Vanguard LifeStrategy Acc: tax on distributions?

[Gilgongo]

My mother has a Vanguard LS 60 in an un-sheltered account with them. I'm now looking after her finances. Does she need to declare dividends received by this fund? If so, how?

https://www.vanguardinvestor.co.uk/inve ... tributions

Maybe this is a question for Vanguard, but I thought I'd ask here in case anyone else knows.

EDIT: I see there's some (notional?) per share amount...

https://www.fidelity.co.uk/factsheet-da ... /dividends

[Dicky99]

My mother has a Vanguard LS 60 in an un-sheltered account with them. I'm now looking after her finances. Does she need to declare dividends received by this fund? If so, how?

https://www.vanguardinvestor.co.uk/inve ... tributions

Maybe this is a question for Vanguard, but I thought I'd ask here in case anyone else knows.

EDIT: I see there's some (notional?) per share amount...

https://www.fidelity.co.uk/factsheet-da ... /dividends

Timely question for me because I also need to know the same in relation to my nephew's Witan investment. His is unsheltered because he's currently living Dublin. The yield means he'll be below £1k in divis this year but will exceed next year's £500

[mc2fool]

My mother has a Vanguard LS 60 in an un-sheltered account with them. I'm now looking after her finances. Does she need to declare dividends received by this fund? If so, how?

Yes. HMRC regards dividends from Accumulation funds, where they are automatically "rolled up" into the fund, as exactly the same as if you'd received the dividends in pocket and decided to reinvest them into the fund manually yourself.

The platform should issue you with a consolidated tax certificate each year, usually some weeks/months after the end of the tax year, showing the relevant amount(s), which you stick into her self assessment return.

Note that as HMRC regard them as if you'd reinvested those dividend amounts into the fund, you should keep track of them indefinitely, as when she comes to sell the fund you can add those amounts to the cost basis for capital gains purposes, thereby reducing the (potential) capital gains tax she will pay.

[mc2fool]

Timely question for me because I also need to know the same in relation to my nephew's Witan investment. His is unsheltered because he's currently living Dublin. The yield means he'll be below £1k in divis this year but will exceed next year's £500

Totally different case. Witan is an investment trust, not a fund (OEIC/UT/ETF), and doesn't have accumulation or income classes. It's simply a company and the dividends are paid out just as dividends from any other company.

The relevant amount will be listed in the CTC from his broker and which country he declares that to and pays tax to on it will depend on his residency.

[Gilgongo]

Note that as HMRC regard them as if you'd reinvested those dividend amounts into the fund, you should keep track of them indefinitely, as when she comes to sell the fund you can add those amounts to the cost basis for capital gains purposes, thereby reducing the (potential) capital gains tax she will pay.

Thanks - how do I do that when calculating CGT on the sale? So if she bought for X and sold for Y, how do I use the numbers from the consolidated tax certificate?

[mc2fool]

Note that as HMRC regard them as if you'd reinvested those dividend amounts into the fund, you should keep track of them indefinitely, as when she comes to sell the fund you can add those amounts to the cost basis for capital gains purposes, thereby reducing the (potential) capital gains tax she will pay.

Thanks - how do I do that when calculating CGT on the sale? So if she bought for X and sold for Y, how do I use the numbers from the consolidated tax certificate?

It's just as if she'd actually received the dividends in hand and used them to buy more of the fund.

So, if she held for, say, 3 years and the CTCs showed notional dividends of £divY1, £divY2, and £divY3, then the cost basis on sale would be £X + £divY1 + £divY2 + £divY3. She'd then subtract that total from £Y to get the gain for CGT purposes.

There's all you ever wanted to know at https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives

[Lootman]

Thanks - how do I do that when calculating CGT on the sale? So if she bought for X and sold for Y, how do I use the numbers from the consolidated tax certificate?

It's just as if she'd actually received the dividends in hand and used them to buy more of the fund.

So, if she held for, say, 3 years and the CTCs showed notional dividends of £divY1, £divY2, and £divY3, then the cost basis on sale would be £X + £divY1 + £divY2 + £divY3. She'd then subtract that total from £Y to get the gain for CGT purposes.

There's all you ever wanted to know at https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives

Buried in that link is a mention of equalisation payments for purchases of open-ended funds. These are treated as a return of capital and so are not subject to income tax but can affect CGT if the fund holder is subject to that.

[mc2fool]

There's all you ever wanted to know at https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives

Buried in that link is a mention of equalisation payments for purchases of open-ended funds. These are treated as a return of capital and so are not subject to income tax but can affect CGT if the fund holder is subject to that.

To avoid any head scratching by the OP, equalisation payments are only relevant for Income shares and not Accumulation shares, so don't apply to his mum's holding.

"There is no adjustment for ‘equalisation payments’ on the notional distributions from accumulation shares. That’s because the capital has not been returned to the investor and therefore does not alter the acquisition cost."

