CSH2: taxation and performance

aroominyork

wmb194 said:

aroominyork said:

I contacted Amundi about whether ERI should be treated as dividend or interest. They said ask a tax adviser! After phoning HMRC to see if they could throw any light on this (they couldn’t and said go back to Amundi – and if you do not get an answer use your best guess (not their words) on self-assessment and add a note)) I have asked Amundi again… watch this space for their answer. 

But importantly, Amundi said the ERI reporting date has been brought forward a month to 30 September. I have written back asking them to confirm this and to provide a link/documentation verifying this, because if non-zero ERI is declared this year it will mean two taxable distributions being made in the same FY, on 30/4/25 and 30/3/26. Again, watch this space.

Providers won't give you tax advice so Amundi's answer is unlikely to change.

But surely it's not tax advice. It's a factual point about whether they are distributing interest or dividend.

ColdIron

Isn't ERI non-distributed income?

wmb194

aroominyork said:

wmb194 said:

aroominyork said:

I contacted Amundi about whether ERI should be treated as dividend or interest. They said ask a tax adviser! After phoning HMRC to see if they could throw any light on this (they couldn’t and said go back to Amundi – and if you do not get an answer use your best guess (not their words) on self-assessment and add a note)) I have asked Amundi again… watch this space for their answer. 

But importantly, Amundi said the ERI reporting date has been brought forward a month to 30 September. I have written back asking them to confirm this and to provide a link/documentation verifying this, because if non-zero ERI is declared this year it will mean two taxable distributions being made in the same FY, on 30/4/25 and 30/3/26. Again, watch this space.

Providers won't give you tax advice so Amundi's answer is unlikely to change.

But surely it's not tax advice. It's a factual point about whether they are distributing interest or dividend.

No, it's tax advice. It's an ERI distribution. The substance of whether it's classed as interest or a dividend is something else. This comes up with e.g., foreign domiciled companies and funds that invest in >60% debt but pay what they class as a dividend but under UK law should be classed as interest.

aroominyork

ColdIron said:

Isn't ERI non-distributed income?

I still cannot get my head around what it is but I know it is there. See https://monevator.com/excess-reportable-income/

wmb194

aroominyork said:

ColdIron said:

Isn't ERI non-distributed income?

I still cannot get my head around what it is but I know it is there. See https://monevator.com/excess-reportable-income/

Okay, so what is this foreign domiciled fund substantively invested in?

aroominyork

It is invested in equities but uses swaps with Société Générale to generate a SONIA(ish) return for investors.

LateGenXer

It seems like it's the "Unfunded swap" scheme described on https://www.justetf.com/uk/academy/synthetic-replication-of-etfs.html , as one can see the collateral reference basket listed on the https://www.amundietf.co.uk/en/professional/products/fixed-income/amundi-smart-overnight-return-ucits-etf-gbp-hedged-acc/lu1230136894 's holdings section.

Still it's hard for a lay man to deduce what to do here.

https://www.gov.uk/hmrc-internal-manuals/investment-funds/ifm13320#bond-funds states "Where an offshore fund holds more than 60% of assets in interest-bearing (or economically similar) form, any distribution or excess of reported income is treated as a payment of yearly interest (section 378A ITTOIA 2005 / regulation 95(3))."   

Whether the swap contract is considered a holding, and whether it is "economically similar" to an interest-bearing asset, could be argued either way...

It's disappointing that despite investing thousands of pounds in these ETFs, retail investors can't get accurate/proper information.  Maybe it's one of those one gets what one pays for situations...

Not sure if XSTR (another swap based SONIA MMF tracker like CSH2) would provide better info though...

aroominyork

Thanks, LGX. In situations which are unclear - and where it is daft to suggest each investor takes advice from a tax accountant - would HMRC engage with the fund manager to agree how the income should be treated? 

masonic

Like I said before, treating as interest categorically will not result in an underpayment of tax in your case. Treating as a dividend might, and definitely seems an odd thing to do for the asset class.

aroominyork

masonic said:

Like I said before, treating as interest categorically will not result in an underpayment of tax in your case. Treating as a dividend might, and definitely seems an odd thing to do for the asset class.

Understood, but I would like i) to know the correct way to declare the income, and ii) not to overpay - rather than just avoid underpaying.