Fully understanding the reasons for holding Acc or Inc units generally?

RogerPensionGuy

I think understand the reasons why people choose Acc or Inc units in tax efficient wrapped products and unwrapped products.

I have decided to use more Inc units to drain a bit of value out of my equity units in a very unemotional way and avoid trying to time the market.

I intend then just keeping the cash in MMFs and to just cash out whenever I like, this cash will form part of my safety buffer bucket if and when needed.

If the cash in the MMFs gets to big a % in my portfolio in my opinion, I may just buy more equity Inc units or gilts if appropriate.

Now for my question, I understand any groath or income from MMFs is concidered interest and the tax rules applied as normal if outside a wrapper.

I notice MMFs can be Acc or Inc also. Am I correct in thinking the only/main reason why a person may pick Income is these payments are just a nice cash flow and maybe that income cash flow can automatically land in another account that said person finds convenient rather that going online to cash out of the MMFs Accumulation.

I'm guessing there's more reasons why people use Inc MMF instead of Acc. 

Hopefully a nice poster will put me straight on this matters please. 

Cheers Roger. 

***

PS. I'm currently trying to sort out all my finances to make them super simple and do nothing apart from spending as required, I've already decided to have the vast % of my investments in low cost global funds income units and leave them there and generally stop swooping units abouts all the time playing thinking I'm a Wall Street Trader. 

masonic

Tax calculations are another reason to prefer Inc units if holding unwrapped OEICs or UTs.

Some MMF have some or all growth treated as capital gains (e.g. the ETF CSH2), but in general it would be interest income.

RogerPensionGuy

masonic said:

Tax calculations are another reason to prefer Inc units if holding unwrapped OEICs or UTs.

Some MMF have some or all growth treated as capital gains (e.g. the ETF CSH2), but in general it would be interest income.

Noted thanks, I understand first paragraph. 

I was previously sure that all MMFs had any groat or income was treated like interest, tks.

***

Slight drift here, but with so many trip wires for the uninformed, I must mention that I really like simple (is it neat or direct) gilts that only are subject to interest tax and just leave alone or sell early if a person likes. 

MX5huggy

Have you got any trading fees on your platform? Don’t want to incur theses unnecessarily. 

RogerPensionGuy

MX5huggy said:

Have you got any trading fees on your platform? Don’t want to incur theses unnecessarily. 

I do have small fees and understand by using Acc in lieu of Inc units its the lowest costs for me, but I really like the simplicity of the equity Inc units, the Inc MMF units are less helpful in that respect, but I do like the idea of seeing more inbound cash flows in to the various ready cash buckets I have.

I did look at using an IFA, but I think my needs are pretty simple and have a sensible DB & full SP that makes my finances simple in my opinion. 

I think if I used an IFA I would just keep overlooking what's going on and I'm just happy having much of my % of investments in low cost global units Inc and sensible % in liquid like premium bonds, MMFs, cash & gilts(I'm aware gilts move prices, but they will probably just run to term) 

leosayer

You should do whatever helps you get the right outcome for yourself. Not everyone can act like a machine and follow their plan even if logic says this is what you should do. 

The main consideration is whether this plan will give you enough to meet your spending requirements. 

If you only draw the dividends then you're likely leaving a lot of money invested that you could be safely withdrawing and enjoying.

GeoffTF

masonic said:

Some MMF have some or all growth treated as capital gains (e.g. the ETF CSH2), but in general it would be interest income.

There will usually be both a capital gain (or loss) on buying and subsequently selling the fund. There will also be income if you hold the fund at one or more ex-dividend dates. If the fund is an ETF or other foreign domiciled fund, there may also be Excess Reportable Income, which is taxed as income but can be offset against capital gains.

masonic

GeoffTF said:

masonic said:

Some MMF have some or all growth treated as capital gains (e.g. the ETF CSH2), but in general it would be interest income.

