Selling Fund Units

[Deleted User]

Just suppose you have 500 units in an income fund, and those units are made up of say 400 group 2 units and 100 group 1 units.  Now if you then sell 200 units before the next div date, how do you work out how your remaining units (300 in this example) are made up of group 1 and 2.   I think I'm right in saying that you would pro-rata the sale amount between the original capital invested and the actual gain, but would you need to do something similar to determine the portions of the remaining units for the 2 groups.

I'd appreciate it if someone can explain what happens in this scenario.

tacpot12

The answer will depend on whether the 100 group 1 units were bought within 30 days of the sale of the 200 units. If they were, then the rules say that you have sold all your group 1 units and 100 of your group 2 units.

If the 100 group 1 units were not bought within 30 days of the sale of the 200 units, the gain is based on the average purchase price of the 500 units, and the sale price of the 200 units.

So lets say you purchased the 400 group 2 units a couple of years ago at £1 per unit, and you purchased the 100 group 1 units 35 days ago at £2 per unit. 

Your average purchase price of the 500 units is £600 or £1.2 per unit. 
You sell 200 units for £2.10 per unit. 

Your gain is the difference between the sale proceeds (200 * £2.10 = £420) and the average purchase price of the units you have sold (200 * £1.2 = £240), which is £180

You are left with 300 units that had an average purchase price of £1.2 per unit.  If you buy more units in the same fund, you will need to recalculate the average purchase price for the unit you now hold.
   


 

eskbanker

It's not clear to me what you mean by groups of units?

If you mean that there is something tangible that distinguishes between two (sub)types of holding, such as fund classes, then you should be able to choose exactly which ones you sell.

If, on the other hand, you simply mean that they're identical units that were bought at different times/prices and you're wanting to work out CGT, then you simply pool them all together at a harmonised average acquisition cost rather than retaining them as separate groups.

Or do you mean something else altogether?

ColdIron

I think the OP is referring to group 1 and group 2 investors with respect to dividends and equalisation payments which is somewhat  separate to CGT matters. I don't know the technical answer to the query but it should be detailed in the consolidated tax certificate

underground99

[Deleted User] said:

Just suppose you have 500 units in an income fund, and those units are made up of say 400 group 2 units and 100 group 1 units.  Now if you then sell 200 units before the next div date, how do you work out how your remaining units (300 in this example) are made up of group 1 and 2.   I think I'm right in saying that you would pro-rata the sale amount between the original capital invested and the actual gain, but would you need to do something similar to determine the portions of the remaining units for the 2 groups.

I'd appreciate it if someone can explain what happens in this scenario.

The easiest thing to do is to wait until you reach that next ex-dividend date, when you're holding the remaining 300 units, and when they give you the tax voucher for that distribution on the 300 units they will tell you how many of your units they believe to be group 1 and how many group 2, because they will be giving you that info as part of telling you your income vs equalisation.

Then if you don't like the answer, dispute it and ask how they calculated it.

[Deleted User]

ColdIron said:

I think the OP is referring to group 1 and group 2 investors with respect to dividends and equalisation payments which is somewhat  separate to CGT matters. I don't know the technical answer to the query but it should be detailed in the consolidated tax certificate

You are 'spot on' to what I'm asking.  Please refer to my further comments below!!

[Deleted User]

My query is nothing to do with CGT, but more about dividend tax.  Let me elaborate further. 


In the example I give in my OP, if I don't sell any of my 500 units, then the 400 units in group 2 will have the equalisation payment against them.  The other 100 from group 1 will not have any equalisation.  However, if I then sell 200 units,(for simplicity we shall assume that the 30 day rule does not come into play), how will this affect the equalisation payment.  I have 300 units left; so, do I say that the 200 units have reduced the group 2 units or the group 1 units, or perhaps some combination of the 2 groups. IF so, how and what determines it

It seems to me that how this calculation is worked out, would have implication to the total dividend income,  and therefore the potential amount of income tax on the dividend. (if any).  However, from what BOWLHEAD99  is saying, this is a contentious calculation and one has to rely on the info from the platform.  Interesting to note though, that you may be able to dispute  their calculation.