ETFs, ERI, capital gains base and sales - maybe partial

EthicsGradient

I have made a partial sale, from a general account (ie not a SIPP or ISA) of a holding in an (accumulation) ETF - in the period between the end of the ETF's accounting year, and the point 6 months later when the ERI is revealed, and the ERI is held to be taxable, based on the number of shares held at the end of the accounting year - but it can be listed as a cost that adjusts the base for capital gains calculations.

The general concept seems to be that the ERI is subject to income tax, 6 months after the end of the accounting year, but that, like an accumulating OEIC, is treated like an extra purchase at that point. So I'd think the tax treatment, using an illustration, should be like:

2000 shares bought @ £30 each "a long time ago" (this may be one original purchase, or the purchase plus various ERI of past years);
31st Dec 2021: end of accounting year
1st May 2022: 600 shares sold @ £40.
30th June 2022: ERI of £1.20/share declared.
30th June 2022: taxable income of £1.20*2000=£2,400 arises
CGT calc: since the 600 shares were sold before the ERI arose, that ERI does not affect the cost basis of that sale. So that is:
600 shares bought @ £30=cost of £18,000; CG = £24,000 - £18,000 = £6,000
cost basis of remaining 1400 shares = 1400*£30 + £2,400 = £44,400 (or £31.71/share)

But then, what if I had sold the entire holding - and had sold it in the 2021-22 tax year? At the end of that 2021-22 tax year, I'd need to work out the capital gain, but couldn't, until that ERI was declared in June 2022 - and does that then become allowable as part of the cost basis of the sold shares after all - when, in the calculation above, I made it all part of the cost basis of the shares still held on 30th June?

Yes, I know now that ERI is a pain in the **** for tax calculations. But it's too late to say "only buy ETFs in a tax sheltered account, to keep yourself sane". Does that calculation above make sense? Or should the ERI, when known, be split, for the cost basis, between the 600 shares sold, and the remaining 1400?

dales1

Try this page of the HMRC internal manual

https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13372 

Which, I think, is trying to say that if you have sold them all before the normal deemed ERI distribution date,

you can exceptionally treat the ERI as received immediately before the disposal.

Hence you can still include it in your CGT relief calcs.

EthicsGradient

Thank you, dales1 - that's exactly what I needed, and your explanation makes sense - that the distribution date is normally used as when the expenditure is held to have occurred, but that when the entire holding has been sold, there's the special exception, so that you don't get "double taxed".

Which allows me to know how much CGT allowance I have left this year.

EthicsGradient

Update: I asked the question on what happens with a partial disposal on the HMRC forums, and they've come back saying you should always split the ERI - so for the proportion sold, you treat its part of the ERI as an acquisition cost of it right before the sale, and for the proportion kept, on the normal date.

https://community.hmrc.gov.uk/customerforums/cgt/d637e469-ae5f-ed11-97b0-00155d9c7b3d