Money market funds

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  • Linton
    Linton Posts: 17,100 Forumite
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    edited 12 November 2023 at 5:41PM
    Some funds pay interest/dividends (INC funds), others reinvest the interest/dividends in the fund as it is received from the underlying investments (ACC funds).  You need to know which one you want to buy and make sure you get the right one.  Often funds come in both varieties.

    INC funds will rise in value on the days before the interest/.dividends are paid and drop afterwards.  So you cant make a quick gain by buying just before the pay-out date and selling afterwards.

    If you are not using a tax sheltered account both ACC and INC funds are liable to dividend or interest tax as appropriate.  Since you never actually see the ACC fund dividends/interest how the tax is handled gets a bit messy.  So some people just hold INC funds iin their unsheltered accounts.
  • GeoffTF
    GeoffTF Posts: 1,437 Forumite
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    edited 12 November 2023 at 7:31PM
    These funds are taxed as both income and capital gains. You do not get a tax bill. You have to work out the income that you are deemed to have received (you may not receive some or all of it) and the capital gain you have made, and declare them on your tax return. You will have to pay interest and may be fined if you get it wrong. You need to do some studying to understand how these funds work and how they are taxed, or hire an accountant.
  • dunstonh
    dunstonh Posts: 116,252 Forumite
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    I found with one big name provider in a DC pension, the MMF units roll up a little bit every day ,Tuesday to Friday evening times, nothing occurs Saturday or Sunday and then it rolls up the equivalent of 3 days on the Monday evening. 
    However on another big name provider these/there MMF units in a GIA tend to rise like the above and then on the 1st day if the next month, the overall value goes down an amount as the unit re-datums to £1.00 I think and then the £1.00 rolls up and about the 8th or 9th of the month, the drop of X £s which occurred on the 1st day gets paid as a dividend in to the cash bucket of the GIA. 

    The vast majority of life & pension funds are ACC units.     UT/OEICs can be ACC or INC.  Hence the difference in how it is handled.

    All very strange to me as think I read on hear MMF increases are interest, but it appears the unit price just keeps rolling up on one and the other one keeps paying a dividend every month. 
    ACC units will continue to rise in price.  INC units will reset when the income is distributed.  If the income is reinvested, then the unit count will increase and give the same outcome as ACC units.

    I suspect none of these MMF units attract potentially taxable income and so HMRC do not get as such advised I hope.

    They are taxed according to the tax wrapper they are in (or not if unwrapped)





    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • GeoffTF
    GeoffTF Posts: 1,437 Forumite
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    Money market funds made sense outside a tax shelter when even the top paying easy access accounts were paying much less than base rate. That is no longer true. You will get less than base rate from a money market fund, even before costs. They now do not make much sense outside a tax shelter for most private investors. They can still make sense within a tax shelter that does not allow bank deposits paying market leading rates though.
  • SVaz
    SVaz Posts: 248 Forumite
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    Ours are in our SIPPS.  They will be sold in around 4 years time ( as long as interest rates stay up) to provide income so is there an optimum time to sell, as in right after a dividend is paid?  
  • Hoenir
    Hoenir Posts: 1,935 Forumite
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    edited 13 November 2023 at 7:01PM
    MMF's will also generate capital gains on the some of the underlying investments as they approach their maturity date. Not purely interest income.  
  • dunstonh
    dunstonh Posts: 116,252 Forumite
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    Hoenir said:
    MMF's will also generate capital gains on the some of the underlying investments as they approach their maturity date. Not purely interest income.  
    The underlying assets in a fund cannot generate capital gains tax for investors.     The investor holds the fund.  Not the underlying investments.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Hoenir
    Hoenir Posts: 1,935 Forumite
    First Post Name Dropper
    edited 13 November 2023 at 9:48PM
    dunstonh said:
    Hoenir said:
    MMF's will also generate capital gains on the some of the underlying investments as they approach their maturity date. Not purely interest income.  
    The underlying assets in a fund cannot generate capital gains tax for investors.     The investor holds the fund.  Not the underlying investments.
    Assets bought at below nominal par value will generate a capital gain for the fund upon maturity. This gain will be reflected in the current price of the investment. I've made no reference to a capital gains tax liability as is a totally separate matter. There's considerable misunderstanding by some investors as to how these funds generate their overall investment returns. 
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