Share Matching Rules + CG/Equalisation

I've asked a similar question 2 years ago but never received an answer and the thread was closed, perhaps someone will know this time round?

Start of 2014-2015: Purchase 100 Shares of X (Call it A)
Start of 2015-2016: Purchase 100 Shares of X (Call it B)
Near end of 2015-2016 before ex-div date: Sell 100 Shares of X

Is the sale matched against Purchase A or B? If it's matched against A then come the next distribution I will receive Dividend + Equalisation. If it's matched against B then come the next distribution I just received Dividend.

Whilst the payout is identical it impacts on the the figures I need to declare on my tax return

This time round III have done it the opposite way to what they did 2 years ago

Thanks

Comments

  • bowlhead99
    bowlhead99 Posts: 12,295
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    edited 17 May 2019 at 6:24AM
    Let's say the cost of the shares you bought on event A is £1000 and the cost of what you bought in B is £1500.

    By the time you get towards the end of 2015/6 but still ahead of the ex div date, you dispose of half the pile of shares which had cumulatively cost you £2500 and are all type X shares. So the cost of the shares disposed is £1250 which will go into a CGT calculation to see if there is any capital gain. You don't get the choice to 'match' the disposal for CGT purposes as first-in-first-out basis or last-in-first-out basis. You have a pile of equivalent shares and an average cost for each.

    After selling 100 of the 200 shares, which had cost £1250, the 100 shares still remaining also have a cost of £1250.

    Then later, the shares go ex div and on dividend payment date you will receive a dividend. The fund manager will determine what element of the payment relates to shares that you held all the way through their accrual period, and what element relates to shares that you didn't hold for the whole period. As a result, they'll tell you what part of the money they're sending you relates to income vs return of capital (equalisation). Let's say it was £80 income, £20 return of capital.

    All the income they send you (£80) is dividend taxable when received
    All the capital money they return to you (£20) reduces the cost of the 100 shares you are still holding, so that what you're left with is 100 shares with a carrying cost of £1230 (they had a cost of £1250 before the fund sent you £20 capital repayment).
  • londoninvestor
    londoninvestor Posts: 1,350
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    edited 16 May 2019 at 6:30PM
    bowlhead99 wrote: »
    The fund manager will determine what element of the payment relates to shares that you held all the way through their accrual period, and what element relates to shares that you didn't hold for the whole period. As a result, they'll tell you what part of the money they're sending you relates to income vs return of capital (equalisation). Let's say it was £80 income, £20 return of capital.

    All the income they send you (£80) is dividend taxable when received
    All the capital money they return to you (£20) reduces the cost of the 100 shares you are still holding, so that what you're left with is £1250 shares with a carrying cost of £1230.

    Indeed, the fund manager is responsible for doing the calculation, and the platform for reporting it to you on your tax certificate - so you can just treat it as a "black box" and you don't really need to know how they calculate it.

    It is a good question though - if I'm holding 1000 Group 1 units (purchased before the last XD date) and 700 Group 2 units (purchased since the last XD date), and I sell 500 units today, what do I end up with?

    The fund manager must be tracking how many of each group I own, in order to give me the right split of dividend and equalisation at the next XD date.

    A LIFO system where that gives me 1000 Group 1 and 200 Group 2 seems more intuitively likely (to me anyway) but I'm not sure I've ever seen that written down.
  • Tom99
    Tom99 Posts: 5,371
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    Fed wrote: »
    I've asked a similar question 2 years ago but never received an answer and the thread was closed, perhaps someone will know this time round?

    Start of 2014-2015: Purchase 100 Shares of X (Call it A)
    Start of 2015-2016: Purchase 100 Shares of X (Call it B)
    Near end of 2015-2016 before ex-div date: Sell 100 Shares of X

    Is the sale matched against Purchase A or B? If it's matched against A then come the next distribution I will receive Dividend + Equalisation. If it's matched against B then come the next distribution I just received Dividend.

    Whilst the payout is identical it impacts on the the figures I need to declare on my tax return

    This time round III have done it the opposite way to what they did 2 years ago

    Thanks
    Did the 2015/16 tax certificate give you your answer last time?
  • Fed
    Fed Posts: 106
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    edited 17 May 2019 at 1:21PM
    bowlhead99 wrote: »

    All the income they send you (£80) is dividend taxable when received
    All the capital money they return to you (£20) reduces the cost of the 100 shares you are still holding, so that what you're left with is 100 shares with a carrying cost of £1230 (they had a cost of £1250 before the fund sent you £20 capital repayment).

    Thanks, I follow the sums and appreciate the payment i receive is identical but the breakdown affects whats regarded as income and CG.
    Indeed, the fund manager is responsible for doing the calculation, and the platform for reporting it to you on your tax certificate - so you can just treat it as a "black box" and you don't really need to know how they calculate it.
    Tom99 wrote: »
    Did the 2015/16 tax certificate give you your answer last time?

