CSH2: taxation and performance

aroominyork

I have feeling this could open issues such as excess reportable income which I don't (yet) understand, but are CSH2 gains taxed as interest or capital gain?

AndyTh_2

Recent years its had 0 ERI and 0 dividends, so would be entirely capital gains on disposal. However in the past it's issued ERI.

Amundi Asset Management (the fund provider) push you to https://www.kpmgreportingfunds.co.uk/ for their UK reports, where you can register and access their reports (search ISIN LU1230136894)

You may still have to keep an eye out for UK reports for it for if that changes, only so far reports up to end of reporting period 31/10/2022 have been published

(edit: sorry for all the edits, just I did more fact checking)

masonic

There was some discussion around this not so long ago here: https://forums.moneysavingexpert.com/discussion/6489744/csh2-income-or-capital-gains
Being swap-based, it hasn't been generating any actual income from underlying holdings, but did in the past.

aroominyork

So if it continues not to generate income, I would pay CGT (10% basic) on gains when I sell. But if it shows ERI I would pay income tax (20% basic). Is the ERI an actual distribution made to investors or is it 'hidden' within  accumulation units? If the latter, would it account for all of the gain, or would I somehow (how??) have to separate out the ERI and the capital gain and disclose them separately on my self-assessment?

masonic

aroominyork said:

So if it continues not to generate income, I would pay CGT (10% basic) on gains when I sell. But if it shows ERI I would pay income tax (20% basic). Is the ERI an actual distribution made to investors or is it 'hidden' within  accumulation units? If the latter, would it account for all of the gain, or would I somehow (how??) have to separate out the ERI and the capital gain and disclose them separately on my self-assessment?

ERI is income that is not distributed. A fund like this is set up to generate a mixture of ERI and capital gain. In recent years the ERI has been zero. If there was ERI in the future, it is unlikely it would account for all of the gain. The swap is bound to generate some of the returns as capital gain.

The process of accounting for ERI is to look up the income per share and multiply by the number of shares you held on the relevant date. This would be reported as foreign interest. The remainder would be capital gain. The annual capital gain does not need to be declared on a tax return. You only need to tell HMRC if you make disposals that meet the requirements for reporting.

This is not a holding I'd be keen to put in an unwrapped account, but the maths is not so difficult if you can get the information.

AndyTh_2

masonic said:

 This would be reported as foreign interest. The remainder would be capital gain.

however ERI would be due in the tax year of 6 months after the ETF's reporting end date, regardless of disposal or holding on to the asset, whereas the capital gain due only on disposal with the ERI as an allowable expense that will reduce the capital gain (similarly to notional dividends from accumulation units).

aroominyork

It looks complicated unwrapped if there is ERI but not if only capital gain. Is there a better pseudo-cash option if PSA is used up but I have spare CGT allowance?

AndyTh_2

aroominyork said:

It looks complicated unwrapped if there is ERI but not if only capital gain. Is there a better pseudo-cash option if PSA is used up but I have spare CGT allowance?

Have you thought of a Stocks and Shares ISA (or even a real cash option like Cash ISA), there's no tax on that so you don't need to track income and gains from that.

aroominyork

AndyTh_2 said:

aroominyork said:

It looks complicated unwrapped if there is ERI but not if only capital gain. Is there a better pseudo-cash option if PSA is used up but I have spare CGT allowance?

Have you thought of a Stocks and Shares ISA (or even a real cash option like Cash ISA), there's no tax on that so you don't need to track income and gains from that.

SIPP and ISA are maxed out.

AndyTh_2

aroominyork said:

AndyTh_2 said:

aroominyork said:

It looks complicated unwrapped if there is ERI but not if only capital gain. Is there a better pseudo-cash option if PSA is used up but I have spare CGT allowance?

Have you thought of a Stocks and Shares ISA (or even a real cash option like Cash ISA), there's no tax on that so you don't need to track income and gains from that.

SIPP and ISA are maxed out.

Ok, then there's not really much other option if wanting to invest more. If you were to go with a UK OEIC fund though (like Royal London's Short term MMF) you might get enough in the brokers tax certificate, but  that issues income or notional distributions.

masonic

aroominyork said:

It looks complicated unwrapped if there is ERI but not if only capital gain. Is there a better pseudo-cash option if PSA is used up but I have spare CGT allowance?

If you want to avoid the returns being taxed as income, then this is probably your best bet. Chances are they'll continue the structure whereby the ERI has been successfully eliminated. It is an attractive feature of the fund, although HMRC might not agree.