Suggestion for SIPP/ISA and unwrapped?

hparker

I have about £500K in total in a SIPP, ISA, and investments in a normal dealing account.

I have decided to simplify my portfolio and instead of half a dozen funds and ETFs I will have just 2 low fee index trackers, one global equities, one government bonds.

I may move outside the UK and my dividend income from the SIPP and ISA (as well as unwrapped investments) would be taxable and the tax year would be 31 December (so UK tax certificates sent after April would not cover the correct period, and would arrive too late). So I would appreciate comments on the benefits of chosing Accumulation v Income funds in respect of doing your own annual tax calculations for dividend income, and any other administrative considerations.

My feeling is to hold Income funds, so that I can see and record the dividends received, and can manually reinvest (if I wish, and when the amount relative to the dealing cost makes sense).

Does this make sense, or is there still a stronger case for holding the Accumulation version in the context of simplicity?

talexuser

I find the dividends from acc units a pain, so have all income units unwrapped, a simple excel sheet is easy to keep tabs on dividends and capital gains.

dunstonh

I prefer inc units on unwrapped. It makes the calculations easier.

MPN

hparker wrote: »

I have decided to simplify my portfolio and instead of half a dozen funds and ETFs I will have just 2 low fee index trackers, one global equities, one government bonds.

Hard to comment on this without knowing which funds/bonds/index trackers you are thinking of investing in?

EdSwippet

hparker wrote: »

I may move outside the UK and my dividend income from the SIPP and ISA (as well as unwrapped investments) would be taxable and the tax year would be 31 December (so UK tax certificates sent after April would not cover the correct period, and would arrive too late).

Have you investigated the tax treaty, if any, between the UK and wherever it is that you are headed? A few of them allow for mutual recognition of tax sheltered gains in pensions, so worth double-checking if you haven't already. ISAs are normally clobbered, though.

hparker wrote: »

So I would appreciate comments on the benefits of chosing Accumulation v Income funds in respect of doing your own annual tax calculations for dividend income, and any other administrative considerations.

Even for UK investors, accumulation units mostly only provide the convenience of not having to remember to reinvest dividends, and a bit of potential trading cost saving (in the old days of 5% initial charges there was a distinct trading cost saving, but except for a few holdouts those days are now long gone). No real tax benefits though. And they can be an administrative nightmare outside of ISAs and SIPPs.

If you are going to be facing local tax on these UK holdings, you will definitely want income units. Accumulation ones would be a horrible hassle, doubly so given the offset in tax years.

Finally, for your destination country, watch out for possible punitive tax treatment of 'offshore' and other non-local funds. For example, something similar to the UK 'reporting status' (or lack of). Some countries, US included, really hammer people who hold 'offshore' funds, potentially even annually taxing unrecognised capital gains. And many will happily tax capital gains that accrued long before you moved to them. If what you hold would fall foul of something like that when you move, you will probably be better off moving to cash before you move to your new country, taking what money you can with you, and then investing in local funds or ETFs once you arrive.

Tom99

[FONT=Verdana, sans-serif]If you go for income unit and then reinvest, won't you end up with a lot of tiny equalisation payments where the 1st dividend is split between what is treated as income and what is treated as capital repayment?[/FONT]

hparker

dunstonh wrote: »

I prefer inc units on unwrapped. It makes the calculations easier.

Very reassuring.

hparker

Tom99 wrote: »

[FONT=Verdana, sans-serif]If you go for income unit and then reinvest, won't you end up with a lot of tiny equalisation payments where the 1st dividend is split between what is treated as income and what is treated as capital repayment?[/FONT]

I don't know. Is this a problem with Income units more than Accumulation?

To avoid the headache of tax calcualtions is there a way to avoid equalisation payments (e.g. timing when to buy or sell?)

bowlhead99

Tom99 wrote: »

[FONT=Verdana, sans-serif]If you go for income unit and then reinvest, won't you end up with a lot of tiny equalisation payments where the 1st dividend is split between what is treated as income and what is treated as capital repayment?[/FONT]

Still, you do get a distribution voucher at the time of each payment so you can see how much of the cash they just sent you represents taxable income, and update your records in 'real time'. It's then quite easy to see what income you made in a given year and what your investments cost, because you can easily record running totals for the calendar year, UK tax year, or some other country's tax year.

If they are only going to buy two funds, and they don't actually need the income anyway so they probably aren't going to be choosing funds that distribute very frequently e.g. monthly or quarterly... there won't be a 'lot' of equalisation payments each year. Though granted, probably more than zero.

Whereas if you used acc units you probably wouldn't get a voucher at the time of each payment - because there aren't any payments - and would have to wait until the undistributed income was reported by the fund manager or platform provider whenever they get around to it.

I agree with the others that income units are easier to work with if there's likely to be any tax consequences, because you can see your income (supported by distribution paperwork) and you can see what you're reinvesting because you control that yourself.
.

hparker

Will the issue of equalisation payments (and having to record and calculate for tax thereon) be avoided if one always/only rebalances/buys units on a funds ex-dividend date?

Tom99

hparker wrote: »

Will the issue of equalisation payments (and having to record and calculate for tax thereon) be avoided if one always/only rebalances/buys units on a funds ex-dividend date?

No because you will get an equalisation payment on the next dividend date. The equalisation payment is not a personal calculation but an average for all the new investments in that particular fund, so whether you buy on the ex-div date or the day before the ex-div date it will be the same.

But perhaps a reason for choosing Inc Funds in the ISA and SIPP is that you will not get a tax certificate for the ISA and SIPP, so if you hold Acc Units you will have to do a lot of homework to establish the dividend for your overseas tax return.