Accumulation funds and Cost Price

Hi

Probably there is an obvious answer but I can't seem to get my head around it.

I hold units of a fund within a SIPP and there is a large discrepancy between what I consider to be my Cost Price and what my broker is showing as the Cost Price of the investment.

According to my broker's figures I am only seeing a small growth in the fund over several years, whereas as far as I am concerned the growth is much greater.

They say this in their FAQs:
Note that both income and accumulation dividends are included on your annual tax certificate as the income 'paid' within an accumulation fund is still taxable. When a dividend is paid on an accumulation unit the book cost of the investment is increased to ensure a corresponding reduction of liability to capital gains tax.

Can someone please explain this logic to me and why would CGT even matter within a SIPP?

TIA.
Old dog but always delighted to learn new tricks!

Comments

  • For tax purposes it is treated as if you had been paid the dividend and then immediately reinvested it in the fund.

    So if you buy an Acc unit for £1, and it rises to £1.15, with a notional dividend of 5p paid out, instead of declaring a capital gain of 15p, you add the dividend to the purchase price and declare a capital gain of 10p (1.15 - 1.05) plus dividends received of 5p.

    Of course if the investments are held in a SIPP / ISA it is all irrelevant anyway, but I guess it is easier for the platforms to show the information this way for all customers than for just some.
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