Capital Gains and Excess Reportable Income

Pat38493

I have a holding of Vanguard VWRL / IE00B3RBWM25 which was purchased in June 2025 in a GIA.

I was looking in to whether I have to report ERI in any tax return.

From what I can see online, I only have to report the ERI for tax purposes if I owned the shares on the distribution date of the ERI?  As such, if I bought the shares on June 2025, if I sell them before the end of the year 31/12/2025  I don't have to worry about ERI?  

Further - if I sell the shares with a gain of less than £3K and I have no other reportable capital gains, I don't have to report anything to HMRC just keep records?  ERI would always reduce the gain and not increase it so the ERI won't tip me in to owing CGT if I didn't before?

I found a spreadsheet on the Vanguard website that lists out the ERI on all their funds - it shows that the ERI for 31/12/2024 on this fund was 0.0215.  Therefore theoretically if I owned 330 shares in this ETF, I would have to declare £7.41 in savings income, so the amounts are pretty low unless you own a huge number of shares?

I am also wondering if this document is reliable or what is the official source of truth here as I found a document last week that said that the ERI on Vanguard VWRL was zero last year.

Secret2ndAccount

As a holder of VWRL you are entitled to the annual Report to Participants published after Dec 31st each year. That is your document of reference which will give you the ERI. I suspect that's the document you found.
Yes, the ERI for VWRL is tiny. The number you gave for 2024 is correct, but it's in dollars, so you have to convert it to £. So less than 2p per unit.
VWRL is a distributing ETF, so I presume you are correctly declaring any dividends you have received.
When you come to sell, you can deduct the ERI from your capital gain.

TheTelltaleChart

You don't have the dates quite right. ERI is deemed to be paid to the holder of the shares on the last day of the fund's accounting period, but with a distribution date 6 months later than the last day of the accounting period.

VWRL had $0.0215 ERI for its accounting period ending on 30/06/2024, which is deemed to be paid to shareholders who held the shares on that date, but with a distribution date of 31/12/2024.

If you held the shares on 30/06/2025 (you say you bought them during June 2025, but note that for this purpose, it is the settlement date, not the trade date, that matters), then you will be deemed to have been paid some ERI on 31/12/2025 (unless it turns out to be zero this year).

Pat38493

TheTelltaleChart said:

You don't have the dates quite right. ERI is deemed to be paid to the holder of the shares on the last day of the fund's accounting period, but with a distribution date 6 months later than the last day of the accounting period.

VWRL had $0.0215 ERI for its accounting period ending on 30/06/2024, which is deemed to be paid to shareholders who held the shares on that date, but with a distribution date of 31/12/2024.

If you held the shares on 30/06/2025 (you say you bought them during June 2025, but note that for this purpose, it is the settlement date, not the trade date, that matters), then you will be deemed to have been paid some ERI on 31/12/2025 (unless it turns out to be zero this year).

Now I'm a bit confused because on various documents that I read from multiple sources, it says that ERI is treated as having been received on the fund distribution date, which I understood to be the date 6 months after the end of the accounting period i.e. 31st December in this case?

So is it that I have to declare the ERI based on owning the shares on the 30th June date, but it would fall into the tax year of 31st December (which is the same in this case anyway)?

So I bought the shares on 20th June 2025, and therefore I need to find out what the ERI is for 30/06/2025 when available, and then I need to declare it in the 25/26 tax year (probably costing HMRC more to process my call than they will get from it but hey ho).

The shares are in a Trading 212 account and weirdly, they don't show a settlement date on the order data but it would for sure have been before 30/06.

Can HMRC put this into my income as savings interest from a phone call or does this potentially mean that I have to fill out a tax return in order for HMRC to get about a fiver at most?

What is the deadline for telling HMRC about this?  I assume it's some time later in 2026 similar to savings interest?

Edit - and just to make sure I understand this - I will not actually receive anything on 31/12 back to me as the money was re-invested in the fund - that is just the date that I am deemed to have received the money for tax purposes?

Pat38493

Secret2ndAccount said:

As a holder of VWRL you are entitled to the annual Report to Participants published after Dec 31st each year. That is your document of reference which will give you the ERI. I suspect that's the document you found.
Yes, the ERI for VWRL is tiny. The number you gave for 2024 is correct, but it's in dollars, so you have to convert it to £. So less than 2p per unit.
VWRL is a distributing ETF, so I presume you are correctly declaring any dividends you have received.
When you come to sell, you can deduct the ERI from your capital gain.

I have just read through the Monevator article about ERI again and I found the following:

"Your excess reportable income is returned as either a dividend distribution or an interest distribution – the latter applying to bond funds."

It’s still a bit confusing but I take this to mean that if the fund is a 100% equity fund, then the ERI is subject to dividend tax rather than income tax?

In the document from Vanguard that give you the ERI amounts , the fund is an “equity” fund  as opposed to a "bond" fund.

