SONIA (GBP) funds/ETFs

spider42

GeoffTF said:

The RL fund pays dividends twice a year. My conclusion was that I was not clear that Parliament intended this course of action. (Accrued interest was introduced for gilts to prevent it.) I take a lot of care to ensure that my tax returns are within the letter and spirit of the law, but everyone can make mistakes, and I would rather not attract additional scrutiny.

On the contrary, the fact that Parliament has introduced legislation to prevent it on gilts and other corporate bonds, but hasn't introduced a similar restriction on unit trusts / OEICS (or indeed on ordinary shares or preference shares) very clearly demonstrates that Parliament didn't intend to have an adjustment to taxable income if selling before the ex-divi date on any assets other than bonds.

If they had intended to do so, then they would have introduced legislation similar to the accrued income scheme to prevent it. HMRC own guide to the accrued income scheme very clearly states that it does not apply to these assets - see https://www.gov.uk/government/publications/accrued-income-scheme-hs343-self-assessment-helpsheet/hs343-accrued-income-scheme-2021#securities

HMRC state:

The Accrued Income Scheme does not apply to:

• shares in a company, or holdings in a unit trust or other collective investment scheme, even if they pay you a regular return that is like interest

This is not a "loophole" that they are unaware of and is being exploited. They actively tell you that the accrued income scheme does not apply to unit trusts.

spider42

eskbanker said:

spider42 said:

eskbanker said:
The gotcha to be considered would be the thirty day rule if you're trying to optimise CGT liability, i.e. if you repurchased the asset within 30 days of selling, it wouldn't make use of a capital gains allowance....

Why not? You would be selling at the price before it goes ex-div (higher), and repurchasing shortly afterwards at the ex-div price (lower). The sale would be matched against the future purchase at a lower price. You would therefore make a capital gain and use the annual exemption.

But by virtue of the matching within 30 days, the sale doesn't count as a disposal for CGT purposes and therefore doesn't use the annual exemption.

I'm afraid you've totally misunderstood the 30 day rule! The sale does count as as a disposal, but the shares sold are matched against any purchases in the following 30 days, rather than against shares acquired in the past, as would usually be the case. Usually, the share price on the sale and on the repurchase will be roughly the same, preventing you from creating a significant capital gain. This generally prevents you from realising a gain to use the annual exemption in shares that have grown substantially since the original purchase date.

GeoffTF

spider42 said:

GeoffTF said:

The RL fund pays dividends twice a year. My conclusion was that I was not clear that Parliament intended this course of action. (Accrued interest was introduced for gilts to prevent it.) I take a lot of care to ensure that my tax returns are within the letter and spirit of the law, but everyone can make mistakes, and I would rather not attract additional scrutiny.

On the contrary, the fact that Parliament has introduced legislation to prevent it on gilts and other corporate bonds, but hasn't introduced a similar restriction on unit trusts / OEICS (or indeed on ordinary shares or preference shares) very clearly demonstrates that Parliament didn't intend to have an adjustment to taxable income if selling before the ex-divi date on any assets other than bonds.

If they had intended to do so, then they would have introduced legislation similar to the accrued income scheme to prevent it. HMRC own guide to the accrued income scheme very clearly states that it does not apply to these assets - see https://www.gov.uk/government/publications/accrued-income-scheme-hs343-self-assessment-helpsheet/hs343-accrued-income-scheme-2021#securities

HMRC state:

The Accrued Income Scheme does not apply to:

• shares in a company, or holdings in a unit trust or other collective investment scheme, even if they pay you a regular return that is like interest

This is not a "loophole" that they are unaware of and is being exploited. They actively tell you that the accrued income scheme does not apply to unit trusts.

You may be right, but I decided that I did not want to take the risk or draw attention to myself. It would not have helped me much anyway. You could, of course, ask HMRC for confirmation that bond washing for collectives is acceptable.

eskbanker

spider42 said:

eskbanker said:

spider42 said:

eskbanker said:
The gotcha to be considered would be the thirty day rule if you're trying to optimise CGT liability, i.e. if you repurchased the asset within 30 days of selling, it wouldn't make use of a capital gains allowance....

Why not? You would be selling at the price before it goes ex-div (higher), and repurchasing shortly afterwards at the ex-div price (lower). The sale would be matched against the future purchase at a lower price. You would therefore make a capital gain and use the annual exemption.

But by virtue of the matching within 30 days, the sale doesn't count as a disposal for CGT purposes and therefore doesn't use the annual exemption.

I'm afraid you've totally misunderstood the 30 day rule! The sale does count as as a disposal, but the shares sold are matched against any purchases in the following 30 days, rather than against shares acquired in the past, as would usually be the case. Usually, the share price on the sale and on the repurchase will be roughly the same, preventing you from creating a significant capital gain. This generally prevents you from realising a gain to use the annual exemption in shares that have grown substantially since the original purchase date.

Yes, you're right - I was misunderstanding the situation and agree that there is scope for a small gain, I was looking at it from that traditional bed & breakfast approach of trying to crystallise significant CGT gains or losses since original acquisition but this is a different scenario!

C_Mababejive

Hi all,

i have another question and im sure the answer is really obvious but not to me

on 24/10/23 i purchased in my SIPP

Royal london short term money market Y Acc  11,171.3716 units  price £1.07404  total £12,000

my account shows;

29/12/23 acc distribution  amount £303.44
29/12/23 equalisation units £151.26

My valuation statement today says with respect to this product;

quantity 11,171.3716
price 1.08832
value 12,158.03
cost 12,152.18
change £5.85
change % 0.05

Can anyone explain in simple terms what is going on here?

I know the ex divi date was around the 1/11/23 and the payment date would have been end Dec 23

How is the value or increase in value in my investment reflected in the above ??

Thanks all

EthicsGradient

With accumulation units, the 'cost' includes the income that has been reinvested in the units (this would be important if you held them in a general account, rather than a SIPP, but they're showing you the calculation anyway). In the first period after you buy a fund, the distribution is split into equalisation, and income - and 303.44 - 151.26 = 152.18. They have added that £152.18 onto the cost shown for the fund. If you held it outside a SIPP, you'd be liable for income tax on £152.18, and the capital gain would be 12158.03-12152.18=£5.85. But inside a SIPP, you don't pay either tax.

In your SIPP, the value has gone up from £12,000 to £12,158.03.

aroominyork

With Sterling money market funds returning around 5.5% are they a better short-term choice than UK or global gilt/aggregate index funds, unless you think base rates will fall more quickly than is priced in?

cloud_dog

SONIA / SOIA are yielding c. 5.18% (minus c. 0.07% fund charge, so c. 5.1%, minus any platform charge)..

aroominyork

True, though Royal London Short Term Fixed Income aims for SONIA+0.5% (-0.15% fund charge). Unless you want a near guarantee of SONIA+ performance (MM-type funds), it offers the likelihood of better returns with very low volatility.