Tax on Money Market Fund Accumulation

flat_white_

Hi guys, I have been investing in Fidelity Cash Fund Accumulation as a way to earn higher interest. Just wondering how do people deal with the tax return? Completely understand the discussion here are not tax advice.

My understanding is that Money Market Funds are meant to be taxed as interest income rather than capital gain (though I did see comments here saying that like any bond fund, the fund can generate both interest and capital gains. I see the argument that the OEIC could technically be generating gains from both, but I don't believe the split is disclosed to the investors?)

If I have bought and sold the fund units within the financial year and have made a gain, I presume I just declare the gains as interest income? 

What about those units that I have bought but not yet disposed of at the end of the financial year? Would the unrealised gains only be taxable, or only when they are sold in the future? 

I use II, and I can see that the II platform does not treat these OEICs as interest distribution hence no tax certificates. I will have to work out the gains from my transaction histories...

GeoffTF

You will have to pay tax on income and capital gains:

https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives#anchor_8

ColdIron

flat_white_ said:

If I have bought and sold the fund units within the financial year and have made a gain, I presume I just declare the gains as interest income?

I wouldn't.I am guessing that this is not held in an ISA or a SIPP

You should receive a Consolidated Tax Certificate some time after the end of the financial year detailing dividends and interest received even when they are retained within your Accumulation funds. HMRC will accept this as an accurate statement

What about those units that I have bought but not yet disposed of at the end of the financial year? Would the unrealised gains only be taxable, or only when they are sold in the future?

The interest and dividends are taxed for the year that you receive them

Your gains (if any) would only be taxable under CGT on disposal (when you sell them)

I use II, and I can see that the II platform does not treat these OEICs as interest distribution hence no tax certificates. I will have to work out the gains from my transaction histories...

You won't receive the interest as a distribution as it's in an Acc fund where they are retained within the fund. I would be surprised if they didn't provide a tax certificate sometime in the summer of this year. How long have you had it? Did you buy it in the 2022/23 financial year? You say you "bought and sold the fund units within the financial year"

flat_white_

GeoffTF said:

You will have to pay tax on income and capital gains:

https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives#anchor_8

Thank you !

flat_white_

ColdIron said:

flat_white_ said:

If I have bought and sold the fund units within the financial year and have made a gain, I presume I just declare the gains as interest income?

I wouldn't.I am guessing that this is not held in an ISA or a SIPP

You should receive a Consolidated Tax Certificate some time after the end of the financial year detailing dividends and interest received even when they are retained within your Accumulation funds. HMRC will accept this as an accurate statement

What about those units that I have bought but not yet disposed of at the end of the financial year? Would the unrealised gains only be taxable, or only when they are sold in the future?

The interest and dividends are taxed for the year that you receive them

Your gains (if any) would only be taxable under CGT on disposal (when you sell them)

I use II, and I can see that the II platform does not treat these OEICs as interest distribution hence no tax certificates. I will have to work out the gains from my transaction histories...

You won't receive the interest as a distribution as it's in an Acc fund where they are retained within the fund. I would be surprised if they didn't provide a tax certificate sometime in the summer of this year. How long have you had it? Did you buy it in the 2022/23 financial year? You say you "bought and sold the fund units within the financial year"

I may have misunderstood the sentence "Where the market value of the fund is made up of more than 60% of cash or fixed interest securities such as gilts or corporate bonds, the fund will be classed as a non-equity fund and income is treated as interest." in this link (https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives#anchor_5). I thought the term "income" in the sentence refers to all "gains" from the "trade", but reading it again, maybe it only refers to distributions from the fund? In which case, I presume II is correct in not generating any CTCs - the fund did not pay any distribution during my holding period, hence there have been no interest or dividend. II only generates CTCs on events of distribution.

I have seen a few people drawing the same conclusion as me from the link cited above. If it is in fact CGT that's applicable, is it fair to say that Money Market Fund Acc is a much more tax efficient way to gain interest, vs say high interest Easy Access Account? Obviously not entirely the same risk profile given MMFs exposes you to market risks (though very low). FSCS is another consideration but may be trivial if your sum is above 85k (and OEIC and fund platforms like II are subject to CASS regulations anyway).

