CGT - Income v Accumulation?

rathernot

For investments made outside of an ISA wrapper am I correct in my understanding that it's simpler to go for INC over ACC because of how CGT (if applicable) is calculated years down the line?

I'm trying to understand whether or not I've misunderstood

pip895

Yes that's right - I am still puzzling over how to sort it out on some old acc. funds I have - I have ended up paying more CGT than strictly necessary.

rathernot

Thank you, so could I confirm one more thing which is that OEIC v IT makes zero difference, but if it's an OEIC we're back to the question, and just make sure it's the INC version?

I want to be 100% sure I'm not shooting myself in the foot with OEIC's.

capital0ne

Its all very simple

CG = (Current Price - Buy Price) x No Of Shares

Whether its an ACC or INC makes no difference, both are deemed as dividend income in the eyes of HMRC

So wack it all into an ISA and its done.

rathernot

Everything's simple in an ISA. My question was when it's outside an ISA.

bowlhead99

rathernot wrote: »

Everything's simple in an ISA. My question was when it's outside an ISA.

When it's outside an ISA, using an ACC fund:

The income you were deemed to receive as dividends reinvested for you in the background along the way will be taxable as dividend income even though you don't directly see it as cash in your hand or in your broker's cash account.

However, the fact that the money was reinvested for you means that some of the rise in price of the ACC shares is not due to capital gains but simply due to the income that was received and reinvested in the background. To tax that price rise as CGT as well as having already taxed it as income, would be double taxing you.

So, the dividend money which was invested into the fund's underlying investments along the way is an allowable cost when comparing your eventual sale proceeds of the ACC shares with what it 'cost' to put all that money into the ACC fund's underlying portfolio of investments.

The CGT on the ACC shares is:

Net proceeds of sale of the shares, after your dealing costs if any

Less acquisition costs of those shares, which includes your cash purchase cost of the shares (including your dealing costs if any) and includes the dividend income reinvested for you in the fund.

For INC funds and investment trusts it is rather more straightforward as you will see the amounts of dividends paid along the way and may choose to spend them buying new shares (in which case you can see how many shares you got and what was spent on those extra shares), or, you may choose to not buy any more shares (in which case there is no additional acquisition cost for the CGT calculation as there's been no new acquisitions of shares).

It's only tricky really when it's an ACC fund, so there is 'reinvestment' happening in the background that you don't see and you've been allocated income "on paper" which needs to go into a dividend tax calculation in the year it happens, and which also can go into the calculation for the acquisition cost of the shares: the shares 'cost' you more money to buy because you paid some of the cost with cash initially, and later you paid some of the cost with your dividend income, without increasing the number of shares you hold.

dunstonh

Inc units are easier. Acc units can include income distribution and these "internal" distributions need to known to accurately calculate CGT. Whereas with income units you just have the pure unit price.

Some platforms do not supply the internal income details. Some do. Not an issue on Inc units but an issue with Acc units.

Glen_Clark

I've been getting the income distributions for my SWDA and CSP1 from the ishares website (not easy to find) then googling the average $ to £ exchange rate on the day to work out the income. Bit of a faff but its helps when keeping it on a spreadsheet.
I don't know how anyone else does it or whether there is an easier way?

tg99

Also worth noting that for offshore funds and ETFs held outside of an ISA there may also be excess reportable income that you need to pay tax on (and can thus also include in your acquisition cost when calculating capital gains tax if it is an Acc vehicle). You have to source the excess reportable income report from the fund manager to see if this is applicable as it is not included in your tax voucher provided by your platform / broker.

TBC15

Reaching for my service revolver, even as we speak.

Could life get more complicated?

bowlhead99

TBC15 wrote: »

Could life get more complicated?

If it makes you feel any better... Yes.