Capital Gain and Dividend on Accumulation Unit Trust

hoayun

Hi,

I’m having difficulty understanding how what proportion of a gain made on an Acc Unit Trust is Capital Gain and what is (notional) Dividend, in the following situation ?

ExDiv date of 1st June
Bought £1000 of fund XYZ on 1st Aug
Sold all units of fund XYZ on 1st Sept for £1100, so a total gain of £100, BUT how much is Capital gain and how much is (notional) dividend ?

Basically I want to be clear on this, so that I can report correctly to Inland Revenue for CGT and Dividend tax purposes.

My first post, so please go easy on me if this is a stupid question !!

Paul

hoayun

Vital info I forgot to add is that (notional) dividend is 1% in this example

[Deleted User]

Hi,

my pal google found this, might help,

Example

Fred buys 500 accumulation shares in an OEIC for £10,000. He keeps the shares for 10 years and there has been notional income of £3,000 over this period. He sells the holding for £18,000.

Sales Proceeds	£18,000
Cost of purchase	(£10,000)
Notional income	(£3,000)
Capital gain	£5,000

hoayun

Thanks for the reply Frugalmacdugal, but the example I’m struggling with is where (as in my example), the fund is only owned for 1 month and the record/exDiv dates are not during this month of ownership. All the examples and explanations I can find online have the fund being held through the ex-dividend date and hence it is (fairly) straightforward to workout how much is equalisation payment and how much is notional dividend, but I have yet to find an example like mine.

Since the fund in my example was only owned for one month and that month didn’t cross the record or ex-dividend dates, then would the dividend be 1/12th of the annual notional dividend of 1% ? … so 0.08333% of the £1000 purchase cost, which comes to £0.83 ?

This would then leave £99.17 for capital gain.

So in summary my “guess” is that the £100 gain in the fund over the month it was held is split as £0.83 notional dividend and £99.17 capital gain … does anyone come up with a different figure and if so can you share the calculations ?

[Deleted User]

Hi,

What is an ex-dividend date?

The ex-dividend date is the date on which you must own a share in order to qualify for the next dividend payment.

So, if you didn't hold the units on the ex-dividend date, and didn't receive the dividend, then nothing to declare.

hoayun

But with unit trust funds the dividends from the underlying shares are still being accrued in the fund and with accumulation funds these dividends are just reinvested, so I understood that the taxman requires these accrued dividends to be treated as income rather for the period the fund is held.

I think that’s the bit I’m struggling with the most … i.e should all the £100 gain be treated as capital gain as you say (since they were not held through ex-dividend date) or is a small part of the gain actually dividend, which of course it is, but is this how the taxman treats it.

If I take my original example of £1000 bought on 1st Aug, then sold a month later on 1st Sept for £1100, but this time just alter the ex-dividend date to 14th Aug, so the fund was held through the ex-dividend date, then in this case it is clear that the £100 gain would be mostly capital gain with a small part being dividend. To my mind I would expect that the ratio of capital gain versus dividend should remain unchanged irrespective of whether the accumulation fund was held for a month outside of the ex-dividend date (original example) or through it (modified example).

I can see that in both examples that I would be a “group 2” holder, so equalisation payments need to be considered in terms of tax liability.

Jeremy535897

What happens with accumulation funds is that the notional dividend is subject to income tax on the date it is "paid". You declare the notional dividend as income on that date, subject to the dividend tax rates and allowances, and add the same amount to your base cost. If you buy and sell before any notional dividend arises, there is no taxable income, and the capital gain is what you paid, less what you received (net of costs of purchase and sale). The accrued income scheme does not apply to such investments. The equalisation payment reduces the base cost for capital gains tax.

See https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2017#accumulation-units
https://www.gov.uk/government/publications/accrued-income-scheme-hs343-self-assessment-helpsheet/hs343-accrued-income-scheme-2019#what-are-securities

hoayun

Thank you both Frugal and Jeremy for your explanations here … it has really helped.

Jeremy, I’m especially pleased that I can treat the gain as all capital gain and not need to get into the complexities of equalisation payments and notional dividends in this case … it’s so much simpler !!

Having read a lot on these forums over the last couple of days, I can also see that in the future it is going to much simpler (from a tax point of view) for me to only buy income funds.

[Deleted User]

Hi,

or just stick them in S&S ISA, up to £20,000 per tax year, tax free.

You do not pay tax on:

• interest on cash in an ISA
• income or capital gains from investments in an ISA

If you complete a tax return, you do not need to declare any ISA interest, income or capital gains on it.