[DrFfybes]

Thanks - how do I do that when calculating CGT on the sale? So if she bought for X and sold for Y, how do I use the numbers from the consolidated tax certificate?

It's just as if she'd actually received the dividends in hand and used them to buy more of the fund.

So, if she held for, say, 3 years and the CTCs showed notional dividends of £divY1, £divY2, and £divY3, then the cost basis on sale would be £X + £divY1 + £divY2 + £divY3. She'd then subtract that total from £Y to get the gain for CGT purposes.

Also known as "Add the dividend amounts to the purchase price of the shares"

Incidentally, LS60 is available as Income untis, it might be simpler to switch and realise the Gain now, unless she intend to hold until she dies.

Paul

[mc2fool]

It's just as if she'd actually received the dividends in hand and used them to buy more of the fund.

So, if she held for, say, 3 years and the CTCs showed notional dividends of £divY1, £divY2, and £divY3, then the cost basis on sale would be £X + £divY1 + £divY2 + £divY3. She'd then subtract that total from £Y to get the gain for CGT purposes.

Also known as "Add the dividend amounts to the purchase price of the shares"

You mean like ...

as HMRC regard them as if you'd reinvested those dividend amounts into the fund, you should keep track of them indefinitely, as when she comes to sell the fund you can add those amounts to the cost basis for capital gains purposes

[Gilgongo]

OK so just so I'm straight:

I am asking about the accumulation, NOT distribution version of the Vanguard LifeStrategy fund (held in a non-sheltered account). So in that case, I can ignore the whole issue for tax return purposes, yes? That's because "There is no adjustment for ‘equalisation payments’ on the notional distributions from accumulation shares."

[mc2fool]

OK so just so I'm straight:

I am asking about the accumulation, NOT distribution version of the Vanguard LifeStrategy fund (held in a non-sheltered account). So in that case, I can ignore the whole issue for tax return purposes, yes? That's because "There is no adjustment for ‘equalisation payments’ on the notional distributions from accumulation shares."

What the source above says is that you can ignore anything about equalisation payments from accumulation shares.

The rest, regarding taxation of the (automatically reinvested notional) dividends and their effect on the capital gains tax calculation still applies, so, no, you can't ignore the whole issue for tax return purposes, sorry!

However, https://monevator.com/income-tax-on-accumulation-unit/ says you should take equalisation payments from accumulation units, if you received any, into account on selling and calculating the capital gain, which is a little puzzling as Monevator is usually a reliable source but seems to be in contradiction to other reliable sources on this.

(Note that the Vanguard doc linked to in that page is about taxation on Vanguard Irish domiciled funds registered as UK Reporting Funds and so is not relevant to their LifeStrategy funds, which are UK domiciled, so don't read it, it's only confuse!)

Before we get into a faff chasing around trying to figure out which is right, see if it's relevant to your mum's holding. If she bought her LS60 holding in a previous tax year there should already be a consolidated tax certificate for it*. If there is any equalisation payment it will be listed in the tax certificate for the year of the (each) purchase.

* If you can't find it in her Vanguard account, ask here for help from someone else that has an account with them, which doesn't include me....

[Gilgongo]

Oh OK. So I should look out for a consolidated tax certificate from Vanguard and enter the figures from that into the tax return. There isn't one for the last tax year as she only opened the account this year (the holdings she bought in it with a bunch of cash that my Dad had and she didn't want to be sitting on so much uninvested).

Then if she sells any I can add the purchase price of the distibutions on to that to calculate the CGT (I think...!)

[mc2fool]

Oh OK. So I should look out for a consolidated tax certificate from Vanguard and enter the figures from that into the tax return. There isn't one for the last tax year as she only opened the account this year (the holdings she bought in it with a bunch of cash that my Dad had and she didn't want to be sitting on so much uninvested).

Then if she sells any I can add the purchase price of the distibutions on to that to calculate the CGT (I think...!)

You add the amount of (all of the) distributions onto the original purchase price to get the cost basis for the CGT calculation.

Wait until next tax year and report back here with what the consolidated tax certificate says (especially if it includes an equalisation payment), and we'll go from there....

[Accumulator]

The Abrdn article is correct only if you didn't receive an equalisation payment from your acc fund. If you did, then the Abrdn article will throw you off.

This short piece from HL explains:

https://www.hl.co.uk/help/tax-informati ... ualisation

Excellent thread here that works through it in detail:
https://forums.moneysavingexpert.com/di ... tion-units

Also see:
https://www.jameshay.co.uk/media/1579/c ... shares.pdf

https://www.gov.uk/hmrc-internal-manual ... 20disposal.

The key is that acc units are treated the same way for the purposes of tax as inc units:

https://www.gov.uk/hmrc-internal-manual ... s/ifm03120