CGT - Income v Accumulation?

TBC15

I hate to ask....................................................is there a formula?

bowlhead99

TBC15 wrote: »

I hate to ask....................................................is there a formula?

To work out the capital gain you made you could just follow the excellent formula proposed by capital0ne in post 4 : the gain per share is just the proceeds less the costs. Of course, the devil is in the detail of what is meant by proceeds and what qualifies as costs. There's no real point putting numbers into formulae if you don't know what numbers to put in where.

For someone who doesn't have the patience or capacity to learn the rules, capital0ne's "whack it in an ISA" technique is useful to avoid the pitfalls in future but of course totally unhelpful if you've just made a gain and need to work out the consequences. If you're a very wealthy person like they are you'll have too much money for ISAs so will have to begrudgingly learn the rules - but fortunately lots of people here know them and will generally share their knowledge if you're nice to them

ColdIron

TBC15 wrote: »

Reaching for my service revolver, even as we speak.

Could life get more complicated?

Equalisation payments

ivormonee

Glen_Clark wrote: »

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?

Hello. I'm not sure of the nature of your question because both of these invstments, which are ETFs, are accumulating (rather than distributing) so there is no income from them. Having read the other posts in the thread I am guessing that you somehow have to declare this as income all the same, or, if not, to know the effect it will have on any potential capital gains calculation, which I haven't really grasped very well.

When I looked on the iShares website to get more info. I can't find anything that quantifies the amount of income. Obviously it's built into the ETF price, so the existing number of shares remains the same but they become more valuable when distributions are announced and built in to the price, but I can see nothing that gives any info. on any amounts.

One other thought. Does BlackRock/ iShares not deal with any tax on income that is accumulated in the ETFs? ie. does the ETF not declare and pay any income tax due automatically depending on the jurisdiction? I am just guessing here as I can't see how it can be down to the ETF holder without them providing the details that you would need in order for you to do it.

bowlhead99

ivormonee wrote: »

One other thought. Does BlackRock/ iShares not deal with any tax on income that is accumulated in the ETFs? ie. does the ETF not declare and pay any income tax due automatically depending on the jurisdiction? I am just guessing here as I can't see how it can be down to the ETF holder without them providing the details that you would need in order for you to do it.

Yes, the ETF itself will pay the tax that's due by it to the tax authority of the country in which it's resident... but generally that's going to be £nil (or EUR nil or $nil) because they will be set up under a regulated funds regime in which they qualify to not pay local tax on their profits in (e.g.) Ireland or Luxembourg.

The way they get to not pay tax is like OEICs - they'll agree to distribute all their income or provide a report of their excess undistributed income, and the tax will fall on their underlying investors who receive the distributions (or get the benefit of the retained income) depending on the tax rules in the countries of residence of the investors. The tax borne by the ETFs themselves is generally just the tax they are exposed to on overseas investments - e.g. withholding tax on US divs received, when making investments in US companies from Europe.

As implied by Glen Clark's and tg99's posts, the operator of the ETF will generally issue a datasheet showing what income per share was received and not distributed in the period, as well as publishing their declared dividends. As a DIY investor you would typically need to source this yourself from the ETF manager assuming you don't have a hyper-friendly broker or platform doing it for you as a matter of course.

Presumably the information *will* be made available if you are looking hard enough because those funds, as non-UK domiciled funds who want to attract UK investors, will want to be in the HMRCs "reporting offshore fund regime" so that you can declare your proper dividend income from them every year rather than be noncompliant and have HMRC deem *all* your returns to be in the nature of income as part of the anti-avoidance regime.

dales1

tg99 wrote: »

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.

For my taxable ETFs (distributing, not acc) each year I always wonder why the excess reportable always seems to be either zero or positive.

If a distributing ETF has somehow made an undistributed surplus of income, why don't they simply fix it the following year and get it distributed. Then it would all even out.

That's what I don't understand.

Dales.

bowlhead99

dales1 wrote: »

For my taxable ETFs (distributing, not acc) each year I always wonder why the excess reportable always seems to be either zero or positive.

Because each year they decide how much they can distribute based on a known amount of net income they'll make for the year, or a conservative estimate on what they expect to be able to distribute based on what net income they'll probably make for the year, so that they don't get their books in a mess by declaring dividends greater than their profits.

So the excess income will either be nothing, or something, but not negative (you are probably not going to be able to put a claim in to your local tax man based on being told you were exposed to negative income, but it's relatively straightforward to tell your tax man you have earned a bit of positive net income that you haven't received in cash but would like to pay tax on).

If a distributing ETF has somehow made an undistributed surplus of income, why don't they simply fix it the following year and get it distributed.

Because by the following year the investors will have already been told how much income the fund had received and failed to distribute last year, and will have paid their taxes on it based on the reports they received, so the fund doesn't want to distribute out that 'spare' money as a taxable dividend (otherwise you will be paying double tax on it) and can't really give the money out other than by a dividend - because dividends are how the funds give money to their investors - so they are a bit stuck.

In practice, if the cash from late 2018 is sitting around unused they can distribute it out during (e.g.) 2019, but then they will just count it in the calculation of the total money they distributed in (e.g.)2019 against the net income they made in 2019, with the aim of having the 2019 distributions match the 2019 net income (just like they were aiming to - but failed- to have the 2018 distributions match the 2018 net income). There will sometimes then be a surplus in 2019 again (because of the inaccuracy of guessing how much the net income for the whole of 2019 will be at the time they are running the 2019 distributions) so they will stick that in their 2019 excess income report and move on.

If the money sitting around from their undistributed net profits is never distributed and has left them with a bigger cash float than they want to hold to cover investment opportunities and the timing of subscriptions and redemptions, they will just reinvest it to buy more assets.

Heedtheadvice

Now you may be asking the question because you already have an investment that could be subject to CGT, but if not...

Holding in am ISA or sipp could be a good way to keep things simple. Several reason possibly why not to do so.

However I would also suggest investing in a fund that does not pay a dividend such as several close ended funds (ITs) such as Shin Nippon that has made huge gains without reinvestments of income or having ACC units. Still CGT potentially to pay but, unless you add more income and incur a section 103 calculation, keeps things simple.

rathernot

Thanks all who've responded.

My ISA allowance for this year is maxed out and future years are likely to be too.

My understanding of a SIPP is that there is literally zero access to the funds until you hit the eligibility date, regardless the situation.

ColdIron

rathernot wrote: »

My understanding of a SIPP is that there is literally zero access to the funds until you hit the eligibility date, regardless the situation.

That's right, currently 55 but rising to 58. However many see this as a strength and not a weakness