GeoffTF

flat_white_ said:

ColdIron said:

flat_white_ said:

If I have bought and sold the fund units within the financial year and have made a gain, I presume I just declare the gains as interest income?

I wouldn't.I am guessing that this is not held in an ISA or a SIPP

You should receive a Consolidated Tax Certificate some time after the end of the financial year detailing dividends and interest received even when they are retained within your Accumulation funds. HMRC will accept this as an accurate statement

What about those units that I have bought but not yet disposed of at the end of the financial year? Would the unrealised gains only be taxable, or only when they are sold in the future?

The interest and dividends are taxed for the year that you receive them

Your gains (if any) would only be taxable under CGT on disposal (when you sell them)

I use II, and I can see that the II platform does not treat these OEICs as interest distribution hence no tax certificates. I will have to work out the gains from my transaction histories...

You won't receive the interest as a distribution as it's in an Acc fund where they are retained within the fund. I would be surprised if they didn't provide a tax certificate sometime in the summer of this year. How long have you had it? Did you buy it in the 2022/23 financial year? You say you "bought and sold the fund units within the financial year"

I may have misunderstood the sentence "Where the market value of the fund is made up of more than 60% of cash or fixed interest securities such as gilts or corporate bonds, the fund will be classed as a non-equity fund and income is treated as interest." in this link (https://techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives#anchor_5). I thought the term "income" in the sentence refers to all "gains" from the "trade", but reading it again, maybe it only refers to distributions from the fund? In which case, I presume II is correct in not generating any CTCs - the fund did not pay any distribution during my holding period, hence there have been no interest or dividend. II only generates CTCs on events of distribution.

I have seen a few people drawing the same conclusion as me from the link cited above. If it is in fact CGT that's applicable, is it fair to say that Money Market Fund Acc is a much more tax efficient way to gain interest, vs say high interest Easy Access Account? Obviously not entirely the same risk profile given MMFs exposes you to market risks (though very low). FSCS is another consideration but may be trivial if your sum is above 85k (and OEIC and fund platforms like II are subject to CASS regulations anyway).

You will have to pay tax on distributions even if it is an accumulating fund. (An accumulating fund, in effect, reinvests the distributions for you). You will also have to pay CGT if you sell units in the fund and make a capital gain, over and above those distributions. (All subject to exceeding your allowances.)

The returns from the ETF CSH2 are mostly taxed as capital gains, but that is a Luxembourg domiciled fund, so the rules are more complicated, and outside the scope of the article that I linked.

ColdIron

All the 60% threshold concerns is the way in which 'income' is treated, dividends or interest. Nothing whatsoever to do with capital gains

Imagine you had a multi asset fund with a mix of dividend producing equities (stocks and shares if you like) and interest bearing bonds (or MMFs). If the fund was 50/50 equities/bonds it would be classed as a dividend. If it was 20/80 it would be interest and just to reinforce the point: Nothing whatsoever to do with capital gains

If you have an Acc fund you won't get a cash distribution into your account as you would with an Inc fund as it is simply retained within the fund but make no mistake you did benefit from the dividend or interest and it certainly is taxable in the same way

If you only bought it in the 2023/24 tax year you won't receive a tax certificate until later in this year

flat_white_

I think we are on the same page. I am not familiar with CSH2, but just look at Fidelity Cash Accumulation - There had been no "distribution" during my holding period in FY22/23. All I got were unit price appreciations, presumably all subject to CGT. 

GeoffTF

flat_white_ said:

I think we are on the same page. I am not familiar with CSH2, but just look at Fidelity Cash Accumulation - There had been no "distribution" during my holding period in FY22/23. All I got were unit price appreciations, presumably all subject to CGT. 

The distributions are at the beginning of March each year:

https://www.fidelity.co.uk/factsheet-data/factsheet/GB00BD1RHT82-fif---fidelity-cash-fund-w-accumulation/dividends

You get them in cash with the distributing version. They are reinvested but still taxed as income for the accumulation version. You may also have a CGT liability when you sell. The link that I gave gives this 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

There is no adjustment for ‘equalisation payments’ on the notional distributions from accumulation shares. That’s because the capital has not been returned to the investor and therefore does not alter the acquisition cost.