How is dividend income calculated for accumulation funds

chucknorris

I feel a bit dumb asking this, as I feel that I should know, but it appears to me that my dividend income isn't as much as it should be. From part (I have more funds and they look underpaid as well) of my annual tax voucher below, you can see that I held 197,506 units in a fund, the fund fact sheet it states that the income distribution was £0.02182 per unit,
197,506 (total units held) x £0.021820 (distribution per unit) = £4,309.58?


It was only £1,111.32 gross dividend (including the tax credit) plus £799.69 equalisation.

Even if you add the 'equalisation' (if that is what you are supposed to do?) it still falls short of my expectations, am I missing something?



Sorry I can't seem to paste my annual tax voucher

le_loup

Did you look at the dividend for the acc units or the inc units?

chucknorris

le_loup wrote: »

Did you look at the dividend for the acc units or the inc units?

I don't have any income units, so I only looked at the dividend income for acc units.


I would have expected the dividend income for fidelity's UK ftse all share tracker index to be higher than the approx. 0.67% that it paid, if you add the 'equalisation' (should you?) that then grows to about 1.16%.

xylophone

Have a look at this http://www.trustnet.com/Factsheets/tnuk/FactSheet.aspx?fundCode=GTF91&univ=U

The effect of inc and acc is clear if you look at Other Share Classes.

Click on "Gross Acc" (unit price 127.5) and then on "dividends" - for April this was 0.5 per unit.

Click on Gross Inc (unit price 62.6) and then on "dividends" - for April this was 0.263 per unit.

Each Acc dividend is invested back into the fund thus boosting the unit price.

Linton

I cant give you the details but hopefully I can give you some idea of the complications involved. Firstly you havent lost anything - the single dividend payment is purely notional created to fit in with the tax system.....

With an ACC fund money from the dividends received from the shares held goes into the fund and the fund's total value increases continuously and so does your holding value. There is no dividend paid to you as an individual.

However if the fund isnt in an ISA/SIPP you will need to pay tax on your part of the dividends the fund has received. It clearly isnt practical to have a tax return containing hundreds of miniscule dividend payments. So what happens is that the fund declares a notional dividend as a % of the fund and you are charged tax on that.

Now what happens if you buy or sell the fund part way through the year? Clearly you shouldnt be charged tax for dividends received during that period of time when you didnt hold the fund. So the notional dividend must be reduced to compensate you - this is "equalisation".

Now think about CGT. If you were charged CGT on the simple increase in value of your investments you would be doubly taxed as you have aleady paid dividend tax on some of it so... (oh never mind!)

Why your calculated dividends are around half the simple notional calculation I dont know, but if the dividend quoted is too low what that means is that you are being charged too little tax, not you have lost out on your dividend.

This is my understanding. If a real expert comes along and corrects this I would be very grateful.

chucknorris

Linton wrote: »

I cant give you the details but hopefully I can give you some idea of the complications involved. Firstly you havent lost anything - the single dividend payment is purely notional created to fit in with the tax system.....

With an ACC fund money from the dividends received from the shares held goes into the fund and the fund's total value increases continuously and so does your holding value. There is no dividend paid to you as an individual.

However if the fund isnt in an ISA/SIPP you will need to pay tax on your part of the dividends the fund has received. It clearly isnt practical to have a tax return containing hundreds of miniscule dividend payments. So what happens is that the fund declares a notional dividend as a % of the fund and you are charged tax on that.

Now what happens if you buy or sell the fund part way through the year? Clearly you shouldnt be charged tax for dividends received during that period of time when you didnt hold the fund. So the notional dividend must be reduced to compensate you - this is "equalisation".

Now think about CGT. If you were charged CGT on the simple increase in value of your investments you would be doubly taxed as you have aleady paid dividend tax on some of it so... (oh never mind!)

Why your calculated dividends are around half the simple notional calculation I dont know, but if the dividend quoted is too low what that means is that you are being charged too little tax, not you have lost out on your dividend.

This is my understanding. If a real expert comes along and corrects this I would be very grateful.

Thanks Linton, I was kind of hoping it would be that everything was notional, and any difference might be saving me tax, rather than costing me dividend income. I must admit though that I don't like the lack of transparency, but hopefully that will disappear soon, when I switch to HL's Vanguard ETF's which are income.

chucknorris

xylophone wrote: »

Have a look at this http://www.trustnet.com/Factsheets/tnuk/FactSheet.aspx?fundCode=GTF91&univ=U

The effect of inc and acc is clear if you look at Other Share Classes.

Click on "Gross Acc" (unit price 127.5) and then on "dividends" - for April this was 0.5 per unit.

Click on Gross Inc (unit price 62.6) and then on "dividends" - for April this was 0.263 per unit.

Each Acc dividend is invested back into the fund thus boosting the unit price.

I know that they are reinvested but the tax voucher and stated dividend don't seem to tally, that was my issue.

bowlhead99

I think probably the question is, how long have you had the units?

