Reportable income question from GIA newbie

[mrodent]

I started putting significant funds into a GIA (at Lloyds Investment) around October last year.

At the time I didn't really understand much about the tax (div tax and CGT) implications of ACC funds outside a tax shelter. One of the funds I bought was GB00BMJJJF91, FTSE All-World Index Fund Acc C.

Yesterday I ordered a sale of the whole of my holding in GB00BMJJJF91 ... this has gone up by approx £6100. So I'm assuming this will mop up my CGT allowance 2023-24.

I had noted that the number of units had not changed ... so had assumed that this meant that there had been no dividends paid. Now I have read something from which it seems that it ain't quite that simple: it now appears that the issue of a dividend can cause the value to increase in the case of an Acc fund... Oh dear oh dear oh dear.

I found a useful explanation here https://www.reddit.com/r/UKPersonalFinance/comments/156oiou/calculating_dividends_for_accumulating_etfs/ about the way to proceed in these circumstances.

So I went to the page for the fund at HSBC https://www.assetmanagement.hsbc.co.uk/en/institutional-investor/funds/gb00bmjjjf91?t=5. There is a drop-down box to find the right class of fund there: "Acc C", which gives the right fund (identified by the ISIN).

I had a look at the "Semi annual report", issued on 15/11/2023, but I couldn't find any information in there about dividends. Choosing another class, e.g. "Inc C", in the dropdown box, produces a page where there is indeed a "Dividends" tab, and where it is possible to see that the last dividend issued was in May 2023, well before I started buying this fund.

I have now become a big-time fan of Inc funds for my GIA accounts (and have seen this useful Fool thread https://www.lemonfool.co.uk/viewtopic.php?f=8&t=41761). But can anyone tell me what I'm meant to do to understand the div situation with the fund I've just sold, GB00BMJJJF91? It seems very likely that for all classes of this holding a dividend was probably last issued in May 23 ... but I just want to know for certain how you're meant to do this the right way (and get definitive information) with an Acc fund like this.

Lloyds Investment, like most platforms I think, issues a statement annually (in April?) showing your dividends tax liability situation for the past year, and I have duly used these over the past years to declare my dividends liability on my tax forms when I've had GIA accounts previously. Calculating the capital gains when you sell an Acc fund seems significantly trickier.

[tjh290633]

You are not quite correct about accumulation funds. Income accrues in the fund between XD dates. On the XD date the income fund falls by the amount of the dividend while that of the accumulation funds does not change, except for normal market movements.

The dividends for the two types of unit are different, but will be the same percentage of the respective unit value. If you only bought the units in October, you will also find equalisation attributable to any distribution made since then.

As you are finding, there are benefits from use of a tax shelter, be it ISA or SIPP.

TJH

[mc2fool]

Lloyds Investment, like most platforms I think, issues a statement annually (in April?) showing your dividends tax liability situation for the past year, and I have duly used these over the past years to declare my dividends liability on my tax forms when I've had GIA accounts previously. Calculating the capital gains when you sell an Acc fund seems significantly trickier.

Actually as you bought and sold within the same tax year yours is a fairly simple case.

The consolidated tax statement you'll get from your broker (usually a few weeks/months into the next tax year) will detail the dividends you "received" from the accumulation fund, and you include that into your tax return just as if you've actually received them in pocket.

For the capital gain calculation you simply add those same dividends onto the cost base, so the approx £6100 gain you've got will be reduced by the amount of the dividends.

HMRC views it as exactly the same as if you'd received the dividends in pocket and immediately reinvested them into the fund.

[londoninvestor]

The consolidated tax statement you'll get from your broker (usually a few weeks/months into the next tax year) will detail the dividends you "received" from the accumulation fund, and you include that into your tax return just as if you've actually received them in pocket.

Yes. For Lloyds, you go to Valuation & Statements >> Tax Certificates and choose the relevant tax year. (Usually the data becomes available a month or two after the end of the tax year.) The "Amount Payable" column tells you the dividend amount you need to include in your tax return.

[mrodent]

The consolidated tax statement you'll get from your broker (usually a few weeks/months into the next tax year) will detail the dividends you "received" from the accumulation fund, and you include that into your tax return just as if you've actually received them in pocket.
...
HMRC views it as exactly the same as if you'd received the dividends in pocket and immediately reinvested them into the fund.

