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Jerry@Ajijic

Sep 3, 2004, 7:14 AM

Post #1 of 11 (695 views)

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Lloyd question

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We have a small account at Lloyds and enjoy it. They are a very good company but I do have a question. Every month they "withhold tax". Could some one tell me what kind of a tax this is, what basis it is calculated on and does it only apply to brokerage houses. Thanks

Bubba

Sep 5, 2004, 9:30 AM

Post #2 of 11 (615 views)

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Re: [Jerry@Ajijic] Lloyd question

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Well, Jerry, I asked that question of the management of Lloyd in Ajijic some time ago. She informed me that that is a Federal tax withheld by Lloyd and other investment grade Mexican financial institutions and submitted in aggregate by the investment house to the Mexican tax authorities. It is an income tax levied against your interest earnings. Importantly, the interest income Lloyd reports to you is net, after tax income so look to that as your yield no matter how much tax has been withheld. You do not need to file any income tax return unless you meet certain very high and complex criteria according to her.

By the way, have you noticed that your net yield at Lloyd never seems to keep up with inflation on an annual basis according to their own web site. However, if one does not regard exchange rate fluctuations or instuitutional risk, one is getting a much higher return here than for a similar money market fund in the states.

Jerry@Ajijic

Sep 5, 2004, 9:45 AM

Post #3 of 11 (608 views)

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Re: [Bubba] Lloyd question

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Bubba, that sounds like a good explanation but I do not understand. Lloyd does not pay interest. As for income, you do not get any "income" from a mutual fund, which I think Lloyd is, until you sell. If it is a tax on income based on what you MIGHT get in price appreciation (not interest) do they also give you a refund of the tax when your portfolio value goes down. In my case it doesn't amount to enough to make it worth while going to ask but I am just curious. I guess I now that you have told me that it is only on investment grade Mexican financial institutions what other intitutions are there?

Rolly

Sep 5, 2004, 9:49 AM

Post #4 of 11 (612 views)

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Re: [Bubba] Lloyd question

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The same applies to your bank checking account if you keep enough money on deposit to rise to the interest bearing level.

Rolly Pirate

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Bubba

Sep 5, 2004, 10:03 AM

Post #5 of 11 (604 views)

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Re: [Jerry@Ajijic] Lloyd question

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Good points Jerry. I'm going to look into this.

(This post was edited by Bubba on Sep 5, 2004, 10:36 AM)

Jerry@Ajijic

Sep 5, 2004, 12:13 PM

Post #6 of 11 (574 views)

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Re: [Rolly] Lloyd question

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Rolly, the key word in your message is Interest. Banks pay interest. Brokerage houses do not. Usually the only "reportable" income you get on a brokerage account is when you sell. This really is not big deal to me as we do not have enough money in Lloyd to matter one way or another. It is just interesting.

david2572

Sep 7, 2004, 12:17 PM

Post #7 of 11 (492 views)

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Re: [Jerry@Ajijic] Lloyd question

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Jerry: I have money market accounts with both Vanguard and Schwab. You are correct that they don't pay interest, but they do pay dividends. These dividends are reported to the IRS and a 1099 is issued to the account holder who then pays the appropriate taxes to the Feds. In U.S. brokerage houses, the money market share price is kept at $1.00 per share (sometimes artificially) so you almost never would have a capital gain or loss on the account.

DR

Jerry@Ajijic

Sep 7, 2004, 1:06 PM

Post #8 of 11 (479 views)

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Re: [david2572] Lloyd question

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David, I am familiar with brokerage houses and banks in the states. They do (now banks as well as brokerage houses) buy and sell stocks for customers. They also do send a 1099 form at the end of the year to infernal revenue showing what you have made if anything and upon which you have to pay taxes. You may or may not have "taxable income". If the brokerage house rceived dividends for you then that is income which is increased or decreased by any sales profit or loss which you had during the year.The key here is "at the end of the year". Lloyd is deducting "tax" every month.

david2572

Sep 7, 2004, 3:16 PM

Post #9 of 11 (454 views)

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Re: [Jerry@Ajijic] Lloyd question

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Jerry:

I think I know what you're trying to say, but in a money market mutual fund, you would always have to pay tax on the dividends unless the account is held in a qualified plan, ie. IRA, Roth IRA, 401K etc... You would never have losses or gains in the account since they peg the share price at $1.00. It seems to me that Lloyd is withholding the tax on a monthly basis, which would make sense since a foreigner living in Mexico is probably not going to file an income tax return in Mexico. Just a guess, however.

DR

Jerry@Ajijic

Sep 7, 2004, 6:28 PM

Post #10 of 11 (419 views)

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Re: [david2572] Lloyd question

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David, I guess you are right but Lloyd doesn't "pay" anything as far as I know. You do not get anything unless you sell some of your holdings. Maybe they are buying additional shares with your dividends.

Bubba

Sep 8, 2004, 7:58 AM

Post #11 of 11 (380 views)

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Re: [Jerry@Ajijic] Lloyd question

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That does make sense, David. If you were earning interest at a bank and simply reinvested the interest at all times, you would still pay taxes on your interest income. The Mexican government clearly realized that they could either force Lloyd to withhold and remit the presumed tax liability or try to collect from expats. They took the easy way.

(This post was edited by Bubba on Sep 8, 2004, 8:37 AM)