CGT calculation on accumulation units

rjp81

I'm confused about how to handle capital gains tax on my accumulation units. I think I understand the basic idea but the details are tricky.

If I sell all my accumulation units between the ex-dividend date and the payment date, I will presumably technically be paid a dividend for tax purposes (let's say it's £500) even though I no longer hold any units. How do I handle this for CGT purposes? Would I then effectively have paid £500 for 0 units, then "sold" those 0 units and account for it as a CGT loss? Or is there another way of dealing with it?

Also, how do the bed and breakfast rules affect it? If I sell some accumulation units shortly before the dividend "payment" (reinvested) is made, do I have to match them up? That would be a bit annoying!

Thanks for any help.

londoninvestor

rjp81 wrote: »

If I sell all my accumulation units between the ex-dividend date and the payment date, I will presumably technically be paid a dividend for tax purposes (let's say it's £500) even though I no longer hold any units. How do I handle this for CGT purposes? Would I then effectively have paid £500 for 0 units, then "sold" those 0 units and account for it as a CGT loss? Or is there another way of dealing with it?

I had this situation last tax year - I decided it was most logical to treat the dividend as arising on the ex-dividend date for CGT purposes, so the £500 is added to the total base cost for the sales after that date. It gives the same mathematical result as "selling 0 units for £500", but like you I thought that would have been an odd way to present it.

rjp81 wrote: »

Also, how do the bed and breakfast rules affect it? If I sell some accumulation units shortly before the dividend "payment" (reinvested) is made, do I have to match them up? That would be a bit annoying!

I don't see how HMRC could credibly say the B&B rules require you to do that. You should be able to just treat the dividend as an addition to the base cost of the s104 holding as of the date it's received, as usual.

Tom99

londoninvestor wrote: »

I had this situation last tax year - I decided it was most logical to treat the dividend as arising on the ex-dividend date for CGT purposes, so the £500 is added to the total base cost for the sales after that date. It gives the same mathematical result as "selling 0 units for £500", but like you I thought that would have been an odd way to present it.

I think that must be correct because on the ex-dividend date the INC units will drop £500 so at that point ACC units are worth £500 more than INC units, ie the £500 has been invested in the ACC units.

rjp81

Thanks for the information. I agree that the most logical thing to do is to treat it as arising on the ex-dividend date (since the price of the units behaves as though it does) and ignore the B&B rule.

That would make accumulation units behave differently for tax than income units with dividends reinvested, which seems fine to me - but I wanted to make sure that "what seems logical to me" and "what is correct according to HMRC" match up. At least the ex-div date and payment date are in the same tax year!

I suppose it's a nice problem to have, even if doing these calculations is a bit annoying.

londoninvestor

rjp81 wrote: »

That would make accumulation units behave differently for tax than income units with dividends reinvested, which seems fine to me

It hadn't struck me before that this was the case. But in the situation where you sell <30 days before the dividend payment date, then yes it is! (Because, as you say, if you had income units and automatically reinvested the dividends, then your dividend-reinvestment purchases would be caught by the B&B rule).

You learn something new every day

londoninvestor

PS to be clear: regardless of all this, for Income Tax purposes you should always report the dividend as arising on the payment date, not the XD date.

Of course that results in no difference if the XD date and payment date are in the same tax year.

rjp81

Yes, treating it as paid on ex-div date for CGT purposes and paid on payment date for income tax purposes should match the tax I'd pay if it had been income units.

I guess it's trickier if you don't sell all your holding - then you can't match it up exactly with the behaviour of income units. Without somehow applying B&B to the acc units, you'll end up with different cap gains to what you'd have if they had been income units. B&B would mean lower cap gains for this sale but higher in future sales, which may be beneficial or harmful to your tax depending on when you have CGT allowance to spare.