UK REITs and Property Authorised Investment Funds (PAIFs) pay a special kind of dividend known as Property Income Distribution (PIDs).

The UK tax system treats PIDs as property letting income. Consequently they are taxed at higher rates than ordinary dividend income.

Just to complicate matters further, REITs and PAIFs may pay a combination of PIDs and ordinary dividends.

The fund should make it clear how much you receive of each type on your dividend voucher.

As with ordinary dividends, the tax you’ll pay on your PID income depends on:

• Whether you receive the income within a tax shelter (an ISA or a pension)
• Your personal income tax rate

As always buying your property investments within a tax shelter is the way to go if you have the spare capacity for them.

Note: Specialist property index trackers (such as the iShares ETF with the ticker IUKP) funds pay ordinary dividends not PIDs. That’s because they are not UK REITs or PAIFs. They may receive PIDs from UK REITs that they hold. But by the time the income reaches you as a shareholder in the tracker fund it’s a dividend.

Property Income Distributions within a tax shelter

You do not pay tax on PIDs held within tax-sheltered accounts.

However, unlike ordinary dividends that are paid gross (that is with no tax deducted), PIDs are generally paid with 20% tax deducted.

This means that the tax already paid needs to be clawed back.

Your tax-sheltered account should be issued with a 20% tax credit associated with your PID income.

The broker that runs your ISA or pension should use this to reclaim the tax paid from the taxman.

Notice we said “should”.

Twice!

Keep your eyes peeled to ensure your PID tax is being reclaimed by your broker. Sometimes they forget.

It can take four to six weeks after the PID is credited to your account for the reclaimed tax to turn up as cash.

PIDs outside of tax shelters

Are you holding your PAIF and receiving your PIDs outside of a shelter?

Sounds painful!

And tax-wise it is, compared to if you’d held it within an ISA or a SIPP.

You’ll need to work out what tax is due on your PIDs and other share income when you submit your annual self-assessment tax return. (Avoiding all the resultant tedious paperwork is reason enough to justify an ISA.)

The first thing to know is that PIDs do not benefit from the tax-free dividend allowance.

Most UK taxpayers must pay the standard rates of income tax on PIDs:

• 20% – basic rate (22% from 6 April 2027)
• 40% – higher rate (42% from 6 April 2027)
• 45% – additional rate (47% from 6 April 2027)

(Rates can vary if you’re a Scottish or Welsh taxpayer.)

You should receive your PIDs with a 20% withholding tax already deducted.

• Basic-rate taxpayers have nothing further to pay
• UK higher-rate payers owe HMRC another 20% of the gross amount
• Additional rate payers must cough up 25%

If the 20% deduction means you’ve overpaid tax then you can claim it back from HMRC.

This may apply for instance if your PID income falls within your personal allowance, or within a sub-20% income tax band.

Do not record your PIDs on your tax return as ordinary dividends. HMRC’s tax return notes offer further guidance.

Incidentally, non-resident shareholders may be able to claim back some of the withholding tax that’s pre-paid on UK REITs.

That’s possible if you live in a country that enables you to claim back a portion of withholding tax on UK securities. See this explainer from HMRC.

You’ve finally had it. Your existing stocks and shares ISA provider has dropped a fee bomb and you’re outta there! But perhaps you haven’t experienced the stocks and shares ISA transfer process before? Life is busy after all. And those filthy bloodsuckers probably won’t let you go easily.

So – in the age of enshittification –  just how hard is it to transfer your stocks and shares ISA?

Here’s our quick guide to dumping your ISA provider.

Dear ISA provider… it’s not me, it’s you

You normally have three options for extracting your ISA from the clammy hands of the unworthy:

1. Cash transfer

Your current platform sells your assets and transfers the cash directly to your new ISA provider. You choose new investments from scratch, making this option good for a brand new start, if things have got a little, ah, messy.

• Your ISA’s anti-tax armour remains unbreached.

• It should take two to three weeks to transfer, but it can take longer.

• You are out of the markets as soon as your assets are sold and until you repurchase a fresh batch. That could go for or against you. No one knows.

2. Stock transfer

The existing contents of your stocks and shares ISA are transferred intact to your new provider. In other words, all your funds and shares are handed over without being sold or repurchased. This type of ISA transfer is often referred to as an in specie transfer, or as re-registration.

• Again, your ISA’s tax status is not compromised.

• It should take about four to eight weeks but you know how it goes.

• You remain in Mr Market at all times and are subject to his whims.

• You won’t be able to trade until the transfer is complete.

3. DIY sell-off

Of course, you can always flog your assets yourself and use the proceeds to open up a new account with another ISA provider.

• Your ISA’s tax powers are very much kyboshed in this scenario. ¹

• Transfer out fees are avoided, though perhaps not account closure charges. Also note some platforms will pay your transfer fees to secure your business.

• You’ll pay dealing fees to sell and buy anew.

• You’ll be out of the market for a few days.

Stock transfer: The nitty-gritty

Personally, I would use a stock transfer all day long. The annual advance of a market can occur in just a few days and I’d hate myself if I missed out.

However, there are a couple of potential snag-ettes to watch out for with the ol’ in specie manoeuvre:

• Contact your new provider and old provider to make sure they both play ball when it comes to in specie transfers.

• Check that assets in your old ISA are available in your new one. If not, then talk to your new provider. Otherwise, incompatible assets are likely to be sold.

• Different provider’s forms use different terminology to describe an in specie transfer. Check if you’re not sure which box to tick, and, whatever you do, avoid the box marked ‘liquidate’.

• Some providers impose a transfer out charge per fund or line of stock – just one last pound of flesh before you leave. Some new providers will pay these fees for you. (Occasionally, they might be waived. It never hurts to ask!)

To do list

If your old provider’s ‘just one last chance’ pleas have fallen on deaf ears and you’ve identified your new dream partner then completing your stocks and shares ISA transfer isn’t much more daunting than filling in a form:

• Complete the ISA transfer forms provided by your new platform.

• Ask your new provider if it will cover your transfer out fees.

• Tell your old provider to close your account once the transfer is complete. 

• Cancel your old direct debit and relax.

That’s about all you need to know. I’ve got a couple of bullet points left in the tips-gun though so let’s fire ’em off:

• Your new platform should tell you when your account has transferred.

• You can transfer your current year’s ISA, although new money can only be added when the transfer is complete.

• Transfers do not count towards your current year’s ISA allowance.

• You can even partially transfer an ISA. List the assets you’d like to transfer, though note that your old provider can refuse a partial transfer. 

• Document all your holdings (names, ISIN codes, quantities held) before you transfer. Take a screenshot of your holdings sitting in your old broker. This will come in very handy should any holdings go astray during the transfer.

That’s it. We’re done. Happy transferring.

Take it steady,

The Accumulator

1. In other more boring words, the money you had tucked away in the ISA loses its tax protection.[↩]