Dividend is the part of corporate profits which a company decides to distribute to its shareholders. When a company goes ex-dividend, this will impact your position.
If you hold a long position and the company declares a dividend you are entitled to receive the full dividend net of any applicable tax. However our competitors often do not pass on the full dividend to clients. As part of our commitment to complete transparency and empowering clients, we pass on 100% of the dividend net of any applicable tax. We have also made a lot of efforts to get favourable tax treatment on our dividends and pass on all of these benefits to you.
This is how it works. Announced Dividend = dividend declared by a company. Depending on where the company is based there may be some witholding taxes that are deductible at source. Net Dividend = Announced Dividend – any applicable taxes.
For long positions in UK companies Announced Dividend = Net Dividend, so you will get 100% of the dividend declared by a UK company and it will be tax free!††
For non UK companies the dividend maybe subject to withholding tax. So for example, if you have invested in US shares, Net Dividend = 85% of Announced Dividend. We pass on 100% of the Net Dividend, so you will receive 85% of the full dividend announced by the company.
If you are short, 100% of the Announced Dividend will be charged to you for all cases, irrespective of the country of origin and applicable tax rates. The holder needs to pay out the dividend. This transaction accounts for the fact, that you actually sold the share. You could also look at that, in broad terms, that you are the counterparty of the long.
Please bear in mind the fact that the company’s share price often falls immediately after the profit distribution has taken place. The company trades without the dividend, hence the name ex-dividend, as opposed to cum dividend, meaning the profits are still with the company.
†† Tax law can be changed or may differ if you pay tax in a jurisdiction other than the UK