Are mutual fund dividends taxable?

Taxation of investment funds 2021

Once a decision is made to subscribe shares in an investment fund, as is to be expected, it will produce a series of returns. These yields can be positive or negative, but they cause an alteration in the assets of a person or a company. What will happen later with the Treasury?

Naturally, the fund’s assets are invested in a series of financial assets, which make up the fund’s portfolio. Depending on the market price of these assets and the returns they generate for the portfolio, the valuation of the fund’s assets varies and is updated daily.

Consequently, the return obtained by a fund is determined by how much the units have actually appreciated. In other words, the difference between the net asset value at purchase (subscription) and the net asset value at sale (redemption).

However, as the investor has not actually sold his units, this cannot be considered a taxable event for tax purposes. The investor has a participation in a fund that has been revalued and until the sale is not effective, he will not even have to advance a single euro to the Treasury.

How are mutual fund redemptions taxed?

Investment funds are exempt from taxation until they are reimbursed. When you decide to withdraw the invested money, the capital gain or loss obtained must be included in the savings taxable base in the IRPF.

How are dividends taxed in 2021?

Withholding taxes on dividend distributions are mandatory, although in 2021 the dividend double taxation exemption is only applicable to 95% of the gross dividend received. … For example, if the agreement was concluded on June 30, dividends are payable as of July 1.

What taxes do dividends pay?

From 0 to 6.000€: 19% From 6.000€ to 50.000€: 21% From 50.000€ to 200.000€: 23% Over 200.000€: 26%.

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Investment tax

Dividends are the way companies pay their shareholders, but they are subject to different taxation than profits from shares. Although both are taxed at the same rates within savings income, the former are considered income from movable capital and the latter, capital gains and losses. And this has practical consequences on the taxes you pay in each case, as you will see below.

Moreover, depending on how you collect the dividends, you will pay taxes in one way or another.  For some time now, you have been able to collect dividends in cash, in shares or as subscription rights.

Just as the way to collect dividends has changed, the taxation of dividends has also changed over time and it is important to be clear about how it works to avoid surprises when filing your income tax return.

Until the 2015 reform, dividends were an investment strategy that allowed saving money on income (the first 1,500 euros were exempt from taxation). After the change, the taxation of the collection of dividends on account does not have great advantages compared to other savings and investment products.

How much is paid to the tax authorities when redeeming a mutual fund?

The taxation of mutual funds on redemption is different. In principle, this capital gain is subject to a 19% withholding tax, deducted at the time of redemption.

What happens if I redeem a mutual fund?

In case of redemption of the fund, you will be subject to a withholding tax of around 20% of the profits obtained from that fund. That is to say, if for example, three years ago you invested 10.000€ in a fund and today it has risen to 13.000€ (a profitability of 30%), if you reimburse it, you will not see in your current account those 13.000€, but less.

How are dividends taxed for personal income tax purposes?

Dividends are generally taxed as income from movable capital within the savings income. This means that the money from stock dividends is added to the money from deposits, current accounts or treasury bills to be taxed later according to the savings brackets.

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Refund of santander investment fund

The taxpayer will sooner or later have to go through the Treasury, but in the meantime he can take advantage of this tax advantage, since it is always positive for the investor to defer the tax burden over time.

You have to think that the money that you stop paying to the Treasury every time you change funds, is money that continues to work for you instead of being in the coffers of the State, so you can take full advantage of what Albert Einstein considered “the most powerful force in the galaxy”: compound interest.

In this case its taxation is similar to that of the transfer of shares, with the exception that the capital gain is subject to a 19% withholding (in the sale of shares no withholding is applied for the capital gains that you could have had).

The law allows you to adjust the transfer value with the expenses that the redemption (sale) of the fund may have caused. In this regard, we remind you that Self Bank does not charge any commission for the transfer or redemption of investment funds.

How much are you withheld for dividends?

Dividends should be understood in terms of withholding or taxation. When a dividend is received, the amount of 19% is withheld in Spain. All the research is established by the Tax Agency and, at the time of the income tax declaration, these benefits are constituted as profitability of movable wealth.

How are investment funds declared?

But if you have sold, then the yield obtained in the operation will be taxed as capital gain or loss. The capital gains or losses from the sale of Investment Funds are put in boxes 310 to 315 of the 2020 Income Tax Return, to be filled in 2021.

How is the partial redemption of a mutual fund taxed?

The redemptions of the funds are taxed as part of the capital gains and losses in the IRPF. This means that when you sell your shares you will gain or lose money on the difference between the sale price and the purchase price.

Taxation of mutual funds 2021

The compensation of losses is simple. Following the previous example where there were capital gains of 7.990€ we have another operation in which we lose 4.000€, the profit to declare is reduced to 3.990€. In case the return on the shares is negative, you will be able to compensate the capital losses with the income from the capital gains section with a limit of 25%. Let’s take an example:

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The sale of shares is subject to a rule known as FIFO (First in, first out), which obliges to sell first the securities that were bought first (when they are the same securities). Let’s explain it with an example:

We buy 100 shares at 10 euros and another 150 shares at 12 euros, and after a few months we sell 200 shares at 14 euros. To calculate the capital gain, we will consider the purchase value of the first 100 shares at 10 euros, to which we will add another 100 shares bought at 12 euros and we will be left with 50 shares at a purchase price of 12 euros. It is not allowed to use the average of the 250 shares (11.2 euros) to calculate the profitability for tax purposes.