Do I take it from this that the ERI will be treated as a dividend, and therefore if the total of distributed dividends plus ERI that I received in the tax year is less than £500, I can go through the green channel i.e. nothing to declare to HMRC?  If so, I just need to sell the fund before I received more than about £480 in dividends to avoid tax reporting (assuming also less than £3K capital gain).

Secret2ndAccount

VWRL is a distributing fund. They receive a dividend from one the fund's contituents; they pay it out to you. Think of the ERI like a tracking error - it's a snapshot, on the reporting date, of money that's been received, but not yet paid out: the difference between the (running total) income you will receive, and the (running total) income you have received. That's why it's so small. VWCE - the accumulating version - will have a much larger ERI. So, in my view, for this fund, the ERI should be declared under dividends. For a different fund which was more or less cash, the ERI might be interest.
Yes, you can sell in order to keep your divi's and cap gains under the limit. Remember the 30 day rule. If you sell something then buy it back within 30 days, then those two transactions are discregarded for calculation purposes. You can buy something similar - even the same index - but not the same fund. However, if you are desperate to avoid submitting a tax form, you will be stuck once you reach one of the gains limits for the year. I guess you could switch to a stock that doesn't pay dividends, then sell it in the next tax year. Eventually though, assuming you make a profit, you are going to run over the cap gains allowance (or take a long time to get your money out).

Pat38493

Secret2ndAccount said:

VWRL is a distributing fund. They receive a dividend from one the fund's contituents; they pay it out to you. Think of the ERI like a tracking error - it's a snapshot, on the reporting date, of money that's been received, but not yet paid out: the difference between the (running total) income you will receive, and the (running total) income you have received. That's why it's so small. VWCE - the accumulating version - will have a much larger ERI. So, in my view, for this fund, the ERI should be declared under dividends. For a different fund which was more or less cash, the ERI might be interest.
Yes, you can sell in order to keep your divi's and cap gains under the limit. Remember the 30 day rule. If you sell something then buy it back within 30 days, then those two transactions are discregarded for calculation purposes. You can buy something similar - even the same index - but not the same fund. However, if you are desperate to avoid submitting a tax form, you will be stuck once you reach one of the gains limits for the year. I guess you could switch to a stock that doesn't pay dividends, then sell it in the next tax year. Eventually though, assuming you make a profit, you are going to run over the cap gains allowance (or take a long time to get your money out).

I am only in this situation for a year or two until we can get enough money into ISA and/or spend it, so it’s not a long term issue.

My thinking is, if my fund reaches a capital gain of £3K that will be a 10% return in a pretty short period, so I’ll just sell it till next tax year, by which time I’ll be able to put another £40K into ISAs and I won’t really have any need to have any investments outside of tax wrappers.

If there is a crash and the fund is in a loss position I guess I’ll just have to take the dividends and fill in a tax return if required.  The original idea behind it was just to try to leverage the capital gains and dividend allowances during the year or two when I can’t get the funds into ISAs. ( money came from an downsize of our house).

It’s good to know that I could buy a different fund using the same index as this was one of my other questions - I saw a debate online a while back where they were arguing about whether immediately buying another fund using the same index would not be allowed as it would be “substantially the same investment” but I think that might have been based on US tax rules.

Secret2ndAccount

If you hit the cap gains limit, but not the dividend limit, you could just sell enough to realise your £2999 cap gain, and keep collecting divi's on the rest. Then you sell the rest, and realise the rest of the cap gain, in another tax year. There are funds out there that return 5% in dividends.

If you make a capital loss in total for the year, you can save that loss for as long as you like (though it does get eaten away by inflation), and use it to offset gains in the future. Maybe this doesn't help you for now, but you never know.

Smudgeismydog

Moved to cutting tax board

Pat38493

Secret2ndAccount said:

If you hit the cap gains limit, but not the dividend limit, you could just sell enough to realise your £2999 cap gain, and keep collecting divi's on the rest. Then you sell the rest, and realise the rest of the cap gain, in another tax year. There are funds out there that return 5% in dividends.

If you make a capital loss in total for the year, you can save that loss for as long as you like (though it does get eaten away by inflation), and use it to offset gains in the future. Maybe this doesn't help you for now, but you never know.

For example?  All of the funds I looked at didn't return more than 3% in dividends.

Ref capital loss - ok but I assume that with an investment, the loss or gain is only whatever you realised when you sell - you cannot say I lost £2K in the first year so I can offset that lost £2K against future gains, even though that investment was not sold and recovered in year 2.

TheTelltaleChart

The accounting period for VRWL is the year ending on 30 June, not the calendar year. Perhaps that was causing confusion?

I take it you don't have to fill in a tax return? It would perhaps be simpler if you did, because you'd just add up real dividends received + ERI dividends, and enter the total figure in the box for dividends. When not filling in a tax return, there is, as you suggest, no need to contact HMRC about ERI dividends, so long as they don't affect how much tax you should be paying.

CGT is entirely based on realized gains and losses, so anything that's gone up or down from your purchase price, but you haven't disposed of yet, is ignored.