Excess Reportable Income Vanguard for 2018-2019

[Hariseldon58]

Vanguard ETFs generally pay dividend income, although some are accumulating, most but not always all ,of the taxable income is distributed.

Vanguard provide a list of the Excess Reportable Income, this shows income from the accumulating funds and if there is any excess reportable income from the distributing ETFs over and above that is paid out. This is declarable for UK taxable holdings, brokers tend not to bring this to investors attention, although this might change..

In any event the following link might be useful ( I think this board is the most appropriate..) Note that the distribution date is 6 months after the end of the reporting period, both are in the same tax year. The Excess reportable income is deemed paid to you , IF you held the shares at the end of the reporting period, ie 30/6/2018. If you sold them after that date, you are still deemed to have received the income at the end of December.

It looks like the exchange rate is $1 =£.7845 on 31/12/2018.

https://www.vanguardinvestor.co.uk/content/documents/legal/uk-reporting-fund-status-062018.pdf

State Street have some funds with a year end of March and thus you may hold something in one tax year, that produced no declarable income in one tax year, and if you sold in early April, then you have taxable income in a tax year when you didn't have a holding, little confusing....

[Alaric]

This is declarable for UK taxable holdings, brokers tend not to bring this to investors attention, although this might change..

Why wouldn't it be included on the "Consolidated Tax Certificate" issued by the Broker?

[Hariseldon58]

@ Alaric
It is not, HMRC was fussing in the autumn of 2018 and telling brokers they should do it....

I have just been looking at State Street for the current tax year https://uk.spdrs.com/library-content/public/spdr-i-reportable-income-report.pdf?. and https://uk.spdrs.com/library-content/public/spdr-ii-reportable-income-report.pdf?

Some ETFs are accumulating and the excess reportable income is significant, for my holding SPDR EUDV (Euro Dividend Aristocrats) additional to the distributed income there was for me, around €20 around 0.1% not very significant , but on VVAL it was over 2% and on my taxable holding around $1000.

I take the view that its best to comply if I know its required.... I am sure the majority of private investors are either unaware or can't be bothered on the basis that's what everybody else does.....

That laissez faire attitude does not always end well https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwj2xLWJ79vgAhVwRBUIHfa_CeoQFjAAegQICBAB&url=https%3A%2F%2Fwww.theguardian.com%2Fmoney%2F2019%2Ffeb%2F16%2Fthousands-of-workers-hit-with-massive-tax-avoidance-bills&usg=AOvVaw0eVyWRY3XAvMJfBNW3sEPf

[scrumpyjack]

Yes and presumably the excess reportable income should then be added to your cost for CGT purposes?

As you are 'deemed ' by HMRC to have received this income and then reinvested it in the fund, it must surely increase the base cost of the holding.

[Hariseldon58]

@scrumpyjack

Yes accumulated income is clearly an addition to the cost.

Unlike an Accumulating OEIC, the income that accumulates is not explicit in the price, (although it clearly accumulates slowly within the fund and thus the price paid)

With the artificial structure that the income is deemed to be paid six months after the reporting period. It suggests that for an Accumulating ETF there might be arbitrage opportunities regarding whether you receive taxable income or not, by selling the day before and repurchasing the day after the last day of the reporting period.

[Alaric]

I take the view that its best to comply if I know its required.... I am sure the majority of private investors are either unaware or can't be bothered on the basis that's what everybody else does.....

It's an extra complication which is a negative towards holding ETFs in taxed accounts. Although if funds and Brokers find it difficult to report at an individual level, what if anything will they be able to report directly to HMRC? For basic rate taxpayers it wouldn't have mattered if excluded or incorrect before the £ 5000 and then £ 2000 dividend limits came in.

[Hariseldon58]

@Alaric

https://www.ft.com/content/0d5fd242-c268-11e8-95b1-d36dfef1b89a this ia article in the FT, it's behind a pay wall, if you not an FT subscriber then googling the title of the article might well take one to the right place.

I came across commentary, at that time, the brokers were under some pressure to make us aware of it, problem is that even when you are aware and go to the web site it's not so easy to find, State Street I'm looking at you! Which is why I posted the links !

[hiriskpaul]

I find this site invaluable for excess reportable income: https://www.kpmgreportingfunds.co.uk/

You have to register, but it is free. Covers all the ETFs I hold outside tax wrappers, including the Vanguard US listed ones. To find Irish listed ETFs, the ISIN usually works. For US listed use the CUSIP, although for US listed ETFs, I have never known there be any excess reportable income. This may be because US listed ETFs are obliged to pay out all income.

Edit: just checked and found SPDR do not use the service!

[Lootman]

for US listed ETFs, I have never known there be any excess reportable income. This may be because US listed ETFs are obliged to pay out all income.

Yes, and US collectives are also mandated to pay out realised capital gains annually, unlike UK funds, which can come as a shock to some people. This applies equally to US open-ended mutual funds, US closed-end funds (similar to ITs here) and ETFs.

That said, US ETFs only rarely have to distribute capital gains. Due to their structure there aren't usually taxable disposals required to adjust to price movements and trading volumes. It can happen though.

[Alaric]

I find this site invaluable for excess reportable income:

It usefully confirms that the one Dublin ETF I hold outside of ISAs had zero excess reporting income. Reporting income I get through the distributions and the Tax Certificate.

[Steveam]

Thank you for this. Both the Vanguard link and the KPMG link are very useful. Guess who is getting their tax stuff in order for last year

Only 3 of my Vanguard funds held outside tax shelters are issues: VAPX, VJPN and VERX. The amounts are small but I like to get these things right. Total extra income less than £200 so lost in the noise.

Thanks again for the links and commentary.

