Share Pools And Accumulating Index Funds

Hi all,

If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)


Thanks!

Mark
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  • ColdIron
    ColdIron Posts: 8,639
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    edited 22 January at 7:35PM
    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?
    They are separate pools
    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting... 
    If it's accumulating there will be no automatic reinvestment by the provider
    If it's an income fund with dividend reinvestment, they are additional purchases
  • GeoffTF
    GeoffTF Posts: 1,328
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    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)
    If they are two funds, they are separate pools. The tax rules depend on the type of fund. Which funds are they?
  • EthicsGradient
    EthicsGradient Posts: 802
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    muldesia said:
    Hi all,

    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)


    Thanks!

    Mark
    If by "fund" you mean ETF (for which UK reporting status is most often important), then for a CG calculation, you take the amount of each ERI as a cost, so that would be one a year. If it's an OEIC (which can still sometimes be domiciled overseas, eg Ireland, so can also have UK reporting status, eg Vanguard Global Small-Cap Index Fund), it will be the accumulating amounts on which you pay income tax but remain in the OEIC which you use as a cost - which might be once a year, or might be more frequent (4 times a year  for that Small-Cap one).
  • muldesia
    muldesia Posts: 21
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    ColdIron said:
    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?
    They are separate pools
    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting... 
    If it's accumulating there will be no automatic reinvestment by the provider
    If it's an income fund with dividend reinvestment, they are additional purchases
    I'm confused, I thought that was the point in accumulation index funds, that the provider reinvests dividend income back into the index fund?  As opposed to income funds which distribute the dividend income to you instead?  I'm new to this, maybe I'm getting confused!
  • muldesia
    muldesia Posts: 21
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    GeoffTF said:
    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)
    If they are two funds, they are separate pools. The tax rules depend on the type of fund. Which funds are they?
    I'm considering the FTSE Developed World UCITS ETF - Accumulating (VHVG) and the FTSE Emerging Markets UCITS ETF - Accumulating (VFEG) with Vanguard.  Thanks!
  • GeoffTF
    GeoffTF Posts: 1,328
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    muldesia said:
    ColdIron said:
    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?
    They are separate pools
    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting... 
    If it's accumulating there will be no automatic reinvestment by the provider
    If it's an income fund with dividend reinvestment, they are additional purchases
    I'm confused, I thought that was the point in accumulation index funds, that the provider reinvests dividend income back into the index fund?  As opposed to income funds which distribute the dividend income to you instead?  I'm new to this, maybe I'm getting confused!
    That is true, but you have to pay tax on dividends whether they are reinvested or not, but you are not charged capital gains tax on the same money. Vanguard publishes a tax guide for their Ireland domiciled funds:
  • masonic
    masonic Posts: 22,809
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    muldesia said:
    ColdIron said:
    muldesia said:
    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?
    They are separate pools
    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting... 
    If it's accumulating there will be no automatic reinvestment by the provider
    If it's an income fund with dividend reinvestment, they are additional purchases
    I'm confused, I thought that was the point in accumulation index funds, that the provider reinvests dividend income back into the index fund?  As opposed to income funds which distribute the dividend income to you instead?  I'm new to this, maybe I'm getting confused!
    In an accumulating fund, the income received into the fund stays in the fund and is reinvested by the fund manager. In an income fund, the income is distributed and may be reinvested by the account provider if instructed to do so.
  • muldesia
    muldesia Posts: 21
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    muldesia said:
    Hi all,

    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)


    Thanks!

    Mark
    If by "fund" you mean ETF (for which UK reporting status is most often important), then for a CG calculation, you take the amount of each ERI as a cost, so that would be one a year. If it's an OEIC (which can still sometimes be domiciled overseas, eg Ireland, so can also have UK reporting status, eg Vanguard Global Small-Cap Index Fund), it will be the accumulating amounts on which you pay income tax but remain in the OEIC which you use as a cost - which might be once a year, or might be more frequent (4 times a year  for that Small-Cap one).
    I do indeed mean ETF index funds.  I'm considering the FTSE Developed World UCITS ETF - Accumulating (VHVG) and the FTSE Emerging Markets UCITS ETF - Accumulating (VFEG) with Vanguard. 