Thanks. I appreciate the situation will become clearer AFTER the end of the tax year. But my other aim is to make sure I have mopped up the entire £6k CGT allowance. If this fund actually issued £2000 of divs to me between October and yesterday I'd still have £2000 more CGT allowance to mop up, and would then need sell more stuff in this GIA account before the end of March.

So I'm trying to find out this information from the fund manager institution itself, now.

[mrodent]

If you only bought the units in October, you will also find equalisation attributable to any distribution made since then.

Thanks. Sorry, I don't know what that sentence means. Could you explain what you're saying a bit more?

[londoninvestor]

The consolidated tax statement you'll get from your broker (usually a few weeks/months into the next tax year) will detail the dividends you "received" from the accumulation fund, and you include that into your tax return just as if you've actually received them in pocket.
...
HMRC views it as exactly the same as if you'd received the dividends in pocket and immediately reinvested them into the fund.

Thanks. I appreciate the situation will become clearer AFTER the end of the tax year. But my other aim is to make sure I have mopped up the entire £6k CGT allowance. If this fund actually issued £2000 of divs to me between October and yesterday I'd still have £2000 more CGT allowance to mop up, and would then need sell more stuff in this GIA account before the end of March.

So I'm trying to find out this information from the fund manager institution itself, now.

Understood - this is a pain, because you need to understand the split of the distribution between the equalisation and the "true" taxable dividend, which is far from easy to find from published sources. I used to have an account with HL, who understood this and would provide the information. Not sure about Lloyds, whose customer service in my experience is OK but not as good as HL's. (A shame HL is so expensive for large fund portfolios, but that's going off topic...)

FWIW, this isn't intrinsically more dificult with Accumulation units. Income units are just as painful from this perspective: you still need to know the equalisation amount, because for income units you need to add it to your capital gain.

[EthicsGradient]

2 sites that are good for finding out the distributions for funds (whether actual cash paid out for income units, or the amounts that are retained in accumulation units, which are still liable to income tax) are Trustnet and Fidelity. Here are their pages for the Acc C fund:
https://www.trustnet.com/factsheets/O/k ... rld-index/
https://www.fidelity.co.uk/factsheet-da ... /dividends

They both confirm that this fund goes ex-dividend once a year in mid-May, and the dividend is credited in mid-July. That means that in your case of buying only from October 2023 onwards, and selling in March 2024, you will not have received any distribution at all, and your calculation will simply be the total amount you received from the sale (after charges) minus the total amount you spent purchasing the units (and if there's a charge there, you add it to the purchase).

eg sold for £30000, charges £10
bought on 2 different dates - one for £12000, charges £10, the other for £11900, charges £10
gain = (30000 - 10) - (12000 + 10) - (11900 + 10) = £6070.

As londoninvestor says, if you hold an fund when it goes ex-dividend, then for the first dividend, you need to know the equalisation - which I think your platform has to tell you (after the end of the tax year), but may be impossible to know before then. But you should have escaped that by selling very quickly.

[mrodent]

... you need to understand the split of the distribution between the equalisation and the "true" taxable dividend, which is far from easy to find from published sources. I used to have an account with HL, who understood this and would provide the information. Not sure about Lloyds, whose customer service in my experience is OK but not as good as HL's. (A shame HL is so expensive for large fund portfolios, but that's going off topic...)

Yep, I'm also a refugee from HL charges. Though they seem to be gradually softening: for example, a GIA at HL has zero annual charges on ETFs and stocks. I think that's changed over recent years. But yes, they are also more professional than Lloyds in my experience.

FWIW, this isn't intrinsically more dificult with Accumulation units. Income units are just as painful from this perspective: you still need to know the equalisation amount, because for income units you need to add it to your capital gain.

Please excuse my ignorance: I just googled "equalisation" and I think I get the gist: it's about tweaks to share prices due to dividend distribution dates not corresponding perfectly to dates when people buy and sell shares, if I understand correctly.

Hm. Nevertheless, I would have thought that information about genuine distributions should be available somewhere. As mentioned in my first post I strongly suspect that the "Inc C" class of this fund, which shows the last div distributed in May 23, also applies to the "Acc C" class, the one I sold yesterday. I'd just like to get confirmation of that.

