Tax treatment on dividends

capehorn

Hi forum

Unfortunately earlier in my investing life I bought an ACC fund in my GIA account.  I have since learned that it is advisable to own INC funds instead, for tax reasons that I am now learning about!  As a result I now top up my investments with the INC version of the fund, but still own the ACC version.

Recently I earned dividends in excess of my allowance for the first time, so I will have to inform HMRC of this.  But despite some reading, I am still confused about how to read the tax statement in my iWeb account, specifically the 'Equalisation' part, which I have variously read may or may not need to be reported as part of my dividend income.

The tax statement is below, could someone let me know which figure I have to report to HMRC as dividend income?

Pay Date    Quantity & Investment    Dividend Rate    Equalisation    Tax Credit    Amount
.................................................................................................................................Payable

31 May         VANGUARD LIFESTRATEGY FDS ICVC VANGUARD LIFEST 100 EQ ACC
274.9133 Group I
134.8704 Group II.............................£5.45928800    £298.60        £0.00        £1,938.52

31 May         VANGUARD LIFESTRATEGY FDS ICVC VANGUARD LIFEST 100 EQ DIS
0 Group I
188.4187 Group II..............................£4.58748500    £330.12        £0.00        £534.25


Totals:.........................................................................£628.72        £0.00        £2,472.77

Many thanks 

InvesterJones

I am NOT an expert on this, but surely you report the 'amount payable'?
This is equal to the dividend minus the equalisation, which I believe is correctly deductible from the dividend.

ColdIron

That looks like - Income (UK dividends) - of your IWeb Consolidated Tax Certificate

It's the final column (Amount Payable) that you would use to report your dividend income to HMRC

Equalisation relates to capital gains rather than dividends and you would deduct it from your book, or acquisition, cost upon sale for the Inc fund as it's a return of capital

capehorn

Many thanks for your quick replies.  I think some of my confusion comes from the fact that the DIS/INC version of the fund has of course paid out a cash dividend, and the cash I received from that in my account was £864.37, which is the total of the equalisation, and the amount payable (330.12+534.25). I had assumed that I had to report the entire amount, £864.37, but from your replies it seems like I can ignore that, as it included equalisation, and simply use the total of the amount payable column as my reported figure to HMRC, so £2472.77?

ColdIron

capehorn said:

I had assumed that I had to report the entire amount, £864.37, but from your replies it seems like I can ignore that, as it included equalisation, and simply use the total of the amount payable column as my reported figure to HMRC, so £2472.77?

Yes

You can't ignore equalisation payments (for Inc funds), they play a part in capital gains, but they are not dividends

capehorn

Thank you for the clear answer ColdIron

EthicsGradient

And you need to keep a record of this and future statements, for when you sell these (which includes if you "Bed & ISA" them into an ISA account).
For the accumulation units, you count the amount under "Amount Payable" like an extra acquisition cost (as if you'd reinvested a dividend in a share), so if you spent, say, £80,000 buying the Acc units, you'd record your current total cost of acquiring them as (£80,000+£1,938.52). And since you started buying before this statement, it's worth digging out your previous statement(s) and getting the equivalent figures from there - these amounts increase your acquisition cost, and so decrease the capital gain, and thus the amount of tax you might be liable for (or make it easier to sell it within the CG allowance).
For the income units, as ColdIron says, the accumulation is a return of capital - a refund on what you bought in this period, if you like - so you, sadly, have to subtract that from your acquisition cost - so that becomes, say, (£30,000-£330.12).

capehorn

That's also very helpful, thank you, and it was particularly useful that you used my actual numbers in your example.

I have kept records of all my GIA tax statements going back to my first year of investing.