what is the tax date for fund distributions and equalisation

mfn123

I expect this has been asked before, but I only found a thread about share dividends, which seems a different case.

When filling in my 2025/26 tax return, I used fund dividend figures given in my HL tax certificate for my GIA, which gives the payment dates rather than the exdiv dates.

However, a payment with an exdiv date of 31/03/26 was not shown there because not paid until end April. Is it still taxable as 2025/26 income? Is the situation the same for company dividends and fund distributions?

The reason I ask is the dreaded interaction between Equalisation and CGT. If the equalisation is not taxable until the actual payment date (as I might think from above), then there could be an odd situation where the entire holding has been sold after the exdiv date, but before the payment. In that situation, how can the cost base for CGT be reduced by the equalisation if there is no longer any holding?

Do I have to wait for the actual equalisation payment in 2026/27 tax year before completing my 2025/26 gain calculation? If so, when should the change of cost base be recorded. If the holding was sold after exdiv, but before end of tax year, the cost base at that point would be important to get right.

Of course if the correct date is the exdiv date not the payment date, then the issue goes away (because the reduction occurs before the sale), but isn't the same date used for all fund dividends - equalisations or otherwise?

Help - I just need someone to help clear my thinking on this!

poseidon1

Its not complicated.

For a disposal of a unit trust in one tax year when the equalisation and dividend is receivable in the subsequent year, you simply wait for that dividend and equalisation to arrive before finalising the prior year CGT computation with the confirmed equalisation deduction from cost.

The dividend itself remains taxable in the tax year of actual receipt ( the two are not conjoined in this scenario ).

UKTaxHelper

Might be worth checking there is any equalisation in the first place. It only turns up on the first distribution after you buy, so if those units were held right through the previous distribution period the whole payment is income and the cost doesnt move at all.

On the company dividend side, same principle. Exdiv only settles who is entitled to it, the tax follows when it actually gets paid.

sherlock228

CG57705 - Unit trusts: dividend equalisation payments - HMRC internal manual - GOV.UK

mfn123

@UKTaxHelper

Might be worth checking there is any equalisation in the first place.
It only turns up on the first distribution after you buy, so if those
units were held right through the previous distribution period the whole
payment is income and the cost doesnt move at all.

True, but my funds pay monthly income that I reinvest, so there is equalisation most months - in other words lots of (small) purchases but only a few sales. My question is when those equalisations should be credited relative to each sale date, and therefore affect the gain calculation in each case.

@poseidon1

For a disposal of a unit trust in one tax year when the equalisation and
dividend is receivable in the subsequent year, you simply wait for that
dividend and equalisation to arrive before finalising the prior year
CGT computation with the confirmed equalisation deduction from cost.

Fair enough, but which sales should the equalisation affect? Presumably only those after the purchase that triggered the equalisation. I can imagine three alternatives:

(1) Apply the equalisations to the cost base as if received at the time of the purchase (pro-rated across them if multiple purchases made in the same distribution period). This makes some sense (since it is a reassessment of the purchase price), but is the most 'aggressive' option because it affects all sales after each purchase date and creates the largest taxable gain. In any case the pro-rating seems arbitrary, so I doubt this is correct.

(2) Apply each equalisation to the cost base at the exdiv date. This is the 'medium' option that makes most sense to me, since it only affects sales after the exdiv date. Is that what you meant?

(3) Apply each equalisation to the cost base at the payment date. This is the most 'relaxed' option, and seems consistent with crediting dividends at that date for income tax purposes, but could lead to the weird situation where selling the entire holding after exdiv would mean the equalisation is lost (because applied to a now empty pool), so cannot be right?

There was a separate thread ( Help understanding equalisation units & accumulation distrubution ) back in 2018, where @bowlhead99 (since banned!) made the comment (7 October 2018 at 11:37AM)

Equalization can't be applied on the purchase date. At the purchase
date, your purchase cost is genuine, and should be untouched by any
administrative decisions made by the fund manager. Equalization cannot
and should not be applied before the ex-div date of the shares - the
point at which you have qualified for a payout

His assessment seemed reasonable to me (although it seems he has since been banned, so perhaps that was my big mistake!). Would anyone care to review that thread and confirm/rebut his idea with facts?