There will usually be both a capital gain (or loss) on buying and subsequently selling the fund. There will also be income if you hold the fund at one or more ex-dividend dates. If the fund is an ETF or other foreign domiciled fund, there may also be Excess Reportable Income, which is taxed as income but can be offset against capital gains.

This was mainly referring to the rather unusual accounting trick that allows CSH2 to generate capital gains rather than income using synthetic replication.

Sarahspangles

I use the Inc version of one of my investments to generate a trickle of cash, aiming to cover the monthly platform fee. It’s convenience.

poseidon1

RogerPensionGuy said:

I think understand the reasons why people choose Acc or Inc units in tax efficient wrapped products and unwrapped products.

I have decided to use more Inc units to drain a bit of value out of my equity units in a very unemotional way and avoid trying to time the market.

I intend then just keeping the cash in MMFs and to just cash out whenever I like, this cash will form part of my safety buffer bucket if and when needed.

If the cash in the MMFs gets to big a % in my portfolio in my opinion, I may just buy more equity Inc units or gilts if appropriate.

Now for my question, I understand any groath or income from MMFs is concidered interest and the tax rules applied as normal if outside a wrapper.

I notice MMFs can be Acc or Inc also. Am I correct in thinking the only/main reason why a person may pick Income is these payments are just a nice cash flow and maybe that income cash flow can automatically land in another account that said person finds convenient rather that going online to cash out of the MMFs Accumulation.

I'm guessing there's more reasons why people use Inc MMF instead of Acc. 

Hopefully a nice poster will put me straight on this matters please. 

Cheers Roger. 

***

PS. I'm currently trying to sort out all my finances to make them super simple and do nothing apart from spending as required, I've already decided to have the vast % of my investments in low cost global funds income units and leave them there and generally stop swooping units abouts all the time playing thinking I'm a Wall Street Trader. 

I invariably utilise income units in both wrapped and unwrapped products since retiring 10 years ago.

I live off the investment income from GIA and ISA accounts.

With regard to the Sipp, the corporate bonds , income producing equity/bond funds and investment trusts spit out income either monthly , quarterly or half yearly.

Periodically, lumps of  income cash  ( from the cash pool) are reinvested either in new growth orientated funds/investments trusts, together with monthly reinvestments in a couple of  the income producing bond/equity funds.

SIPP  is with II who don't charge for monthly investments and offer 1 free trade monthly. It is still in accumulation phase, but may commence drawdown in 2026 when a commercial rental investment is likely to  have run its course. 

The ever constant flow of income, has proven very useful in avoiding having to force sale investments when markets fall, and provides flexibility to expand into new investments positions when opportunities present. It is my expectation that the income flow will eventually fund drawdown ( via UFPLSs) in due course, with the aim of a growing income stream year on year.

However, I concede my methodology is probably not the super simple approach you now prefer, but I have a penchant for high yield corporate bonds ( 6% + ) purchased at or below par and held to maturity. Researching these and other higher yield investments, has helped me retain a certain level of mental acuity over the years, so keeping things a little complex with some 'moving parts' has a dual function.

RogerPensionGuy

I think I now nearly understand the pros, cons, goods & bads of holding Inc or Acc units in GIAs. 

I think I also understand how CGT works inside a GIA. 

I was previously under the impression that if I say for example sold a load of Acc units and purchased Inc units in exactly the same units at the same time, no CGT event will occur, but if the time between sale and purchase was longer than 28 or 30 days, then indeed it was possible for a CGT event to occur. Now I'm not so sure after google-ing. 

Some Google-ing says it will potentially trigger a CGT event and some say it won't if the units are swopped or switched in the same transaction.

Hopefully a member or members will put me right on this.

I had just decided to switch/swop some Vanguard LS100% Accumulation to Income units and leave them alone for hopefully a bit of long-term groath and dividends once a year and maybe just the dividends in the MMFs.

My idea was to remove most all emotions selling units during the markets ups & downs and just generally generate cash via the dividends and holding in MMFs making my tax calculations as simple as possible.

Thanks in advance Roger.