As you can see, they are giving you some dividends which you earned over the period and they are also giving you some equalisation back which represents income which you 'bought' when you bought into the fund part-way through the period and some of the income had already been earned. You had paid in your buy-price to acquire that pile of income so when it is eventually paid out, they don't call that part of it taxable dividend income, they just say it is equalisation (a reduction of initial purchase cost).

So it looks like when they paid out the money (or, rolled it into the existing investment portfolio because they're ACC units) , they said it was ~£800 equalisation and ~£1000 dividend (although you are giving us the gross notional dividend of £1111 including tax credit).

So, seems to me you're getting £1800 as your dividend. If the dividend is supposed to be 2p a unit and you had almost 200k units and you had them all at the ex dividend date of February 3rd, it would seem you should be getting closer to £4k than £2k.

You mention being in the fidelity uk index fund which has more than one acc share class. There is the P share class https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/fees.page?idtype=ISIN&fundid=GB00BJS8SF95&UserChannel=Direct
ex-div 02/03/2015 div £0.028860 reinvest price £1.075400

But there is also a W class:
ex-div 02/03/2015 div £0.018180 reinvest price £1.045700

Those are from the online factsheets - I couldn't see the figure you quoted of 0.0218 per share so am maybe looking at the wrong fund. Either way if the acc divs per unit are supposed to be about 2p and you have 200k shares when they go exdiv you would expect about 4k cash not 2k cash.

Otherwise the only reasonable explanations would be that
a) - you actually bought half of your 200k shares AFTER the ex-dividend cut-off (albeit before the notification date) so you're only getting paid half of them ; or,

b) - despite them saying on the factsheet that this fund distributes annually, perhaps that 2p a share they say they pay is actually done in semiannual tranches and you are only joining partway through the second half of the year rather than partway through the entire year, so you're only getting a bit of one of the two payouts which they make which would add up to the 2p.

Perhaps if you can give us exact details of the fund you have and when you bought how many shares and the exact details from your voucher, all would become clear.

chucknorris

bowlhead99 wrote: »

I think probably the question is, how long have you had the units?

As you can see, they are giving you some dividends which you earned over the period and they are also giving you some equalisation back which represents income which you 'bought' when you bought into the fund part-way through the period and some of the income had already been earned. You had paid in your buy-price to acquire that pile of income so when it is eventually paid out, they don't call that part of it taxable dividend income, they just say it is equalisation (a reduction of initial purchase cost).

So it looks like when they paid out the money (or, rolled it into the existing investment portfolio because they're ACC units) , they said it was ~£800 equalisation and ~£1000 dividend (although you are giving us the gross notional dividend of £1111 including tax credit).

So, seems to me you're getting £1800 as your dividend. If the dividend is supposed to be 2p a unit and you had almost 200k units and you had them all at the ex dividend date of February 3rd, it would seem you should be getting closer to £4k than £2k.

You mention being in the fidelity uk index fund which has more than one acc share class. There is the P share class https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/fees.page?idtype=ISIN&fundid=GB00BJS8SF95&UserChannel=Direct
ex-div 02/03/2015 div £0.028860 reinvest price £1.075400

But there is also a W class:
ex-div 02/03/2015 div £0.018180 reinvest price £1.045700

Those are from the online factsheets - I couldn't see the figure you quoted of 0.0218 per share so am maybe looking at the wrong fund. Either way if the acc divs per unit are supposed to be about 2p and you have 200k shares when they go exdiv you would expect about 4k cash not 2k cash.

Otherwise the only reasonable explanations would be that
a) - you actually bought half of your 200k shares AFTER the ex-dividend cut-off (albeit before the notification date) so you're only getting paid half of them ; or,

b) - despite them saying on the factsheet that this fund distributes annually, perhaps that 2p a share they say they pay is actually done in semiannual tranches and you are only joining partway through the second half of the year rather than partway through the entire year, so you're only getting a bit of one of the two payouts which they make which would add up to the 2p.

Perhaps if you can give us exact details of the fund you have and when you bought how many shares and the exact details from your voucher, all would become clear.

Thanks for your comprehensive answer, you seem to be applying the same logic as me, so I think I need to raise this with Fidelity and ask for an explanation.

In answer to your questions:

I have held the units (apart from selling only £10k during the tax year) for the entire period, in fact from January 2014, until the ex div date of 2 March 2015. I called them before selling to confirm that if I sold on the ex div date, would that it would NOT cost me anything in dividends, and they said it would not.

This is the fund in question: https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/fees.page?idtype=ISIN&fundid=GB0003875324&UserChannel=Direct


It isn't just this fund though, I have had over £250k (excl. SIPP and ISA) in with fidelity for the entire period in various accumulation funds , i.e. ftse allshare, 250 and 100. The overall dividend payment for the tax year ending April 2015 is £4,418 (incl equalisation) i.e. about 1.75% overall, which doesn't look right to me.


EDIT: I am going to raise this with Fidelity today, it will probably be a few days before they get back to me, I'll give their answer on here, when I get it from them.