Excessive Reportable Income

Dilbert_Investor

If you sell an accumulating fund after the reporting period what happens to the excessive reportable income on the distribution date (which can be six month later).

Is it paid as income instead?

Grateful if anyone knows.

Linton

As I understand it... 

For UK funds there is no excess income, dividends are continually paid into the fund as they are received.  Fund dividends must match the income received by funds. The distribution date for ACC funds is for tax purposes.

It actually works the other way round with complications when you buy.  Your first fund dividend will be based on dividends received  by the fund before and after you owned the units.  Those received before you bought the units are regarded for tax purposes as repayment of part of the initial cost and so are not taxed as income. This is known as "equalisation".

This approach means that ACC are charged the same amount of income tax as corresponding INC funds.

Non UK funds are different. See: 

https://monevator.com/excess-reportable-income/
and

https://www.canaccordgenuity.com/4a7b8c/globalassets/wealth-management-uk/documents/legal/2021/f1106-excess-reportable-income-and-income-equalisation-explained-october-2021-aw.pdf

ColdIron

Isn't it Excess Reportable Income (which may or may not be excessive)?

Dilbert_Investor

Sorry, yes Excess.

There are non UK funds. 

I want to swap into the income equivalent instead as the tax is getting a bit complex, but don’t want to lose out if the distribution is made after selling the accumulation units.

wmb194

There are no cash distributions relating to this. It's effectively to do with the internal accounting of the fund/ETF i.e. not all income has been paid out as a UK domiciled fund is required to do and it's instead retained within the fund. You still need to include it in your tax return if you held them on the ex-date for the excess distributable income.

Dilbert_Investor

Thanks wmb194.

So I’ll need to pay the tax as I will have received the benefit in the reporting period.

Aidanmc

I'm also interested in this.

So the accumulation fund i have (non-Uk) the reporting period is 31/12/22 and the distribution date won't be until 30/6/23

Is the ERI added to the fund prices on 30/6/2023 or gradually over the 6 month period?

The fund i have is Guinness Global Equity Income Fund Class Y Eur Accumulation.

If i sell the fund before 30/6/23, i still have to declare ERI on tax return?

AndyTh_2

Dilbert_Investor said:

Sorry, yes Excess.

There are non UK funds. 

I want to swap into the income equivalent instead as the tax is getting a bit complex, but don’t want to lose out if the distribution is made after selling the accumulation units.

ERI still can happen on some non-UK income funds/ETFs (for instance VWRL does) but possibly not all. Its reinvested into the funds, but income funds lose share value proportionally to their income distributions so you get no benefit in changing to non-UK income distributions that still include ERI (unless it makes you get more dividend income tax that you wouldn't have otherwise, but bear in mind there's a tax free dividend allowance)

EthicsGradient

Aidanmc said:

I'm also interested in this.

So the accumulation fund i have (non-Uk) the reporting period is 31/12/22 and the distribution date won't be until 30/6/23

Is the ERI added to the fund prices on 30/6/2023 or gradually over the 6 month period?

The fund i have is Guinness Global Equity Income Fund Class Y Eur Accumulation.

If i sell the fund before 30/6/23, i still have to declare ERI on tax return?

As wmb194 says, for an accumulation fund, this is about internal accounting, and there is no addition to fund prices (the income was actually received by the fund during 2022). 

Yes, you do have to declare it on a return, for all you held on 31/12/22. For the amount you sell, you should declare it "immediately before" the disposal (what that would mean for a disposal on 6th April 2023, ie the first day of the new tax year, I'm not sure - does "immediately before" mean the second before, or the day before? Best not to sell on 6th April, I'd suggest). If you sell only part of it, then you declare the ERI in proportion - just before the sale date for that part, and on 30th June for what you retain - I asked HMRC on their forum (trying to work out how the ERI is apportioned for capital gains calculations): https://community.hmrc.gov.uk/customerforums/cgt/d637e469-ae5f-ed11-97b0-00155d9c7b3d

"Where a participant receives an amount in respect of an interest in a reporting fund which is chargeable to tax as income but that amount is received (or treated as received) after the date of the disposal of the interest the amount is treated as received immediately before the disposal for the purposes of regulation 99."
https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13372