Lindsell Train investment

bowlhead99

aroominyork said:

bowlhead99 said:

However if you're not doing this in a tax wrapper like an ISA or SIPP, you may prefer to see the cash amounts arrive as a prompt for you to track the taxable income you're making and the cost of what has been reinvested, to help with your tax bills (or to prove you don't have a tax bill). With an ACC fund the income reinvestment happens inside the fund without a cash movement to/from you, so you have to rely on the year end statement to do your tax work.

Am I right in thinking that the dividend allowance means that you don't have to pax tax on the first £2000 of income from investment funds held outside tax wrappers? 

Effectively yes, though in practice the 'allowance' is only really a £2000 band of taxable income in which the dividend income is taxed at 0% rather than 7.5%, 32.5% etc. 


If having the dividend income (albeit at 0% tax rate) causes your total income to go over a threshold into the next tax bracket, it may still create extra tax for you (e.g. your personal savings allowance drops from £1000 to £500 if you're over the high rate threshold, your income above £100k causes your personal allowance to taper etc) even if the dividend itself didn't need to be taxed.

When eventually selling an unwrapped fund, the dividend income which was received and reinvested behind the scenes is a qualifying part of your expenditure when considering how much you paid for the shares in total for the purposes of your CGT bill. So someone could get £1-2k of dividends every year from their £50-£100k fund investment, and not be worried about the dividend tax because of the 0% band, but then when they come to sell the fund a decade later and it has doubled in value so they have a potential CGT bill, it would be really annoying not to have tracked those reinvested dividends properly and be left with a lower base cost to set against the investment proceeds, creating a £10-20k larger  capital gain than was really the case.

There is also the fact that even if there's no tax to pay you still need to maintain records so you can show that the income is below the level that there's no tax to pay. So people with 'below £2k a year' levels of dividend income in ACC funds should still take an interest, and using an INC fund gives you the cashflow information on the face of your cash account summary to remind yourself what was going on and dig out the tax vouchers for it.