Tax on non ISA investments

[Deleted User]

badger09 wrote: »

It is easier to keep records of dividends, which you need to do for unwrapped investments, if you choose the Inc variety as they are shown separately.

I presume the platform would send annual details/statements of dividends, so why would you need to keep separate records? Please don't think I'm doubting you; just trying my best to learn the process.

ColdIron

[quote=[Deleted User];75555446]Surely, if div are reinvested by increasing the fund units, than they become part on CG when the fund is sold. Sorry, we're still trying to learn!![/QUOTE]A dividend arises whether Inc or Acc, the Inc fund pays out cash the Acc fund retains them and increases the unit price (not the number of units)

This leads to another important issue regarding tax on non ISA accounts. Your Acc fund would (hopefully) grow in value due to 1) the underlying investments increasing in value and 2) those retained dividends. 1) above would be subject to CGT and 2) above to dividend tax. This can make working out tax payable in Acc units more bothersome. You will get a tax certificate from you provider after the end of the tax year detailing dividends (you won't for an ISA as there is no tax). Many would choose Inc units outside of an ISA as it makes calculating your gain easier and cleaner as you don't need to deduct the (retained) dividend from your apparent gain to determine your actual capital gain

Bottom line: your dividends are taxable regardless of Acc or Inc

badger09

[quote=[Deleted User];75555446]Sorry - I must be misunderstanding something here.

This statement by Dazed and Confused....'If he doesn't earn any dividends (or accept additional shares in lieu of a dividend) then there can be no dividend tax payable.'

Doesn't this statement contradicts what you just said? Surely, if div are reinvested by increasing the fund units, than they become part on CG when the fund is sold. Sorry, we're still trying to learn!![/QUOTE]

Both Inc and Acc versions of a fund receive dividends. The difference is that Acc versions are retained within the fund. They don't increase the fund units, but the value of the units you already hold.

Whereas dividends in Inc funds can be reinvested in the same fund (buying more units), invested in a different fund, kept as cash, or withdrawn.

Both INC and ACC funds will hopefully increase in value:cool:

londoninvestor

Useful summary from Monevator:
https://monevator.com/income-tax-on-accumulation-unit/

dales1

...but note that this old Monevator article refers to a notional tax credit (for basic rate taxpayers) which is no longer available.


Dales.

londoninvestor

dales1 wrote: »

...but note that this old Monevator article refers to a notional tax credit (for basic rate taxpayers) which is no longer available.


Dales.

Ah yes, you're right. These days it needs to be read in the context of the new dividend tax regime (£2k at 0%, then 7.5% / 32.5% / 38.1% according to income tax band).

darkidoe

Do you have to submit self assessment for dividend income £2000? Or we can skip that because it is within the allowance?

Dazed_and_confused

Not usually no.

But there is no actual "allowance".

It is a 0% tax rate and this can mean some people can have additional tax to pay by having dividend income even though the dividends themselves are taxed at 0%.

Tom99

Accounting for Acc units outside an ISA is quite straight forward, so don't be put off. At the end of the tax year you will get a Tax Certificate and make the following entries in your records:

- Equalisation Payment - Ignore (You should only have an equalisation payment in your 1st year of ownership.)
- Dividend - Add to dividend income for Income Tax and Add to cost for CGT.

Accounting for Inc Units is slightly more complicated because you will also have to adjust the number of units held if the dividend is reinvested. You may also end up with very small equalisation payments each year because you will be buying additional units each year.

enthusiasticsaver

We have had a monthly income portfolio which was unwrapped for the last few years. We deliberately kept the dividends below £2000 each per year so no tax liable. To be honest it was a bit of a pain so we have just sold them intending to transfer them to our stocks and shares isas over this tax year and next tax year. I found unwrapped to be a pain from the tax side of things.

Your partner will get a new isa tax allowance in a few weeks time. Why doesn't he just wait until 6 April before investing?