Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to ErroneousBee,GSVsowhat,Shelford,Hypster,Wasron, for Donating to support the site

Paying tax on Accumulation ETFs

Practical Issues
CleverClogs
Posts: 2
Joined: January 12th, 2021, 3:24 pm

Paying tax on Accumulation ETFs

#376284

Postby CleverClogs » January 12th, 2021, 3:45 pm

I feel like a right fool... so I organised my portfolio so (I thought) my dividend ETFs would use up my £2000 dividend allowance and for other investments (the majority) I chose Acc ETFs. I thought that would make life easier and I'd only ever pay CGT on sales where my net gains exceeded the annual CGT allowance.

How naive I was. Since then I have learned that HMRC taxes dividends received by Acc funds incl. ETFs whether or not they are paid out. The bad news however was a reply to a question asked of Interactive Investor as to whether they state these "notional dividends" in their annual tax report. They said "no, they do not"... it is up to me to research this information myself it seems. The good news however is that notional dividend tax should be deducted from the gain when the ETF (or fund) is sold, so perhaps there is some hidden benefit.

The immediate issue appears to be that notional dividends appear not to be published in any easily accesible place. Unless any of you Lemon Fools have come across a Web site with this information? Ideally one would search using the 4 digit short codes that ii use. I've checked a few fund manage sites and reviewed ETF documentation and if the info is there is is well hidden!

So it seems I can't simply (is it ever simple?) use my ii tax report to input into my tax return, as I invest monthly, it seems I will have to do a whole load of Excel calculations to come up with a dividend for each Acc ETF.

If you have any helpful experience on this subject, please do share it. With thanks

Gengulphus
Lemon Quarter
Posts: 3661
Joined: November 4th, 2016, 1:17 am
Been thanked: 2052 times

Re: Paying tax on Accumulation ETFs

#376324

Postby Gengulphus » January 12th, 2021, 5:39 pm

No personal experience, I'm afraid, but it might help people help you if you said which ETFs you need to know about.

Gengulphus

Lootman
Lemon Half
Posts: 8847
Joined: November 4th, 2016, 3:58 pm
Has thanked: 82 times
Been thanked: 1557 times

Re: Paying tax on Accumulation ETFs

#376346

Postby Lootman » January 12th, 2021, 7:39 pm

Not a direct answer to your question but over the years I have come to adopt the following rules about holding funds (other than investment trusts) in a taxable account:

1) Never hold accumulating units since it complicates the determination and declaration of dividends. It also complicates the determination of the eventual capital gain since your cost basis keeps increasing.

2) For similar reasons do not reinvest your dividends manually, or automatically if available.

3) ETFs also have the problem of excess reportable income, especially accumulating ETFs. These are usually tiny amounts but not universally.

4) Avoid monthly or regular investments in the same fund, again due to complexity.

If I really want to do any of the above, I do it in a tax-sheltered account. If you follow these rules then the consolidated tax certificate should accurately represent your dividend income and you can simply copy it onto your tax return, or hand it to your accountant, as appropriate.

Ordinary shares are much simpler as you only really need to worry about the occasional corporate action.

doug2500
Lemon Slice
Posts: 372
Joined: November 4th, 2016, 11:51 am
Has thanked: 88 times
Been thanked: 135 times

Re: Paying tax on Accumulation ETFs

#376347

Postby doug2500 » January 12th, 2021, 7:40 pm

I doubt you're alone, it took me years to learn that. I often wonder how much tax is missed due to people just not knowing stuff rather than trying to evade. I wonder how many people don't realise that it's their responsibility to do a tax return if needed? Anyway I don't think it's unreasonable to expect any dividends subject to tax to appear on a CTV.

I ended up deciding it was easier to hold inc funds than keep track of dividends. Not that it's that difficult and if you're investing regularly you could view it as just another couple of entries a year, or maybe it's a complication too far.

doug2500
Lemon Slice
Posts: 372
Joined: November 4th, 2016, 11:51 am
Has thanked: 88 times
Been thanked: 135 times

Re: Paying tax on Accumulation ETFs

#376348

Postby doug2500 » January 12th, 2021, 7:43 pm

And then there's 'Group 2' units, don't get me started on them. Maybe you don't get them with ETFs?

CleverClogs
Posts: 2
Joined: January 12th, 2021, 3:24 pm

Re: Paying tax on Accumulation ETFs

#376628

Postby CleverClogs » January 13th, 2021, 3:28 pm

Thanks for the responses so far... I'm still looking for a solution and starting to email the ETF managers to ask.
So some examples as requested by Gengulphus:
    LGGG L&G Global Equity UCITS ETF (GBP),
    SWDA iShares Core MSCI World UCITS ETF USD (Acc),
    CSP1 iShares Core S&P 500 ETF USD Acc GBP,
    XDPG Xtrackers S&P 500 UCITS ETF 2C GBP hedged,
    CS51 iShares Core EURO STOXX 50 UCITS ETF (Acc),
    SJPA iShares Core MSCI Japan IMI UCITS ETF,
    EMIM iShares plc MSCI Emerging Markets IMI (EMIM).

And thanks Lootman for sharing your set of rules. I might well adopt similar once I've extracted myself from this mess!

Doug2500, I too suspect many are simply paying this tax. A tempting tactic and with no numbers on the CTV, that is of course a credible excuse.

Charlottesquare
Lemon Quarter
Posts: 1802
Joined: November 4th, 2016, 3:22 pm
Has thanked: 26 times
Been thanked: 234 times

Re: Paying tax on Accumulation ETFs

#376662

Postby Charlottesquare » January 13th, 2021, 4:36 pm

Just to mention, holding these in companies can have weird and wonderful tax implications (getting taxed on unrealised gains) so holding them via private limited company ownership is often best avoided. (FRS102 and financial instruments)


Return to “Taxes”

Who is online

Users browsing this forum: No registered users and 3 guests