Investing in funds - INC or ACC

20122013

I have a lump sum to invest in funds for at least 10 years. And I have maxed out my ISA allowance but plan to move this to S&S ISA until they are all within the tax wrapper.  

As I am not touching this money till at least it is all within the tax wrapper. Would it make CGT reporting easier to invest in INC rather than ACC? 

If I select INC, do I need to do something to reinvest the income ?  as I am trying to minimise CGT etc.

EthicsGradient

Reinvesting the income could bring back the CGT reporting (or calculating, anyway) complications, if you invest it in something that, over the years, itself grows enough for capital gains to have to be thought about. If you reinvest in the same things you put the lump sum in, you definitely get the complication.

The easiest thing to do is probably chose Inc investments, put any dividends into a savings account (or spend them - they are fungible income), and then use them to part fund the S&S ISA each year.eg if your other income balances your outgoings, then put the eg £2k from dividends and £18k from sale of an investment bought with the lump sum into the S&S ISA.

MX5huggy

Yes use INC for unwrapped, you have the £500 divided allowance to cover the Income. 

Then are you going to be trying to use the £3000 CGT allowance each tax year? 

kempiejon

If the goal is to minimise CGT you are in control tax is only due on sales, no sales no tax. Dividend and capital gains allowance are use it or lose it. I harvest up to the capital allowance most years, basic rate tax payers get £1k dividend allowance and above that level the tax starts at 8.75%.
To remind, capital gains tax only becomes payable on disposals that have appreciated in value. The owner of these assets is in charge of if tax is paid as they usually chose how much and when to sell.
Keep good records and CGT reporting is OK, it's 10 years since a corporate action caught me out with a bill so current reporting might be more onerous.
Short dated gilts are exempt CGT.

wmb194

kempiejon said:

If the goal is to minimise CGT you are in control tax is only due on sales, no sales no tax. Dividend and capital gains allowance are use it or lose it. I harvest up to the capital allowance most years, basic rate tax payers get £1k dividend allowance and above that level the tax starts at 8.75%.
To remind, capital gains tax only becomes payable on disposals that have appreciated in value. The owner of these assets is in charge of if tax is paid as they usually chose how much and when to sell.
Keep good records and CGT reporting is OK, it's 10 years since a corporate action caught me out with a bill so current reporting might be more onerous.
Short dated gilts are exempt CGT.

It's now £500.

https://www.gov.uk/tax-on-dividends

kempiejon

Eek, thanks. I will have to sell some dividend payers quick!

MX5huggy

kempiejon said:

Eek, thanks. I will have to sell some dividend payers quick!

It was £500 in 24/25 as well. 

kempiejon

MX5huggy said:

kempiejon said:

Eek, thanks. I will have to sell some dividend payers quick!

It was £500 in 24/25 as well. 

I am surprised I'd not clocked it. I'd been selling down since the announced change in dividend treatment so most of my unsheltered dividend shares are long gone but I stopped selling as I was well within the £1k limit with only a few hundred a year in dividend income but a bit of growth and that lower limit might make this year a bit close.

poseidon1

kempiejon said:

MX5huggy said:

kempiejon said:

Eek, thanks. I will have to sell some dividend payers quick!

It was £500 in 24/25 as well. 

I am surprised I'd not clocked it. I'd been selling down since the announced change in dividend treatment so most of my unsheltered dividend shares are long gone but I stopped selling as I was well within the £1k limit with only a few hundred a year in dividend income but a bit of growth and that lower limit might make this year a bit close.

Excuse my confusion, but if your dividend stocks have been doing a good all round job for you, why sell for the sake of a small 8.75% income tax liabilty ( assuming you are a basic rate tax payer).

I find it baffling when people restrain themselves from generating better investment/ income returns  solely because HMRC takes a slice of the return. Until you get to point where HMRC takes more than you do from an investment, surely a net of tax return is better than nothing at all, or am I being perverse?

ColdIron

MX5huggy said:

Yes use INC for unwrapped, you have the £500 divided allowance to cover the Income. 

Then are you going to be trying to use the £3000 CGT allowance each tax year? 

You get the £500 dividend allowance for Acc as well, and the CGT Annual Exempt amount applies to both Acc and Inc

Tax wise there is no difference

There is a difference in how you account for it. You can ignore dividends for your CGT calculations with Income funds but will need to factor in equalisation payments. You can ignore equalisation payments for Accumulating funds but must factor in dividends for your CGT calculations

Choose your poison

20122013

ColdIron said:

You get the £500 dividend allowance for Acc as well, and the CGT Annual Exempt amount applies to both Acc and Inc

Tax wise there is no difference

There is a difference in how you account for it. You can ignore dividends for your CGT calculations with Income funds but will need to factor in equalisation payments. You can ignore equalisation payments for Accumulating funds but must factor in dividends for your CGT calculations

Choose your poison

'equalisation payments' (another 'new' term for me   

I forgot dividends / income could be monthly / annually...

The money I was gong to invest will be from my house sell at the moment I will leave in one bank account.

I heard that N&SI will protect funds from house sell for over £85K I will be losing interest but I will sort it out  when I can think clearer and can get my head around investments etc  I shall return to this post at a later date. (family matters)

Appreciate all the replies.