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OEICs - taxation of dividends and equalisation in your GIA
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Harry Trout
Posted: 11 February 2024 08:31:08(UTC)
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Good morning all

I'm doing some number crunching on what OEICs to sell in my GIA to complete this year's ISA contributions.

From searching online, the taxation treatment of dividends and equalisation is a real mindfield and I can't find a definitive guide. So this post is what I've cobbled together from my research.

I'm posting in the hope that this information might be helpful to others and to seek confirmation please (or otherwise) from those on here that have been there, done that !!!

Income units

Dividends are received in cash by you and are taxable as income

Equalisation is received in cash by you but is not taxable as income. You should deduct equalisation from your cost for capital gains tax purposes.

Accumulation Units

Dividends are not received by you but are taxable as income. You should add these dividends to your cost for capital gains tax purposes.

Equalisation is not received by you in cash and is not taxable. No further action is required.

I'm using the word "taxable" throughout to acknowledge that if the amounts involved are within your existing tax allowances there will be no tax to pay. In this way I've tried to keep the post as simple as possible.

Would welcome any comments please

Thanks in anticipation

Harry
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Dexi on 11/02/2024(UTC)
mgk
Posted: 11 February 2024 09:45:55(UTC)
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For accumulation units, I was under the impression that equalisation is applied in the same way as for income units. Can you link to a page/document which says otherwise?
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Harry Trout on 11/02/2024(UTC)
Tim D
Posted: 11 February 2024 10:41:58(UTC)
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If you receive equalization payments from accumulation units they should be subtracted from the book cost just like you would from income units. It's effectively a cash-back of funds that were never invested.

Personally I'd avoid accumulation units outside tax sheltered accounts. Income is income and capital gains are capital gains, and trying to smush them together just leads to unnecessary tax headaches.

Monevator has had good articles on this over the years. Seems to have been a recent update at https://monevator.com/in...x-on-accumulation-unit/

Be aware that you can sell units of a fund and reinvest in another class units of the same fund (different Inc/Acc and/or different OCF, but not different FX hedging) without it counting as a gains-crystalizing CGT event, provided the reinvestmment is done promptly; it'd just be considered a "reorganization of capital".
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Harry Trout on 11/02/2024(UTC), stephen_s on 11/02/2024(UTC), Blunt Instrument on 11/02/2024(UTC), Dexi on 11/02/2024(UTC)
Harry Trout
Posted: 11 February 2024 10:52:31(UTC)
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mgk;295858 wrote:
For accumulation units, I was under the impression that equalisation is applied in the same way as for income units. Can you link to a page/document which says otherwise?

Here are some notes from Quilter on how to read the tax voucher ......

A Guide To Your Tax Voucher

My understanding from page 1 is that with accumulation units you should add the "total payment" (I am reading this as dividend and equalisation if applicable) to your cost for CGT purposes.

However, the document goes onto to say on page 2 that the equalisation part can be deducted for CGT purposes

The net effect is neutral with regard to the equalisation part. For simplicity I just said in post 1 "it can be ignored".

I am seeing posts on other forums which seem to confirm the above. It is however, quite the rabbit hole !!!

Hope this helps
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Tim D
Posted: 11 February 2024 11:08:07(UTC)
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Not being a fan of Acc units, I am not actually sure whether they pay equalization out to you or not... or is it retained by the fund and reinvested at the appropriate time? In that case it'd all end up in the book cost anyway and so yes it wouldn't be appropriate to subtract it from the record.

(It's not having to care about details like that is the advantage of being Inc units only)
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Harry Trout on 11/02/2024(UTC)
Wave Action
Posted: 11 February 2024 11:13:05(UTC)
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Maybe post a comment here ?

https://community.hmrc.gov.uk/customerforums/sa

I didn't want all the bother years ago so took advantage of the ISA/SIPP. I understand this can't always be done.
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Harry Trout
Posted: 11 February 2024 11:27:47(UTC)
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Tim D;295868 wrote:
Not being a fan of Acc units, I am not actually sure whether they pay equalization out to you or not... or is it retained by the fund and reinvested at the appropriate time? In that case it'd all end up in the book cost anyway and so yes it wouldn't be appropriate to subtract it from the record.

(It's not having to care about details like that is the advantage of being Inc units only)


Thanks Tim, the accumulation units that I hold don't physically pay me the equalisation but the income units I hold do.

I agree with you that accumulation units are a pain but I bought them years before I started using this forum so I am where I am !!! Never again !!!

With the CGT allowance dropping to £3k from 24_25 I am having to think about these complexities to get my tax returns right.

23_24 is going to be the first year that we submit a CGT computation for such disposals. No way around it.

I'm going with my original post 1 for now.

Thanks for the reply again and would welcome any further information from any other contributors

Harry
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Tim D on 12/02/2024(UTC)
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