[mrodent]

2 sites that are good for finding out the distributions for funds (whether actual cash paid out for income units, or the amounts that are retained in accumulation units, which are still liable to income tax) are Trustnet and Fidelity. Here are their pages for the Acc C fund:
https://www.trustnet.com/factsheets/O/k ... rld-index/
https://www.fidelity.co.uk/factsheet-da ... /dividends

They both confirm that this fund goes ex-dividend once a year in mid-May, and the dividend is credited in mid-July. That means that in your case of buying only from October 2023 onwards, and selling in March 2024, you will not have received any distribution at all, and your calculation will simply be the total amount you received from the sale (after charges) minus the total amount you spent purchasing the units (and if there's a charge there, you add it to the purchase).

eg sold for £30000, charges £10
bought on 2 different dates - one for £12000, charges £10, the other for £11900, charges £10
gain = (30000 - 10) - (12000 + 10) - (11900 + 10) = £6070.

As londoninvestor says, if you hold an fund when it goes ex-dividend, then for the first dividend, you need to know the equalisation - which I think your platform has to tell you (after the end of the tax year), but may be impossible to know before then. But you should have escaped that by selling very quickly.

Perfect, thanks, just what I was looking for.

[tjh290633]

If you only bought the units in October, you will also find equalisation attributable to any distribution made since then.

Thanks. Sorry, I don't know what that sentence means. Could you explain what you're saying a bit more?

From the intervening posts, I think you have got it. The first dividend after you buy contains an element called equalisation. This is effectively a return of capital because the price you paid already included some accrued income, so they are notionally giving you that capital back, plus the income which accrued later. Hence your dividend voucher would show two items. It certainly does if you hold the funds with the funds manager, or did when I was doing that and reinvesting or accumulating dividends.

You deduct the equalisation from your original cost.

TJH

[DrFfybes]

Thanks. I appreciate the situation will become clearer AFTER the end of the tax year. But my other aim is to make sure I have mopped up the entire £6k CGT allowance. If this fund actually issued £2000 of divs to me between October and yesterday I'd still have £2000 more CGT allowance to mop up, and would then need sell more stuff in this GIA account before the end of March.

So I'm trying to find out this information from the fund manager institution itself, now.

OK, I'm going to give you a ballpark.

https://www.hl.co.uk/funds/fund-discoun ... cumulation

The yield is 1.91% and the ex divi date is May, paid in June, so you won't have had any dividends paid in. So you only need to concern yourself over the Equalisation payment. As this is supposed to be the NOTIONAL income accrued by the Fund from May to purchase date you can say that is May to Oct (5 months) and yield is 1.9%, so roughly(!) the Equalisation should be about 5/12*0.019 of your purchase prices, or about 0.8%.

If you want to play it safe, call it 1%, so knock 1% of the purchase price of the shares off your gain for the year. I'm going to take a wild stab in the dark and guess you bought £50k of these in Oct, which would be showing a 12% rise by now, giving you your 6.1k, in which case Equalisation will probably be about £500.

I'd look at it from another view - I've made over £6k in half a year on one trade, I'd be happy if it only cost me £50 or so in tax.

Now get £20k of the sales proceeds into an ISA this month, and another £20k in the new tax year

And if you think this is complicated, avoid non GB domiciled funds in a GIA (the GB is the first digits of the ISIN). They have a secret income stream called Excess Reportable Income, which is often announced in Dec to be treated as 'paid' the following June (so for the 23/4 return the figure you need was published in Dec 2022). Now this info is usually in a large spreadhseet of all the Fund returns from a particular Investmen Company rather than somewhere easy to find, so apart from feeling like you're having to go trawling the Dark Web to get the figure, you can also royally cock up the calc by taking the figure from the wrong year very easily.

DAMHIK, IJK, OK?

Paul

[mrodent]

And if you think this is complicated, avoid non GB domiciled funds in a GIA (the GB is the first digits of the ISIN). They have a secret income stream called Excess Reportable Income, which is often announced in Dec to be treated as 'paid' the following June (so for the 23/4 return the figure you need was published in Dec 2022). Now this info is usually in a large spreadhseet of all the Fund returns from a particular Investmen Company rather than somewhere easy to find, so apart from feeling like you're having to go trawling the Dark Web to get the figure, you can also royally cock up the calc by taking the figure from the wrong year very easily.

