Vanguard ACC funds

123mat123 wrote: »

Is it the case that acc attract capital gains only (when you sell), ie is this a convenient way to convert income to capital gain.

No, because as mentioned in post #7:

The fund receives the income from its investments in either case. There is just an administrative difference between the two classes. The ACC fund spends the received income on buying more investments for the fund, while the INC fund distributes the received income to its investors.

If you use the ACC fund you have still got a taxable 'profit' from the dividends received by the fund, even if you choose to let the fund spend that money on buying more investments for itself rather than sending the cash into your pocket

So, you can't magically avoid income tax by having the fund receive it and roll it up into a nice big capital gain for you. The fund enjoys certain tax advantages (e.g. not paying UK corporation tax on its own gains) on the basis that it will distribute all its income to its investors who will be taxed on that income if they are UK taxpayers. If, for your administrative convenience, it doesn't send the money to you and instead buys itself some more investments with the money, you still 'got' your share of the income, because now there are more investments held within the investment fund - of which you own a share.

I guess not - would be too easy, assuming not, how do you separate the i/c from CG on ACC shares for tax declaring purposes....?

You're correct to guess not.

The investment platform/ intermediary through which you hold the fund will give you a tax voucher or summary statement for each year, so you can see what was allocated to you as income based on the shares you held at ex-dividend date(s). When dividend income in an ACC fund is allocated to you on this ex-div date, your taxable income goes up - but you won't receive the cash. When that allocated income is reinvested on your behalf, your cost base for CGT rises, even though you still have the same number of shares or units in the fund. So from tax perspective you get the same effect as if they had paid you a cash dividend and you had chosen to reinvest it in new units.

The tricky bit is that you don't see the cashflow in your account to remind you that you earned it, and are reliant on the paperwork, electronic reports or statements / tax vouchers generated in your investment platform account.

It is all irrelevant if you are using an ISA or pension as many people will do. But if investing 'unwrapped' it can be more convenient to use INC instead of ACC units just so you can see the cashflows as a prompt to track the tax treatment of the transaction, rather than it all happening 'behind the scenes'.