Handbook of Investment Administration

Chapter 7

TAX

7.1 INTRODUCTION

While tax is a specialist subject in its own right, individuals who are involved in investment administration need to have an understanding of the various taxes and how they affect the investment portfolios of their clients.

Investment firms will process dividend and interest payments to clients' investment accounts and need to know that the way they are dealing with these payments is correct. Firms will need to have an understanding of how capital gains tax is calculated as it will affect the entries they pass for trades and corporate actions, and they may need to have a detailed understanding if they take the impact of CGT into account when managing a client's portfolio.

Tax will also be involved in dealing with income arising from overseas investments and an understanding of how withholding tax operates is needed so that the client receives the correct amount of income and the firm issues an accurate tax certificate.

A detailed understanding of tax is beyond the scope of this book, so this chapter will focus on understanding the principles that are needed to undertake investment administration.

7.2 INCOME TAX

Before looking at how dividends and interest payments are treated for income tax purposes, we need to first consider some general principles surrounding how income tax is charged.

Liability to tax

Individuals are liable to tax on the income they receive in each tax year. The tax year runs from 6 April in one year to 5 April in the following ...