typically 15% they hold and I remember seeing something on the form about this.

Sorry I'm not much help, hopefully someone else here knows the actual details and clarify all of this

Sonnenblumen

makfli wrote: »

Just looking for a view on dividend investing . I have always favoured dividend investment style ie blue chip, high cap stocks paying 3%+ dividends . Usually check to see they are well covered and the company has a history of increasing dividends . However I am working on my 2014 income tax at the moment and the range of taxes on dividend income is bewildering. On Irish stocks the Withholding tax and Encashment tax deducted at source is credited back against income tax which is good. However UK taxes and Overseas taxes are not and it seems that the income from these sources are taxed again as income in Ireland.
I just creep in to the 41% tax band and then there is USC and PRSI…
Appreciate views.

I don't understand your question? Irish residents must pay tax on all divi income (irrespective of source) at their marginal tax rate (+ USC etc) Usually any withholding taxes paid can be offset against Irish tax liabilities. That's the system, what's your Q, is it worth paying tax?

robp

Sonnenblumen wrote: »

I don't understand your question? Irish residents must pay tax on all divi income (irrespective of source)

Unless it is from a unit-linked fund or an accumulating ETF but they present their own tax problems.

makfli

In response to Sonnenblumen. No, naturally it is expected that you pay tax on dividend income. To take the example of UK divs, there is tax withheld on these in the UK seems to be 10% The net dividend then is taxed at my marginal rate, USC and PRSI is also deducted . Thus it appears that I am paying around 60% on the dividend ( Im not sure if I can recover the UK tax). So really the question is : As an investment strategy , if the above is true, is it worthwhile, given the currency risk, and the usually slow capital growth on high cap stocks.

Sonnenblumen

makfli wrote: »

In response to Sonnenblumen. No, naturally it is expected that you pay tax on dividend income. To take the example of UK divs, there is tax withheld on these in the UK seems to be 10% The net dividend then is taxed at my marginal rate, USC and PRSI is also deducted . Thus it appears that I am paying around 60% on the dividend ( Im not sure if I can recover the UK tax). So really the question is : As an investment strategy , if the above is true, is it worthwhile, given the currency risk, and the usually slow capital growth on high cap stocks.

The total tax take from divis is approx. 50%. Typically divis (yields would be at least 3.5% and sometimes up to 6% and more, which even after deductions is much better than deposit rates. You also will see some modest capital appreciation, although the pendulum does often swing widely.

I wouldn't have any fears of currency fluctuations, generally £ is stable/strong v €.

Another key factor (for me anyways) is many FTSE 100s stocks have a DRIP or SCRIP, so this can be a very attractive and low cost way of buying more shares. Re-investing divis is a very good path to fund growth.

makfli

Thanks for that. Does anyone know if it is possible to reclaim the tax paid in the UK on stg divs?

Cute Hoor

makfli wrote: »

Thanks for that. Does anyone know if it is possible to reclaim the tax paid in the UK on stg divs?

To the best of my knowledge, Revenue here make allowance for the tax you have already paid on UK dividends when you do your tax return, so that irrespective of where you receive your dividend your tax liability is the same.

Determining how Revenue do this is beyond me (I have Irish, UK, US and European dividends to complicate matters), I have tried to figure it out a few times but eventually gave up with headache, have asked Revenue a few times about how they do it but 'it's the computer that does it' was the closest I got to having it explained. I just accept that they are doing it right.

So, unless you have no tax liability on dividends received here, you shouldn't have to worry about reclaiming tax paid on UK dividends

irishnh

Talking of dividends, does anyone know of an online stock buying website in Ireland, that offer DRIP? So if you buy shares with dividends, once the dividends come through the site will automatically invest them for you? IG doesn't do it unfortunately. Thanks!

robp

irishnh wrote: »

Talking of dividends, does anyone know of an online stock buying website in Ireland, that offer DRIP? So if you buy shares with dividends, once the dividends come through the site will automatically invest them for you? IG doesn't do it unfortunately. Thanks!

TD Direct but only for UK stocks.

irishnh

Thanks Rob - hoping to find one for US shares but can't seem to track one down so far.

Also wondering - if my plan would be to investing in USA shares with dividends, and reinvest the dividends, would I be better to open up a USA based online stockbroking account, (ideally one with DRIP), then my USD dividends earned can stay in USD and get reinvested, as with an irish olien account, maybe they'd get put into EUR when earned, and I'd have to transfer them back to USD to invest the dividends, thus getting hit with FX costs twice.

Elaine

robp

irishnh wrote: »

Thanks Rob - hoping to find one for US shares but can't seem to track one down so far.

Also wondering - if my plan would be to investing in USA shares with dividends, and reinvest the dividends, would I be better to open up a USA based online stockbroking account, (ideally one with DRIP), then my USD dividends earned can stay in USD and get reinvested, as with an irish olien account, maybe they'd get put into EUR when earned, and I'd have to transfer them back to USD to invest the dividends, thus getting hit with FX costs twice.

Elaine

I only have experience with TD and Degiro and neither convert the dividends to a different currency. I think the norm is be able hold many currencies at once.

robp

irishnh wrote: »

Thanks Rob - hoping to find one for US shares but can't seem to track one down so far.

Also wondering - if my plan would be to investing in USA shares with dividends, and reinvest the dividends, would I be better to open up a USA based online stockbroking account, (ideally one with DRIP), then my USD dividends earned can stay in USD and get reinvested, as with an irish olien account, maybe they'd get put into EUR when earned, and I'd have to transfer them back to USD to invest the dividends, thus getting hit with FX costs twice.

Elaine

Actually what describe once happened to me during a merger for some unexplained reason but that should not happen to dividends.