I am collating my dividends for the 2025 tax year. I use Interactive Brokers and I participate in their 'Stock Yield Enhancement Programme', basically my shares get loaned out to short sellers and I earn interest on the loan (long term investor so not too bothered about facilitating short selling!). As borrowers of the stock are liable to compensate the owner of the stock when there is a distribution event, I receive a "Payment-in-lieu" (PIL) from the broker, when there is a dividend. Strictly, IB say this is "cash credit", rather than an ordinary dividend. I noticed that when I receive these PILs, I pay neither withholding tax nor do I pay Irish encashment tax.
This seems;
1) Great! As I don't pay foreign withholding tax at all and therefore do not lose the non-recoverable part of the tax (I don't bother claiming these back in any case, so even better!),
and
2) Not so great! As now, the portion retained by the foreign tax agency is smaller, so the hassle of jumping through the hoops to recover a few quid is probably not worth it (if I did decide to chase it).
I don't have any control over which shares are loaned out or when. So there is no way to 'strategically' offer specific shares around ex-div dates. I am fairly sure that PIL are still taxed as income/dividends, so no tax advantage to me either (but I would have to enter the PIL as foreign income on Form 11/12 as, in the case of a US dividend/PIL for example, Revenue automatically apply a credit of 15% which would not have been paid).
Am I missing anything on this? Do other brokers do this?
This seems;
1) Great! As I don't pay foreign withholding tax at all and therefore do not lose the non-recoverable part of the tax (I don't bother claiming these back in any case, so even better!),
and
2) Not so great! As now, the portion retained by the foreign tax agency is smaller, so the hassle of jumping through the hoops to recover a few quid is probably not worth it (if I did decide to chase it).
I don't have any control over which shares are loaned out or when. So there is no way to 'strategically' offer specific shares around ex-div dates. I am fairly sure that PIL are still taxed as income/dividends, so no tax advantage to me either (but I would have to enter the PIL as foreign income on Form 11/12 as, in the case of a US dividend/PIL for example, Revenue automatically apply a credit of 15% which would not have been paid).
Am I missing anything on this? Do other brokers do this?