I recently invested in the above two ETF’s (Amundi Smart Overnight Return GBP Hedged & iShares UK Gilts 0 – 5yr through a general investment account (outside a tax wrapper). My intention was to get a small return whilst having access to the funds and making the most of the annual Capital Tax Gains allowance of £3k. This is because I will be most likely selling these investments before the end of the current fiscal year and will be maxing out my ISA allowance / don’t intend to further contribute to my SIPP.
Both of these ETF’s are of the accumulating type. After doing some reading online, I am unclear with regards to the tax treatment these investments will receive. Could sbdy clarify, please? I have read about stuff such as distributions receiving income tax treatment in spite of the accumulating nature of the funds, excess reported income (which I don’t understand), etc.
The excellent Monevator blog has an article on this - in case you have any questions just post in the comments - people there are really knowledgeable.
I think that this account pays interest rather than dividends. There will be very little capital growth as it is similar to a bank account. Even though it might be accumulated, you might have to declare the interest on your tax return. you do , however, have a £1000 tax free interest allowance if you are a basic tax payer and if your total taxable income is lower that the personal allowances, you can get some benefits for the Savings Allowance of up to £5,000. this is just my understanding.
Thanks for your response. I found an interesting message exchange on the T212 community forum and learnt some stuff after also doing my own research.
CSH2’s returns are modest, but I think that it could be an interesting option for capital preservation outside a tax wrapper due to its tax treatment.
CSH2 is an offshore reporting fund (it is listed as such in HMRC’s website). Accumulated redistributions would incur income tax and count as interest, not dividends, because of the fund being a monetary one. More on this here:
Distributions and ERI (or lack thereof) can be found here: fundswww.KPMGreportingfunds.co.uk – requires registration but this is easy enough -.
From the KPMG website, I have learn that CSH2 does not appear to distribute anything but, depending on the year, it has ERI, which would incur tax. If it had ERI on a given year, tax due (after applying allowances) would be calculated by multiplying the number of shares held times ERI times 20% / 40% / 45% for basic / high / additional earners.
From the T212 message exchange I referred to earlier, I infer that you would not be liable for income tax if you didn’t held the fund at the end of the reporting period (31st Oct). You could therefore sell it soon after (and repurchase it 30+ days later) and only incur CGT. You would ofc not have to pay any CGT if this felt within your CGT allowance for the year. If it did, you would be taxed at 18% / 24% for basic / high & additional.
I would be thankful if sbdy with the knowledge could confirm that the above explained is correct.
There will be ERI and taxes. Due to tax complications, I decided to use the distributing XSTR instead. IE should have something like ‘Earn interest’ as on T212 where they put fund in QMMF for us to earn interest easily instead of buying/selling hassle.
Not an expert and not entirely sure but I dont think you sre correct. CSH2 does not distribute anything, or at least it hasnt, for approx. the last 10y. You may check this on the KPMG website linked in my message.
As for ERI, even if it had sth (it did at the end of the last reporting period), I dont think you are liable for taxes if you are not holding it at the end of the reporting period. I am saying this because of what I saw on the blackrock website in relation to ERI / tax liability for their funds.
If investment is within a tax wrap, none of the above is relevant ofc.
