Dividend of short selling

Hi team, When we hold short position of stocks, we have to pay dividend to the lender of the stock position on dividend payment date. Could you advise how the payment is treated? Thank you.

ChatGPT claims that short dividends are treated as income and are subject to income tax at your marginal rate. I would like to confirm whether it is true. Could you advise? Thanks.

Hi,

As you correctly say, investors who borrow stocks for short selling have to pay a dividend to the lender on the dividend payment date.

However,  we are not sure what you mean by 'how is the payment treated'? Please can you clarify. 

Thank you.

Can the payment be used to deduct dividend tax, or income tax?

Hi,

When someone has borrowed a stock for short selling and a dividend is paid during the period, the holder of the stock is responsible for paying the lender an amount equal to the dividend amount. This payment is a payment in lieu of the dividend and would be declared by the lender as ‘Other Income’ on the SA return and so taxed at the lenders highest rate of tax.

Thank you.

 

Hi, Thanks for the update. How about the borrower? How does the borrower declare the payment? Thanks.

Hi,

As it is classed as other income, any tax that had arleady been deducted would come under income tax.

Thank you.

Hi SY C,

This would be declared as other income on TR3 of the Self Assessment Tax return by the borrower. 

Thank you. 




 

Hi HMRC Admin, Where should I declare the payment in lieu of dividend received as lender, if the shares are foreign shares. I can't find the right box in the foreign section

Hi,

This would be classed as other income rather than dividends.

Thank you.