CGT calculation for Accumulation Units

alexp78

That does expose the whole process well, Richard.

So, I am back to 90%! It should not matter whether the units are accumulation or distributing, as the company dividends are being collect for either reinvestment or payout respectively. It should also not matter whether the fund is an OEIC/ unit trust, or an ETF, as although the ETF is exchange-traded there are still accumulating and distributing varieties.

It follows that equalisation should apply even for ETFs, but I have had a distributing ETF and dividend payments but no mention of equalisation on the Tax Voucher. There again, there is also the factor that most ETFs are non-UK domiciled, such as iShares in Dublin. Even so, why would the different tax status (Withholding Tax, Tax Credit) impact equalisation?

ETFs may be a better subject for another thread.

SnowMan

With a unit trust or OEIC equalisation it is essential to ensure unit holders are treating fairly i.e. an investor with 1000 units receives the same total distribution regardless of when those 1000 units were bought. The unit trust or OEIC manager sets the price, subject to the constraint that it needs to be the fair underlying value of the assets, hence equalisation

With individual shares (or investment trusts) it is supply and demand which sets the price being the price a willing buyer is willing to pay or a willing seller is willing to accept, and so equalisation isn't required under that concept. With investment trusts the price can sit below or above the price of the underlying assets for example.

The tax man hangs arounds in the background and with OEICs and unit trusts equalisation and the tax system for dividends are inter-related and when you bought those 1000 units makes a difference for the first distribution in terms of income and capital apportionment. It is probably fair to say there is a slightly different tax treatment between dividends from individual shares and dividends from OEICs in this respect.

It's probably not a case of stopping clever investors from switching from income to capital or vice versa, I think I misled you there, after all you can buy or sell just before or after an ex-dividend date but equalisation is more just a broad brush fair way to apportion into income and capital while ensuring fairness.

Richard_DandR

I understand there is now no regulatory requirement for OEICs (and probably unit trusts) to make equalisation payments. In 2003 we converted our unit trusts to OEICs and this gave the opportunity to move to just paying income dividend distribution or continuing with equalisation. We chose to continue with equalisation. It could have been a pricing or a tax issue - I wasn't involved in the discussions at the time.

Not had any dealings with ETFs but I would not expect their distributions to have an equalisation element for new holdings.

alexp78

All much clearer now, so back to 100%.

For the layperson, the main thing is to know how to declare income and capital gains for tax purposes. Looking back over the thread, it turns out that you can pretty much ignore Equalisation.

All you need to do is add up the dividends paid to your HOLDING as shown on the Tax Credit notes received (as opposed to the total dividends paid to the FUND itself, and regardless of the actual amount paid out or reinvested).

These dividends should be declared as income annually.

Upon disposal, the total of these dividends should be subtracted from the gain and declared as capital gain, after also deducting any trading fees.

The confusing statement in general guidance is that "Equalisation must be deducted from the purchase cost upon disposal". Without either (a) a full formula or (b) a full financial explanation (which most people are not going to be interested in), the statement is meaningless.

SnowMan

Yep. That's about the extent of it.

I also am coming at it from the lay person perspective. In my case I have holdings in accumulation units and need to sell each tax year right up to the capital gains tax exemption limit, so need to know the precise calculation. My starting point a few years back was applying a bit of common sense to the limited info publicly available.

We've all learned something here myself included. A good team effort from all who have contributed to this thread. :T:beer:

George69

A quick question re accumulation units on bond oeics / unit trusts...

Is it the gross amount of interest accumulated that gets added back to your base cost for cgt purposes?

Presumably tax witheld by the oeic / trust is actually paid over to the Revenue on unitholders' behalves (?) in contrast to share oeics / unit trusts where a notional tax credit applies and it is the net amount of interest accumulated that gets added back to your base cost as explained by Snowman above.

karrie1

not going into specifics of all replies... but I do cgt history on stocks and shares for a living, in my simple terms...

if you have accumulation units, the cost increases per the accumulation amount, the equalisation is added and removed (ie has no effect on CGT cost) to show the proportion to fill in on tax return for income.

For income units, equalisation should be removed from the original cost.

MonkeyMinkey

Hi,

Excellent thread so I have joined.

I have accumulation units. Dividend is declared on 01-Aug, payable on 30-Sep. I have 2,000 accumulation units. I sell 500 on 08-Sep. What part of the declared dividend, if any, should be included in the CGT computation base cost for the 500 sold units and what part, if any, should be added on to the base cost of the remaining 1,500 units?

Many thanks for any help on this

SnowMan

MonkeyMinkey wrote: »

Hi,

Excellent thread so I have joined.

I have accumulation units. Dividend is declared on 01-Aug, payable on 30-Sep. I have 2,000 accumulation units. I sell 500 on 08-Sep. What part of the declared dividend, if any, should be included in the CGT computation base cost for the 500 sold units and what part, if any, should be added on to the base cost of the remaining 1,500 units?

Many thanks for any help on this

Usually there are 2 important dates in relation to distributions for a unit trust or OEIC, the qualification date and the paid date. The qualification date is the date that if you hold the units at that date you are treated as having qualified for the subsequent distribution (even if you sell between the qualification date and payment date). It's the same concept as individual shares going ex-dividend.

I'll assume here that 1st August is the qualification date. The distribution in your example will then relate to all 2000 units as at the qualification date 1st August you still held 2000 units.

So if you are then working out your CGT for the sale on 8 September you need to take 25% of the net dividend (of course the dividend is not actually paid in respect of either the 500 or 1500 units because you have accumulation units) which is an allowable cost when working out the CGT liability in relation to the 500 unit sale. The remaining 75% applies to the remaining 1500 units to be taken into account when those 1500 units are later sold.

You should get a tax voucher sent to you by the fund (either after the distribution or after the end of the tax year). That normally shows the number of units to which the distribution relates (so will show 2000 units in this example) so that is the easiest way to be sure what is happening.

Rogerthelodger_2

I have to pay higher rate tax so on all my dividends, I have to pay an extra 22.5% income tax each year on the notional income.

When I sell the shares and will pay CGT and I can deduct the net (at basic rate) dividends from the proceeds. However can I also deduct the extra 22.5% from the proceeds ?