Tax treatment of Acc Fund dividends

That would make logical sense but I don't know if that's the case in reality. For the funds i've owned over the last few years the ratio of dividend to equalisation has varied.

I agree if the decision is between a few days before ex-div vs just after and you're determined to avoid any income and have used up your dividend allowance then it would make sense to delay it. You'd avoid any immediate income and also come the next distribution it would be part equalisation further reducing income. However any income avoided will just increase the capital gains amount on disposal. If it's a case of waiting a few months for ex-div then you need to weigh up the potential returns you're missing out on

IanManc wrote: »

It would be simpler if you bought Inc Funds. Then you know with each payment exactly how much income you've received, after deduction of equalisation from the first dividend payment after any purchase.

You receive the same taxable income and so have the same income tax liability on the proceeds of Acc or Inc units, but the figures are obvious with Inc units. Whether you get the cash or it is ploughed back into the fund by them managers, you still pay the same tax on it.

My thoughts exactly. Record keeping in unwrapped accounts is far easier with Inc funds.

However, there may be reinvestment charges to consider:cool:

Tom99 wrote: »

[FONT=Verdana, sans-serif]Thanks Fed for that link, very interesting.

[/FONT] [FONT=Verdana, sans-serif]It seems that the equalisation amount is not per individual shareholder but an average of all the purchases between the last two dividend dates? That being so, for a large fund you would expect the equalisation amount to roughly equal the income amount as on average the units will have been bought half way through the period.

[/FONT] [FONT=Verdana, sans-serif]So for a total dividend of say £1,000 you would expect equalisation to be about £500 and income to also be about £500 no matter when in the period you, as an individual, bought the units. My actual figure above from 2015 seem to bear that out.

[/FONT] [FONT=Verdana, sans-serif]That being the case it would seem still make scene to delay a purchase if it was just before an ex-div date and avoid having to pay tax on the £500?[/FONT]

Correct, equalisation for UK funds is calculated at fund level, not at the level of the individual investor. Your example would be theoretically correct if purchases of the fund by individual investors and also the income received by the fund from its underlying investments were both at a constant rate. In practice, that is never the case and therefore the amount of equalisation is not predictable in advance.

Therefore, the only way to be certain that you do not receive taxable income is not to hold a fund on the ex-dividend date. That is a lot of effort to go to each and every time a fund approaches its ex-dividend date, and it is possible that you will incur greater costs in dealing charges, CGT, tax reporting on disposals (even if no CGT to pay) and time out of the market than the potential income tax benefit.