How does compound interest work with investing eg accumulation funds?

22225

Thank you all

lr1277

If you are not aware, the fund units added to your holding in lieu of a dividend payment are liable for income tax. So though you didn't receie any money, you might have to pay tax on those additional units.

As you don't mention whether this fund ia an ISA or not, here are the 2 scenarios:

If the accumulation fund is in an ISA, then no tax to pay.

If the accumulation fund is a General Investment Account, then you need to add the value of the additional units to the correct place in your tax return.

My stockbroker sends out a report to each account holder of a general investment account, showing the various incomes and the section of the tax return to which they should be added.

ColdIron

lr1277 said:

If you are not aware, the fund units added to your holding in lieu of a dividend payment are liable for income tax.

To be clear, units are not added with Acc funds, the unit price increases. There are no additional units, that only happens with Inc funds if you reinvest the dividend payment

lr1277

ColdIron said:

lr1277 said:

If you are not aware, the fund units added to your holding in lieu of a dividend payment are liable for income tax.

To be clear, units are not added with Acc funds, the unit price increases. There are no additional units, that only happens with Inc funds if you reinvest the dividend payment

My mistake, not sure where I got that idea from. Apologies.

The tax part stands, though. HMRC document on the subject here:

https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm03120

ColdIron

Absolutely, dividend payments are taxable Acc or Inc, it doesn't matter where they end up