What happens with dividend payment after you sell your holding in a accumulation fund

londoninvestor

Tom99 wrote: »

[FONT=Verdana, sans-serif]Yes if she has sold on 1st June she would not have received any more cash on 15th June but, if I understand what bowlhead99 is saying, she would still, for tax purposes, have received the £77.26 as a ACC dividend and have to account for it as such.[/FONT]
[FONT=Verdana, sans-serif]The question Londoninvestor was asking was whether the platform tax certificate would actually show that amount as a dividend.
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I'm not suggesting the platform tax certificate would diverge from the tax actually payable. What I'm asking really is whether tax liability is determined by holding the units on the "ex-div" date, or on the payment date.

londoninvestor

Actually - I think I have answered my own question and bowlhead99 is unsurprisingly right.

I sold a fund last month, which had an ex-div date in May and paid its dividend a couple of days ago. I can see that notional dividend now in my platform and I expect it will eventually find its way to my tax statement.

londoninvestor

...and to make it an even better test case, I had sold the fund in my unwrapped account and simultaneously bought it back in my ISA. No dividend record in my ISA account - because I bought after the ex-div date. (Even though accumulation dividend "payments" are irrelevant in an ISA, my platform does show them when they happen.)

Glen_Clark

bowlhead99 wrote: »

The government generally accepts that it's good for investors to be able to access a diversified set of investments by pooling their resources on a collective basis with others, without huge tax leakage from the "middleman" vehicle which actually holds the investments.

Consider how inefficient it would be if, in order to invest collectively in the companies in the FTSE, you had to stick your money into a UK investment vehicle which had to pay corporation tax at 20% on all its UK dividend income and capital gains from its investment activities... and then when you as an investor got paid dividends from the investment vehicle, or sold your shares in the investment vehicle for a profit, you had to pay your personal income tax and capital gains as well.

It would be a pretty bad way of doing things from a tax perspective, compared to the result you could achieve by investing in the underlying shares directly. Especially for some entity types that don't even pay tax, like pensions. But holding everything directly might be similarly unacceptable due to the risks and inefficiencies of trying to personally hold the whole portfolio in your own name directly.

So, regulated collective investment schemes in the form of OEICs and investment trusts are allowed to not pay corporation tax on their gains and UK divs received, as long as they follow the rules.

One of the rules for them to follow is that they have to 'pay out' all their net income every year. Otherwise they could just hoard it and the owners (investors) of the collective investment scheme could sell on their shares to other people, paying CGT only on their rolled-up personal gains, at rates well below income tax marginal rates. The individual owners/shareholders of the scheme having never received any dividends from the scheme in which they invested, and therefore never getting any income tax bills.

So, a UK OEIC or UT which wants to avail itself of the exemption from corporation tax on gains and div income (without which exemption, investors wouldn't touch it)... is going to have to be seen to distribute all the net income it has generated.

HMRC recognise that some funds want to be structured to reinvest returns from their investment without kicking them back to investors and have the investors push the money back into the fund again. So they allow ACC classes where the net income isn't physically distributed but it is still officially allocated out to investors on the share register at a particular time, just like a physically-paid cash dividend would be.

As such, just like with a distributing INC fund, there must be some day that you look at the register of members and say OK, as of this particular day, these are my investors, and I am going to declare the income is now theirs to keep. I will 'distribute' (well, assign) [£x] of income per unit to all investors on the register at midnight on the [y] of July which means that with the standard settlement timelines you have to get your order to me to subscribe in or redeem out by [z] of July if you want to make sure you are on or off the register. If you don't subscribe or redeem by z July your shares will now be "ex div' without the latest allocation of profit

If you didn't have these organised ex div dates with big lumps of dividend being allocated out, one option to put the money from profits to the OEIC or UT would have been to just allocate out a little on a daily basis, but that would be a pain for the fund and the investor alike.

Thanks for the explanation bowlhead
I'm not familiar with funds as I have never held any- both my accumulators are ETFs - SWDA (55% of my equities) and CSP1