Payment of dividend on accumulation funds

dunstonh

Why do a minority of funds only offer an Income version

Is it a minority? I would say most issue an income share class.

However, where it isnt, it tends to be on low/no yielding investments were an income share class is largely pointless.

ffacoffipawb

dunstonh wrote: »

Is it a minority? I would say most issue an income share class.

However, where it isnt, it tends to be on low/no yielding investments were an income share class is largely pointless.

I think he was commenting on the lack of availability of Accumulation units (which he wants / prefers) and not Income units.

Tom99

I am not sure how bond funds work but individual corp bonds are different to shares. They are priced exclusive of the accrued div so if you buy you pay the bond price plus the accrued dive from the last div date and if you sell you get the bond price plus the accrued div.

aroominyork

ffacoffipawb wrote: »

I think he was commenting on the lack of availability of Accumulation units (which he wants / prefers) and not Income units.

Yes, that's right. The fund that made me raise the issue is Baring Europe Select. Bowlhead answered the question helpfully, though it still seems curious that this £2bn equity fund that pays dividends under 1% doesn't offer an Accumulation fund.

bigadaj

Tom99 wrote: »

I am not sure how bond funds work but individual corp bonds are different to shares. They are priced exclusive of the accrued div so if you buy you pay the bond price plus the accrued dive from the last div date and if you sell you get the bond price plus the accrued div.

Bonds don't pay a dividend.

rweber

bowlhead99 wrote: »

The price of an accumulation fund STAYS the SAME when it reaches the relev dividend date because the investors, by choosing that class, have explicitly said they don't want the dividends to be paid to them, they want the money to stay with the fund ; so the fund doesn't decline in value and can keep hold of all the cash to reinvest it.
.

But dividends are taxed at 32.5% and capital gains at 20% (or nil if within the annual allowance). So if there is no change in price does it therefore make sense for an investors to sell his accumulation fund holding a day before the payment data, and then repurchase the fund in his spouse's account just after the payment date, - reversing this between the two spousal accounts each year -, so that all taxes are paid at 20% rather than 32.5%?

dunstonh

But dividends are taxed at 32.5% and capital gains at 20% (or nil if within the annual allowance).

Dividends are 32.5% if its a higher rate taxpayer and above the dividend allowance. Otherwise, it is 7.5% for basic rate. CGT is not 20%. It is 10%/20% subject to tax band.



edit:

Tom99 wrote: »

[FONT=Verdana, sans-serif]CGT rates on shares are 10%/20% its residential property which is 18%/28%[/FONT]

[FONT=Verdana, sans-serif]https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances[/FONT]
[FONT=Verdana, sans-serif]
[/FONT]

That will teach me to copy and paste as I was sure I did the 10/20 to match the 7.5/32.5 for divs. Clearly, I didn't. it was meant to say: It is 10%/20% subject to tax band.

Tom99

dunstonh wrote: »

Dividends are 32.5% if its a higher rate taxpayer and above the dividend allowance. Otherwise, it is 7.5% for basic rate. CGT is not 20%. It is 18%/28% subject to tax band.

[FONT=Verdana, sans-serif]CGT rates on shares are 10%/20% its residential property which is 18%/28%[/FONT]

[FONT=Verdana, sans-serif]https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances[/FONT]
[FONT=Verdana, sans-serif]
[/FONT]

short_butt_sweet

rweber wrote: »

But dividends are taxed at 32.5% and capital gains at 20% (or nil if within the annual allowance). So if there is no change in price does it therefore make sense for an investors to sell his accumulation fund holding a day before the payment data, and then repurchase the fund in his spouse's account just after the payment date, - reversing this between the two spousal accounts each year -, so that all taxes are paid at 20% rather than 32.5%?

it's not worth doing that purely to reduce the effective tax on dividends. e.g. consider a fund with a (pretty high) yield of 4%, where the capital gain is 0%. in theory, selling and buying back reduces the tax due from 1.3% (32.5% of 4%) to 0.8% (20% of 4%), a saving of 0.5%. but daily fluctuations of a fund holding equities are probably at least 0.5%. and you'd have to be out of the market for at least 1 day, perhaps several days. there's a very significant chance of losing more than you save on tax, by being out of the market for a few days every year. yes, on average you'd gain a little. but it's barely worth doing, at best. (and that assumes there are no transaction costs to sell and re-buy a fund - platform charges, or dual pricing by the fund manager.)

and what if there is a capital gain, and you're over the allowance, so you'd pay tax on it at 20%? the great thing about CGT is that you can postpone it indefinitely by not selling yet, so your returns compound untaxed for decades. even a very small capital gain, of 2.5%, combined with 4% dividend (so you have an overall capital gain of 6.5%), would incur as much tax (at 20%) as you pay on just the 4% dividend (at 32.5%). with a gain greater than 2.5%, you'd pay more tax.

and equities can be volatile enough that you might think you have a gain of about 0%, but then markets bounce suddenly after you put in a sell order, and you end up realizing a gain of 2.5%+.

but what if you're not over the CGT allowance? in this case, if you do have substantial investments in a taxable account, it may make sense to realize capital gains up to slightly under the allowance, so that you have lower unrealized gains carried forward, which you might have to pay tax on eventually. if you are doing that, it may make sense to time your sales around the ex-dividend date, to reduce tax on dividends at the same time. so i think your idea could be relevant here, but only when you would be selling and buying back for CGT management reasons, and you are only using dividend dates to guide precisely when you do that.