@sherlock228 thanks for the HMRC ref. Yes I'd already looked at that but it didnt seem definitive on dates

However, at the end of each distribution period the manager allocates
the same amount from the income of the fund to each unit. To compensate
for this an equalisation payment is added to the cost of new units. This
is the amount of income that has arisen up to the date of purchase

I could read this as meaning the equalisation is due at the end of the distribution period (rather than the dividend payment date) because it is an accounting trick not a real payment, but I would welcome confirmation!

sherlock228

https://forums.moneysavingexpert.com/discussion/comment/82103849#Comment_82103849

I could read this as meaning the equalisation is due at the end of the distribution period (rather than the dividend payment date) because it is an accounting trick not a real payment, but I would welcome confirmation!

you purchase units at a point in time. That point falls between the previous and the forthcoming distribution dates (the ex div dates) and therefore the equalisation adjustment is shown on the first dividend voucher you receive after purchasing the units. You receive the net amount of cash on the actual dividend payment date.
There is no equalisation done on subsequent dividend vouchers.

for income tax purposes you declare the net cash you received on the date (ie tax year) you physically got it, not the ex div date

for CGT purposes, when you eventually come to sell the unit, you adjust your original purchase cost by the equalisation as shown on that first voucher (rather important to retain it therefore)

UKTaxHelper

Your three options all assume the sale comes out of the pool, but with monthly reinvestment it often wont. A disposal gets matched first against anything you buy in the 30 days after it, so if the next reinvestment falls in that window, that purchase and the equalisation on its voucher is what sets the cost, and the pool never comes into it for that slice. Lining your sale dates up against the reinvestment dates will probably answer more of this than picking a date convention will.

mfn123

@UKTaxHelper

Your three options all assume the sale comes out of the pool, but with
monthly reinvestment it often wont. A disposal gets matched first
against anything you buy in the 30 days after it, so if the next
reinvestment falls in that window, that purchase and the equalisation on
its voucher is what sets the cost, and the pool never comes into it for
that slice. Lining your sale dates up against the reinvestment dates
will probably answer more of this than picking a date convention will.

Sorry. I was trying to keep things simple. Although I reinvest the income most months, I do so manually and carefully avoid the B&B period after a sale to avoid precisely that issue. (I did get it wrong once and am still ruing the complication it caused on my CGT calculation!)

mfn123

@sherlock228

for CGT purposes, when you eventually come to sell the unit, you adjust
your original purchase cost by the equalisation as shown on that first
voucher (rather important to retain it therefore)

True, but because of reinvestment, I have made multiple purchases that form a section 104 pool, so the 'purchase cost' has to be worked out as the average across the pool at the time of the sale, taking into account equalisation, hence my question as to which equalisations should be included.

(Keeping records is not so much of an issue - I get a certificate from HL at end of year with full amounts and payment dates, but to get the exdiv (more strictly the distribution period end) dates I have to check the factsheet for the individual funds).

mfn123

@UKTaxHelper

Lining your sale dates up against the reinvestment dates
will probably answer more of this than picking a date convention will

Take your point about lining up sale and reinvestment dates (as per the discussion about matching above), but isn't it more than just a 'date convention'?

Depending on which option I use, I get different figures for the overall gain, so they cannot all be correct. Ok, the figures are not VERY different (because equalisations are small beer relative to fund cost), but enough to be visible on a calculation sent to HMRC (and potentially an issue if close to the 3k limit)

UKTaxHelper

It isnt really a date event, thats why the three options keep fighting each other. The equalisation on that voucher is only a refund of part of what you paid for the units bought in that period, so it comes off the cost of that purchase rather than off the pool at some later point. Knock it off there and the number of units it touches is fixed, so exdiv and payment date stop mattering for the cost side. It cant get stranded on an empty pool either, if the holding has already gone you just go back and finalise that year once the voucher turns up.