London-based tax reclaim specialists GOAL have risked the ire of custodians again by claiming, on the basis of a survey, that UK private investors are missing out on almost a quarter of a billion pounds (£251 million) in unreclaimed withholding tax on dividends from their foreign securities. This is equivalent to around 13-14% of overall dividend returns in the UK market. GOAL says 90% of reclaimable tax on holdings of overseas shares lies unreclaimed.
As GOAL points out, dividends on foreign shares are typically taxed twice – once in the country where the asset is registered and once in the country of the owner of the asset – but Double Taxation Agreements between governments allow some of that tax to be reclaimed. They even give a period, often years, over which that tax can be successfully reclaimed. If, however, an investor fails to make a reclaim or fill in the proper form correctly within the time frame, then the outcome is simple: the foreign government keeps the cash.
In the past, says GOAL, the subject of withholding tax reclamation has often been hidden because private investors and their financial advisors (such as IFAs, stockbrokers, accountants, and private banks) have had no reliable data sources indicating the true scale of losses being incurred.
GOAL says the process of making a reclaim is laborious, and requires an in-depth knowledge of different tax regimes and reclaim formats across many different geographies and legislatures. “Financial advisors would find it impossible to deliver a return on investment for assuming this plethora of knowledge and detail,” says the firm in a press release. “However, for institutional investors, the sums do add up, because the amounts available for reclaim are far higher.” GOAL’s research in 2003 showed that 73% of reclaimable tax was being successfully retrieved by custodian banks on behalf of their clients.
The situation could be about to change, though, says GOAL. The processes and systems developed for the fund manager/custodian bank marketplace are now being scaled down to come within the reach of private individuals and their financial advisors. The knowledge-base used to process claims, automatically generate the right forms, and ensure that they are filled in correctly, are just the same for private individuals as for investment funds and their underlying investor clients. It is likely that the growing importance of the dividend as an element of investor returns will lead to an appreciable rise in the awareness of the impact of effective tax reclamation on foreign securities earnings.
“Our research has brought the surprisingly undocumented topic of tax reclamation to light,” says Stephen Everard, Managing Director, GOAL. “It is shocking that 90% of reclaimable tax is being lost unnecessarily by private investors. It represents a huge opportunity for financial advisors, stockbrokers and accountants to manage the reclaim process for their clients, in order to provide an additional client service, and to improve the financial return their clients are obtaining on their equity portfolios. New advancements in technology and processes more suited to private investors are being developed, however, and many would be well advised to take advantage of these to recover their over withheld tax – which, after all, is rightfully theirs.”
The key findings of the GOAL survey are:
– UK private investors are missing out on almost a quarter of a billion pounds (£251m) because they do not reclaim tax on dividends from their foreign securities. This represents a loss of around 13-14% of overall dividend returns.
– Of the £278m reclaimable tax on holdings of overseas shares, 90% lies unreclaimed because of complex red-tape
– This unreclaimed tax rightfully belongs to the investor, and not to the tax regime benefiting from these very low reclamation levels
– This contrasts with the shareholdings of institutional investors, where their custodian banks manage to reclaim over 70% of tax on foreign securities
– With the continued popularity of dividend payouts, losses through non-reclamation of tax on foreign securities is expected to escalate
– Accountants, stockbrokers, banks and other asset managers are missing out on a valuable element of customer service that would allow clients to achieve better return on investment
Established in 1989, GOAL is a privately owned tax reclaim software and outsourcing company employed by banks.