Accumulation funds and Cost Price

westy22

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.

greatkingrat

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.