Deductible expenses on foreign dividend and interest

If I have an investment portfolio which consists of bonds and equity shares held overseas, there is a monthly custodian fee paid for the investment advisers to take care of my investment account. Can I claim the custodian fee as a deductible expenses again my bonds interest and dividends income. If yes, how can I split the custodian fee between the interests and dividends as there is no split of the custodian fee in the tax reports. Can I use the my investment portfolio cost split between bonds and equity to split it?

Dear HRMC Admin, Any response for my questions?

Hi winglam,
The monthly custodian fees paid are not an allowable deduction against the interest and dividend payments.
Allowable reliefs against foreign income charged on the arising basis are limited in scope.
A deduction is allowed for expenses incurred outside the UK that are attributable to the collection or payment of the income.
The deduction is only available where the relevant foreign income is charged to tax on the arising basis and not where the charge is on the remittance basis.
A deduction is available in calculating relevant foreign income charged to tax for a tax year for a relevant annual payment other than interest that meets conditions A, B1 or B2, and C.  
Condition A - Payment is payable out of the relevant foreign income.
Condition B1 - Had the payment arisen in the UK, it would have been chargeable to income tax under: Charge to tax on Royalties and other income from intellectual property, Certain telecommunications rights - Non trading income. regulation 15 of the unauthorised Unit Trust Tax Regulations 2013.  
Condition B2 - Had the payment arisen in the UK, it would have been 1 - required to be brought into account as a non-trading credit. 2 - chargeable to corporation tax . Condition C -  The payment is made to a non UK resident.
Thank you. 
 

Hi HRMC 25, Your first sentence said that the monthly custodian fees paid are not deductible but the fourth sentence said that the deduction is only available where the relevant foreign income is charged to tax on the arising basis and not where the charge is on the remittance basis. I am confused. Yes, the relevant foreign income is charged to tax on the arising basis, does it mean the montly custodian fees is deductible? Please clarify.

Hi,

The fees are not an allowable expense. The comment for allowable deductions is in relation to other types of foreign income that you may receive.

Thank you.

Hi, I have a further question, for bonds purchase, there is always a premium paid, e.g the nominal value of a bond, say GBP40,000, when I purchase it, I may it need to pay GBP41,000. When the bonds matured, I can only get back the nominal value of GBP40,000, should I net off the GBP1,000 from coupon interest earned. If I use the cash basis to book the interest, the premium paid should be netoff the coupon interest earned for the tax year. The premium should not be amortized over the life of the bonds from purchase to the maturity, right?

Hi winglam,
Where a security is purchased with accrued interest, the difference between the clean price and the amount paid can be deducted from the first interest payment received under the Accrued Income Scheme:
Accrued Income Scheme (Self Assessment helpsheet HS343)
Thank you. 

Hi Admin, I understand the accrued interest element should netoff the interest received on the first interest received. My question is about the amount that is paid in excess of the accrued interest, ie. the premium paid. In the example of HS343 1.1, the nominal value is GBP10.000 , if the taxpayer has paid GBP11,000 to purchase it, GBP334 is the accrued interest but GBP1,000 minus GBP334 which is GBP666 is the premium paid. If the bond is purchased in 2019 and it matured in 2023, can this GBP666 (premium paid) be netoff the interest received in 2023?

Any response for my question? I have read through HS343, my understanding is that the premium paid should be netoff against the interest income earned in the tax year when the bonds are matured.

Hi

Please have a look at  SAIM4070 - Accrued Income Scheme: ‘interest’ and related terms, which states that
"if a security is issued (or purchased) at a discount to its nominal value, or redeemed at a premium, the discount or premium will not enter into AIS calculations"
and the general rule prevents tax charges on accrued interest being deferred for more than 12 months.

Thank you
 

HMRC Admin 25 has answered that the accrued interest should be deducted from the first interest payment so it won't defer for more than 12 months for accrued interest. If the tax payer is willing to purchase a bonds at a premium (paid in excess of the face value of the bonds), the tax payer expects that the coupon interest can compensate the excess amount paid. For accounting treatment, the premium paid on bonds should be amortized over the remaining life of the bonds. For tax purpose, if it doesn't allow to amortize for more than 12 months, then it can be net-off against the interest earned in the tax year when the bonds matured, isn't it? I really don't understand what is the meaning that the premium will not enter into AIS calcuations? The tax payer has made a loss when the bonds matured if the bonds was purchased at a premium. I have read SAIM4070, it sounds it has not addressed my question. Please kindly further clarify.

Hi,

Please refer to section 8 of the HS343.

Accrued Income Scheme

Thank you.