Best wishes,

Steve

[mc2fool]

So, just to be clear, this "Excess Reportable Income" business (beyond what the Consolidated Tax Certificate lists) only applies to non-UK domiciled funds/ETFs and not to anything with a GB ISIN, right?

[hiriskpaul]

So, just to be clear, this "Excess Reportable Income" business (beyond what the Consolidated Tax Certificate lists) only applies to non-UK domiciled funds/ETFs and not to anything with a GB ISIN, right?

It applies to offshore funds that have reporting status. I guess in theory it applies to offshore ITs as well, which may have a GB ISIN (?) but as ITs are not required to distribute all their income, this is probably irrelevant. Any excess income simply goes to reserves.

[scrumpyjack]

What happens if some or all of the 'excess income' is then included in the next distribution in the next tax year? Are you then informed of 'negative excess reportable income' or do you end up being taxed on the same underlying income twice?

[hiriskpaul]

What happens if some or all of the 'excess income' is then included in the next distribution in the next tax year? Are you then informed of 'negative excess reportable income' or do you end up being taxed on the same underlying income twice?

An interesting question.I would hope that excess reportable income was not paid out later. Never read anything about this though.

For income paying ETFs, the excess reportable income is very small. I think possibly just an unexpected mismatch arising from income left over after costs, which are usually taken from income. For US listed ETFs, I have occasionally had a tiny dividend before year end, shortly after a larger one. I think this is how they cope with similar year end income/cost issues. I think that would be a simpler way to handle it, but perhaps more costly.

I suppose another option would be to pay out more income and cover some of the costs from capital. Most investors would not want that though as income is potentially immediately taxable, capital gains only taxable when crystallised.

[Lootman]

What happens if some or all of the 'excess income' is then included in the next distribution in the next tax year? Are you then informed of 'negative excess reportable income' or do you end up being taxed on the same underlying income twice?

An interesting question.I would hope that excess reportable income was not paid out later. Never read anything about this though.

For income paying ETFs, the excess reportable income is very small. I think possibly just an unexpected mismatch arising from income left over after costs, which are usually taken from income. For US listed ETFs, I have occasionally had a tiny dividend before year end, shortly after a larger one. I think this is how they cope with similar year end income/cost issues. I think that would be a simpler way to handle it, but perhaps more costly.

I have pretty much taken the same view that Jack did i.e. that insofar as income is under-reported in one year, that is recaptured in the following year or, worst case, when the ETF is sold.

And as you note, the amounts involved are tiny for distributing funds.

So I can't imagine that HMRC are really interested in these rounding errors, nor that anyone is employing this situation as any kind of tax dodge. And it would not be cost-effective for HMRC to devote resources to collecting the small sums involved from a significant number of investors. Especially since it will all be recovered anyway at a later point.

This mirrors my own experience. Most of my ETFs are in my ISA but for the last 2-3 years I have had 3 ETFs in my taxable account. When I learned about this anomaly (here, a few months ago) I did a "bed and ISA" for those positions just so that I don't have to bother trying to account for it. But it was not picked up at the time, and it would be very silly for me to now submit amended returns for those couple of years just because of these trivial amounts.

[Steveam]

Lootman:

I don’t think Jack actually expresses a view. He asked a question which has not been answered.

You say it would be silly of you ... why? I’ve twice discovered minor errors going back to previous years and in both cases I’ve corrected and had no problem with HMRC about doing so. If I’ve made a mistake because of ignorance or misunderstanding so be it but if I know then I’ll correct it. Without meaning to put myself on any sort of pedestal one can no more be a little bit dishonest than a little bit pregnant. One is honest or dishonest.

Best wishes,

Steve

[Lootman]

Lootman: I don’t think Jack actually expresses a view. He asked a question which has not been answered.

You say it would be silly of you ... why? I’ve twice discovered minor errors going back to previous years and in both cases I’ve corrected and had no problem with HMRC about doing so. If I’ve made a mistake because of ignorance or misunderstanding so be it but if I know then I’ll correct it. Without meaning to put myself on any sort of pedestal one can no more be a little bit dishonest than a little bit pregnant. One is honest or dishonest.

I do not think dishonesty comes into it. Obviously in my case there was no intent to be inaccurate. In fact I'd be willing to bet that the majority of UK small investors using ETFs do not know about this anomaly.

The more general question is this. If you learn that there were small errors in a past tax return (say, a few quid) and if you later come to realise that, whilst HMRC have not flagged it at all, then is it worth submitting amended returns for each of those years?

To me the answr is that it is not. Not because of "dishonesty". But because the amounts are trivial and, crucially, they will be reversed either the following year or when the funds are sold anyway.

It's obviously better to be 100% accurate but, for inconsequential sums, just let the sleeping dogs lie.

[Tigger]

I have held VWRL for a few years now and I have never seen any negative excess reportable income on their annual reports to participants. So I am not sure you can assume that it comes out in the wash if you are holding for a number of years, because some years are negative and others are positive.

You do seem to get quite a few zero years, though, and for VWRL it's probably only added a few per cent each year to the dividend amount I have reported.
https://www.vanguardinvestor.co.uk/investing-explained/general-account-tax-information

One thing I hadn't realised though is that you can add excess reportable income to your base cost for CGT. Is that going back for all the years where you have reported it? I googled for info on this but didn't really get a definitive answer. One source suggested that you could just add excess reportable income in the year you sold, which seemed odd to me.

I'd probably only sell to use up my CGT annual allowance each year, so it may not make much difference to me in the end. Although I guess a higher base cost means I could probably sell a little bit more without exceeding my annual allowance.

[scrumpyjack]

Excess reportable income would certainly be an addition to cost no matter how long ago it arose since acquisition. It is income deemed to have been distributed to you and then reinvested by you back into your holding.