Santander Dividends on Tax Return

Remay Villaester (May)
03.01.21
5 minute read

Santander Bank, formerly known as Sovereign Bank, is a subsidiary of Santander Group, whose headquarter is located in Boston, Massachusetts, United States. They offer straightforward but quite remarkably different modes of operation from most banks in the United Kingdom and the United States. ¹

One of Santander bank's prominent features is the categorized dividends, commonly referred to as Foreign dividends. In this article, we’ll examine peculiarities of Santander dividends, Santander scrip dividend tax treatment, and most importantly, how to enter Santander tax return.

What is Foreign Dividends?

Foreign dividends are dividends received from institutions, brands, establishments, or foreign accounts of non-resident of the UK. According to this definition, Santander dividends are referred to as cash payments issued to a company's shareholders. However, it is important to note that these dividends are paid out of the profits generated by Santander, and as such, they are not expected to exceed the company's available profits.

How to Enter Santander Dividends on Tax Return

Entering Santander's dividends on tax returns may seem challenging, as there have been some changes regarding Santander's tax treatment since 2017.²

In 2017, tax rates were between 0%, 15%, or 20%, depending on the taxpayer’s income. The introduction of the Tax Cuts and Jobs Act in 2018 has brought about a change in the tax treatment policy; these tax rates are no longer associated with income brackets. Today, your tax return for dividends are in the following categories:

  • If your income is less than $40,000 and you are single
  • If your income is less than $80,000 and you either married or filing your tax return with your spouse
  • If your income is less than $53,600 and if you qualify as the head of a household

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What is Scrip Dividend?

Scrip dividend is referred to as a liability dividend, and it is often issued to shareholders of a company in a different form other than cash. Scrip dividend is issued in the form of a certificate rather than cash, and unlike the cash payment dividend, it allows shareholders to get dividends in the form of shares.³

Many companies issue scrip dividends when they do not have enough cash to pay shareholders. Scrip dividends were popular until April 1996 when it was abolished; abolishing the Advance Corporation Tax (TAX) led to the replacement of scrip dividends with Dividend Reinvestment Plans (DRIPS).

Just like other typical foreign banks, Santander Banks also issue scrip dividends to their shareholders.⁴ Due to the abolishment, many companies have come to cut down on issuing Scrip dividends; however, Santander bank remains among the few foreign banks that issue scrip dividends to shareholders.

Santander banks do not have a specific time when they issue dividends, as the distribution of scrip dividends is solely dependent on the amount of profit available in the Bank. Interestingly, a Santander bank investor has a complete right to sell their Santander scrip dividends on the stock market whenever they desire to. However, the value of the scrip dividend must be reported by the investor as the same amount as a cash dividend to fill the tax return.

Santander Scrip Dividend Tax Treatment

Scrip dividend is treated as a normal dividend when an equal amount of shares is purchased. To put this in perspective, Santander scrip dividend tax treatment is referred to as the act of purchasing shares of equal amount to the dividend available. Receiving Santander scrip dividend is associated with an income tax liability, and shareholders tend to receive their shares rather than a cash dividend.

When an investor receives a scrip dividend, the investor must enter the dividend value as “normal” in the ledgers' investment sector before entering the number of shares purchased on the day of the share transaction. However, it is imperative that the total number of shares bought should be equal to the total number of scrip dividend value.

Santander scrip dividend treatment may also apply when the board recognizes any form of a reduction in the dividend payable to shareholders, which may be inconvenient for shareholders. The unpalatable event often leads to the passing of laws and resolutions. Shareholders of ordinary shares of the Santander bank may need to come to a consensus regarding how the shares should be disbursed; However, it is a clear rule that no shareholder of the company will receive any fraction of the new Santander share, nor cash entitlement, as residual cash entitlement has to be brought forward to the next dividend session.

One of the perks of the Santander scrip dividend is that it provides ordinary shareholders the opportunity to increase their shares without paying for any form of stamp duty or dealing costs. While the Santander scrip dividend treatment occurs based on the law and practice of the tax corporation in the United Kingdom, this treatment is unbiased, as it does not consider the citizenship of the shareholder (whether or not they are residents in the UK), nor do they consider their employment offices.

Santander scrip dividend tax treatment is not exhaustive, and shareholders are encouraged to consult professionals' help before taking any action whatsoever. While the Santander scrip dividend UK tax varies from other countries tax, the tax rates on United Kingdom dividend tax were increased a few years ago, and tax credit to £5,000.

Conclusively, shareholders who receive the Santander dividends may need to pay taxes from the dividends, and shareholders who have not completed the Self-assessment Tax Return need to do so.

Sources:

  1. Santander History
  2. The Balance blog post
  3. Accounting Tools blog post
  4. Santander Scrip dividends shareview

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