Equalisation payments and s104 holding of income fund units in a GIA

Tassie_Devil

I understand that an equalisation payment is a return of capital invested when I buy fund units between ex-div dates. The fund in question is the HSBC FTSE All-World Index Fund C Income held in a GIA.

Presumably this is just a calculation of the portion of the reporting period that I have owned the units i.e. if the reporting period is 12 months, and I bought the units 6 months in, half of my dividend payment is dividend and half is a return of capital.

What happens if I bought part of my holding 6 months into the reporting period, and part of my holding 8 months into the period? Do I need to work out the equalisation payment separately for each tranche of units?

masonic

You should be provided with a breakdown of what is equalisation and what is dividend. You would report only the dividend part as income. You cannot just assume that income is received into the fund in a linear fashion.

You should use the equalisation parts in your CGT calculations when you make disposals.

Most providers will issue a consolidated tax certificate after the end of the tax year to make things easier.

GeoffTF

Tassie_Devil said:

Presumably this is just a calculation of the portion of the reporting period that I have owned the units i.e. if the reporting period is 12 months, and I bought the units 6 months in, half of my dividend payment is dividend and half is a return of capital.

That would be logical but it is not what happens. Group 1 units are all the units that you held before the last ex-dividend date. Group 2 units are all the units that you bought after the last ex-dividend date. There will be no equalisation on the Group 1 units. All Group 2 units will have the same equalisation, irrespective of the date on which they were bought.

Tassie_Devil

masonic said:

You should be provided with a breakdown of what is equalisation and what is dividend. You would report only the dividend part as income. You cannot just assume that income is received into the fund in a linear fashion.

You should use the equalisation parts in your CGT calculations when you make disposals.

Most providers will issue a consolidated tax certificate after the end of the tax year to make things easier.

The problem is I want to sell some units to take advantage of this year’s tax free CGT allowance but I won’t know what to allow for equalisation when calculating how many units to sell as the consolidated tax cert won’t be available till after the end of the tax year. 

masonic

Tassie_Devil said:

masonic said:

You should be provided with a breakdown of what is equalisation and what is dividend. You would report only the dividend part as income. You cannot just assume that income is received into the fund in a linear fashion.

You should use the equalisation parts in your CGT calculations when you make disposals.

Most providers will issue a consolidated tax certificate after the end of the tax year to make things easier.

The problem is I want to sell some units to take advantage of this year’s tax free CGT allowance but I won’t know what to allow for equalisation when calculating how many units to sell as the consolidated tax cert won’t be available till after the end of the tax year. 

If you assume none of it is equalisation will that make a material difference to how much you can sell?

GeoffTF

Tassie_Devil said:

masonic said:

You should be provided with a breakdown of what is equalisation and what is dividend. You would report only the dividend part as income. You cannot just assume that income is received into the fund in a linear fashion.

You should use the equalisation parts in your CGT calculations when you make disposals.

Most providers will issue a consolidated tax certificate after the end of the tax year to make things easier.

The problem is I want to sell some units to take advantage of this year’s tax free CGT allowance but I won’t know what to allow for equalisation when calculating how many units to sell as the consolidated tax cert won’t be available till after the end of the tax year. 

Assume that the equalisation on the Group 2 units will be half the dividend. I looked at Vanguard Developed World ex UK a few years ago and found that it was about right:

Dividend    Equalisation
5.297577    2.667424    0.503517740280132     Max
6.015595    2.72872      0.453607664744718    
5.388012    2.594024    0.481443619650439    
5.506456    2.401503    0.436124977662584     Min
6.900794    3.121279    0.452307227255298    
                   Mean          0.465400245918634

Tassie_Devil

Thanks all.

I found the relevant info in the HSBC annual report.