As always, very interesting, thanks! I hold VUAG for the record and happy with that.
One point to quibble with you is this statement "Whether you hold a distributing or accumulating version of an ETF, you are still liable for dividend tax outside of an ISA, so you might find it convenient to hold the distributing version, which makes dividend income easy to track."
I do not think that is correct. HMRC will not expect you to include dividends on an Accumulating fund, but you will be expected to account for the capital gains at the point of sale and this will include the effect of the dividends received. If this was not the case, how would it be possible to accurately assess your CGT on selling the ETF and that would inevitably result in double taxation if you had already counted the notional dividend payments in your dividend allowance. Thankfully however, I don't need to deal with this as I hold VUAG in a SIPP!
Basically, as I read them, both are saying that you pay dividend tax on accumulating funds but you can then offset those dividend payments in your capital gains tax bill for your accumulating fund, so you don't have to pay tax twice.
There is similar guidance on gov.uk, but I don't believe it's written as clearly as the above two articles.
It's significant, because the dividend tax rate and capital gains tax rates are quite different, so it definitely is important to understand the distinction.
Happy to discuss if you interpret these references differently, though! And as you say, it's irrelevant if held in a tax-sheltered account like a SIPP or an ISA.
Well, you are quite correct about the guidance. However, it makes no sense! It you attempted to deduct the impact of dividends from your CGT assessment of a Accumulation fund you would have a hard time as it is not just a matter of taking off the notional distributions, but also the impact on the subsequent returns that the investment had as a result of the re-investment of the dividends. What a minefield!! I am surprised that Accumulation Funds do not come which much more prominent health warnings about the potential tax implications of those investments! Lesson is, if you invest in ETFs or OEICs outside of a tax-efficient wrapper, then choose the Distributing version!
As always, very interesting, thanks! I hold VUAG for the record and happy with that.
One point to quibble with you is this statement "Whether you hold a distributing or accumulating version of an ETF, you are still liable for dividend tax outside of an ISA, so you might find it convenient to hold the distributing version, which makes dividend income easy to track."
I do not think that is correct. HMRC will not expect you to include dividends on an Accumulating fund, but you will be expected to account for the capital gains at the point of sale and this will include the effect of the dividends received. If this was not the case, how would it be possible to accurately assess your CGT on selling the ETF and that would inevitably result in double taxation if you had already counted the notional dividend payments in your dividend allowance. Thankfully however, I don't need to deal with this as I hold VUAG in a SIPP!
that's not my understanding (but I'm not an accountant!)
Have a look at this guidance on the AJ Bell website
https://www.ajbell.co.uk/learn/compare-acc-inc-funds
or this website:
https://monevator.com/income-tax-on-accumulation-unit/
Basically, as I read them, both are saying that you pay dividend tax on accumulating funds but you can then offset those dividend payments in your capital gains tax bill for your accumulating fund, so you don't have to pay tax twice.
There is similar guidance on gov.uk, but I don't believe it's written as clearly as the above two articles.
It's significant, because the dividend tax rate and capital gains tax rates are quite different, so it definitely is important to understand the distinction.
Happy to discuss if you interpret these references differently, though! And as you say, it's irrelevant if held in a tax-sheltered account like a SIPP or an ISA.
Well, you are quite correct about the guidance. However, it makes no sense! It you attempted to deduct the impact of dividends from your CGT assessment of a Accumulation fund you would have a hard time as it is not just a matter of taking off the notional distributions, but also the impact on the subsequent returns that the investment had as a result of the re-investment of the dividends. What a minefield!! I am surprised that Accumulation Funds do not come which much more prominent health warnings about the potential tax implications of those investments! Lesson is, if you invest in ETFs or OEICs outside of a tax-efficient wrapper, then choose the Distributing version!
Agreed!