Haha, yes, I had a vague notion of this stuff too, but that was too much for one question here. In practice many of the useful index ETFs are domiciled in Ireland, which I'm still scratching my head about in a GIA context (expect another question here soon!). Some hints of withholding tax being applied (e.g. in the US) ... but no tax credit (because Ireland's in the EU), so you pay div tax on the remainder, i.e. double taxation. Or something like that!

Now get £20k of the sales proceeds into an ISA this month

That would be illegal: done on 6 April 2023. Also maxed out on employee-director SIPP contributions (I'm the director of my micro-company). An embarrassment of riches ...

DAMHIK, IJK, OK?

OK. But I assume YK due to the bitter lemons of experience.

[londoninvestor]

They both confirm that this fund goes ex-dividend once a year in mid-May, and the dividend is credited in mid-July. That means that in your case of buying only from October 2023 onwards, and selling in March 2024, you will not have received any distribution at all, and your calculation will simply be the total amount you received from the sale (after charges) minus the total amount you spent purchasing the units (and if there's a charge there, you add it to the purchase).

Indeed - those dates make the calculation much easier. No XD date during the holding period, so no distribution requiring a split into dividend and equalisation!

[londoninvestor]

The yield is 1.91% and the ex divi date is May, paid in June, so you won't have had any dividends paid in. So you only need to concern yourself over the Equalisation payment. As this is supposed to be the NOTIONAL income accrued by the Fund from May to purchase date you can say that is May to Oct (5 months) and yield is 1.9%, so roughly(!) the Equalisation should be about 5/12*0.019 of your purchase prices, or about 0.8%.

It would kind of be more logical if the calculation worked like this. But equalisation in fact isn't an individualised calculation based on each investor's purchase date: instead, all units bought since the previous XD date get the same % split between equalisation and true dividend. A good estimate is that it will be 50/50, but that's not exact: it depends exactly when in the year the fund received its dividends, and when new investors (in aggregate) bought in.

Fortunately it's academic here, since OP is planning to sell the units without ever having reached an XD date.

[TedSwippet]

... In practice many of the useful index ETFs are domiciled in Ireland, which I'm still scratching my head about in a GIA context (expect another question here soon!). Some hints of withholding tax being applied (e.g. in the US) ... but no tax credit (because Ireland's in the EU), so you pay div tax on the remainder, i.e. double taxation. Or something like that!

Not a problem. Ireland domiciled funds and ETFs are exempt from Irish dividend withholding taxes.

A Guide to Issuing ETFs (Exchange Traded Funds) in Ireland - irishfunds.ie

... ETFs benefit from a neutral tax regime that applies to all funds regulated in Ireland including;
· Income and gains derived from investments are exempt from Irish tax,
· No Irish taxes on the net asset value,
· No transfer taxes or capital duties on the issuance, redemption of units in ETFs, and
· No withholding taxes applied on payments made to non-Irish resident investors or on units held in recognised clearing systems.

[AndrewInDevon]

I've found this conversation educational! Thanks for all the info and the trustnet website.

I too hold 2 sizabe acc funds in my GIA, but as long term holds....so will be careful with my tax return this year but thanks to these posts it should be straight forward - just a relatively modest income tax liability to declare as they are low yielding (1.82% and 0.35% respectively),(but these will easily be offset against my VCT investment tax rebate so nothing to pay as such.

However, while I understand funds, how do acc ETFs work in terms of any dividend "income" to delcare? I hold 2 acc ETFs. These don't advertise any yield metric, unlike the acc funds and the Trustnet site doesn't show any dividend amounts. But they must have underlying dividend income embedded in the price that needs to be declared?

[TedSwippet]

However, while I understand funds, how do acc ETFs work in terms of any dividend "income" to declare?

This article offers a good description, including a worked example:

Accumulation units – tax on reinvested dividends UK - Monevator

[londoninvestor]

However, while I understand funds, how do acc ETFs work in terms of any dividend "income" to declare?

This article offers a good description, including a worked example:

Accumulation units – tax on reinvested dividends UK - Monevator

Another good (and relatively brief) discussion of this often misunderstood topic is here: https://forums.moneysavingexpert.com/di ... ualization