    II have made errors on my CTV in the past so I always double check the workings. Last time round in this situation I took their voucher calculations to be the correct one. The units I carried forward were Group 2 as I received some equalisation. This time there is no equalisation so the units I carried forward were Group 1....hence my confusion.
    Both VLS funds, first was ACC this time it's INC fund but I don't see why that should make a difference

    I'm prepared to proceed with what is on my CTV but I thought there'd be some consistency in the calculations. I've asked II to check, i'll see what they say unless anyone else can shed any light on it?
  • bowlhead99
    bowlhead99 Posts: 12,295
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    edited 25 October 2019 at 2:56PM
    Fed wrote: »
    Thanks, I follow the sums and appreciate the payment i receive is identical but the breakdown affects whats regarded as income and CG.
    The point is - the manager determines what is income and what is equalisation (return of capital amounts) which will feed into your calculation. You don't need to calculate for yourself what they are giving you - they tell you.

    If they give you £100 and say it's £80 income, £20 return of capital, then you can recognise £80 as income and take £20 off the cost of the shares that are remaining at that point.

    If they give you £100 and say it's £40 income, £60 return of capital, then you can recognise £40 as income and take £60 off the cost of the shares that are remaining at that point

    If you had already sold 100 shares in the example above and had been left with 100 remaining shares before you go into the ex div date, with a remaining cost of £1250 (because the original 200 shares had cost an aggregate £2500 and you'd disposed of half of them)... then when you get the £20 return of capital this will reduce the purchase cost of the remaining 100 shares so the carrying cost of the remaining shares you hold is £1230 instead of £1250. Whereas if they told you the equalisation figure was £60 instead of £20, you would take £60 off the cost of your remaining 100 shares is £1190 instead of £1250.

    So yes, the split of the £100 will affect your income tax and CGT, but they are going to give you the split, so you should just rely on what they give you.
    II have made errors on my CTV in the past so I always double check the workings. Last time round in this situation I took their voucher calculations to be the correct one. The units I carried forward were Group 2 as I received some equalisation. This time there is no equalisation so the units I carried forward were Group 1....hence my confusion.
    Both VLS funds, first was ACC this time it's INC fund but I don't see why that should make a difference

    I'm prepared to proceed with what is on my CTV but I thought there'd be some consistency in the calculations. I've asked II to check, i'll see what they say unless anyone else can shed any light on it?
    I would just presume they are getting the right info from the manager (however the manager does it) and correctly passed on to you what they received, rather than that they had got the wrong info or passed it on to you incorrectly.
  • Fed
    Fed Posts: 106
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    bowlhead99 wrote: »
    The point is - the manager determines what is income and what is equalisation (return of capital amounts) which will feed into your calculation. You don't need to calculate for yourself what they are giving you - they tell you.

    If they give you £100 and say it's £80 income, £20 return of capital, then you can recognise £80 as income and take £20 off the cost of the shares that are remaining at that point.

    If they give you £100 and say it's £40 income, £60 return of capital, then you can recognise £40 as income and take £60 off the cost of the shares that are remaining at that point

    If you had already sold 100 shares in the example above and had been left with 100 remaining shares before you go into the ex div date, with a remaining cost of £1250 (because the original 200 shares had cost an aggregate £2500 and you'd disposed of half of them)... then when you get the £20 return of capital this will reduce the purchase cost of the remaining 100 shares so the carrying cost of the remaining shares you hold is £1230 instead of £1250. Whereas if they told you the equalisation figure was £60 instead of £20, you would take £60 off the cost of your remaining 100 shares is £1190 instead of £1250.

    So yes, the split of the £100 will affect your income tax and CGT, but they are going to give you the split, so you should just rely on what they give you.


    I would just presume they are getting the right info from the manager (however the manager does it) and correctly passed on to you what they received, rather than that they had got the wrong info or passed it on to you correctly.


    I appreciate that. I spent a lot of time with help from here a few years back getting my head round equalisation just so I could accurately track my portfolio and correctly fill out my tax return. I don't think for a second HMRC would ever look into my figures and take issue for reporting what's on my tax voucher especially when it's such a tiny discrepancy but it's still nice to get the figures right.

    Interestingly II have responded now saying the figures are incorrect and will be addressed in due course. Whichever way is correct I would have thought it would be consistent. But the share matching rules are an HMRC rule so there's no reason the fund manager couldn't match them whatever they see fit....

    I should probably stop wasting my time but i'm tempted to contact Vanguard to see if they have any input....:shocked:
  • Fed
    Fed Posts: 106
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    Update FWIW:

    Interactive Investor recently sent through the amended tax voucher which shows an amount of equalisation. I have no idea if this is the correct way but it is now consistent with what they did in the past.
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