    I was just thinking, if I invest, as an example, £10,000 in VHVG that would get me X number of shares.  Over time, those shares distribute dividends.  Since this is accumulation fund, my understanding would be that Vanguard would reinvest that money back into the fund, so I would as an end result have more shares, but at a new price for those new shares.  This would happen again and again as dividends are given out.  When I then sell shares in that index fund, I assume that the share pool calculation would take place where you work out the average purchase price of the shares you have, and use that in the CGT calculation.  I was just thinking this might be complex if the accumulation account is constantly buying shares for you :)  Thanks!
  • masonic
    masonic Posts: 22,809
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    edited 22 January at 10:23PM
    muldesia said:
    muldesia said:
    Hi all,

    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)


    Thanks!

    Mark
    If by "fund" you mean ETF (for which UK reporting status is most often important), then for a CG calculation, you take the amount of each ERI as a cost, so that would be one a year. If it's an OEIC (which can still sometimes be domiciled overseas, eg Ireland, so can also have UK reporting status, eg Vanguard Global Small-Cap Index Fund), it will be the accumulating amounts on which you pay income tax but remain in the OEIC which you use as a cost - which might be once a year, or might be more frequent (4 times a year  for that Small-Cap one).
    I do indeed mean ETF index funds.  I'm considering the FTSE Developed World UCITS ETF - Accumulating (VHVG) and the FTSE Emerging Markets UCITS ETF - Accumulating (VFEG) with Vanguard. 

    I was just thinking, if I invest, as an example, £10,000 in VHVG that would get me X number of shares.  Over time, those shares distribute dividends.  Since this is accumulation fund, my understanding would be that Vanguard would reinvest that money back into the fund, so I would as an end result have more shares, but at a new price for those new shares.  This would happen again and again as dividends are given out.  When I then sell shares in that index fund, I assume that the share pool calculation would take place where you work out the average purchase price of the shares you have, and use that in the CGT calculation.  I was just thinking this might be complex if the accumulation account is constantly buying shares for you :)  Thanks!
    No, that's incorrect about getting more shares from income received by an accumulating fund. Your number of shares would stay the same and the share price would increase. Your total share price gain will therefore include both capital gain and income. You would need to calculate all of the income over the holding period (ERI) to deduct it before arriving at the capital gain.
  • muldesia
    muldesia Posts: 21
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    masonic said:
    muldesia said:
    muldesia said:
    Hi all,

    If I invest in two different index funds by the same provider, when it comes to Capital Gains Tax calculation, are they treated as being in two separate share pools?

    Also, if an index fund is non-ISA and is an accumulating one which has UK reporting status, does each reinvestment done automatically by the provider need to be treated as a separate purchase when it comes to working out the share pool when selling?  I'm wondering how arduous this is if it's consistently reinvesting...  Hope that makes sense! :)


    Thanks!

    Mark
    If by "fund" you mean ETF (for which UK reporting status is most often important), then for a CG calculation, you take the amount of each ERI as a cost, so that would be one a year. If it's an OEIC (which can still sometimes be domiciled overseas, eg Ireland, so can also have UK reporting status, eg Vanguard Global Small-Cap Index Fund), it will be the accumulating amounts on which you pay income tax but remain in the OEIC which you use as a cost - which might be once a year, or might be more frequent (4 times a year  for that Small-Cap one).
    I do indeed mean ETF index funds.  I'm considering the FTSE Developed World UCITS ETF - Accumulating (VHVG) and the FTSE Emerging Markets UCITS ETF - Accumulating (VFEG) with Vanguard. 

    I was just thinking, if I invest, as an example, £10,000 in VHVG that would get me X number of shares.  Over time, those shares distribute dividends.  Since this is accumulation fund, my understanding would be that Vanguard would reinvest that money back into the fund, so I would as an end result have more shares, but at a new price for those new shares.  This would happen again and again as dividends are given out.  When I then sell shares in that index fund, I assume that the share pool calculation would take place where you work out the average purchase price of the shares you have, and use that in the CGT calculation.  I was just thinking this might be complex if the accumulation account is constantly buying shares for you :)  Thanks!
    No, that's incorrect about getting more shares from income received by an accumulating fund. Your number of shares would stay the same and the share price would increase. Your total share price gain will therefore include both capital gain and income. You would need to calculate all of the income over the holding period (ERI) to deduct it before arriving at the capital gain.
    Ahhh, I see.  I think that's the bit I was missing.  Okay, that makes things more manageable then!  Many thanks for your help!
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