Tax on an Accumulating Money Market fund

Hi, I am trying to find out the tax implications of a Royal London Money Market fund called, "Royal London Short Term Money Market Y Acc." As the name suggests it is an accumulating fund. The fund is domiciled in the UK. Here is the KIID:  I am trying to find out the tax treatment of the investment. I have tried contacting Royal London, they do not know and they said I needed to contact HMRC. Someone on the HMRC helpline told me that the only tax payable on the investment is CGT, and this is payable only upon disposal. Elsewhere I have heard that tax is due on 'notional distributions.' Is that the case with investments in this fund? If so, how do I find out / work out the amount of any tax due on 'notional distributions' and when I become liable for this tax, please?

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Hi Eric01 Kendall,
Accumulation funds are funds that automatically reinvest in the fund.
The distribution are chargeable to income tax.
Investors in Authorised Investment Funds (AIFs) may receive dividend distributions or interest distributions.
IFM03120 discusses the tax treatment of AIFs.
IFM03200 - Investors in authorised investment funds (AIFs) receiving trail commission
Thank you. 
 

Hi, Thanks very much for your response. So, I need to pay tax on the interest. When do I need to pay the tax, please? For example, if I bought the units in the fund on 01/01/22 and sell the units on 31/12/22 when do I pay the tax? Do I simply calculate the uplift (based on the increase in value of the fund units) in the fund from 01/01/22 to 05/04/22 and include that in my 21/22 Self Assessment, then calculate the uplift in the fund from 06/04/22 to 31/12/22 and include that in my 22/23 Self Assessment? The IFM documents you pointed me towards do not provide that information so some guidance would be appreciated please. Many thanks

Hi Eric01 Kendall,

This is within the 22/23 tax year so you will show this information on your tax return, the due date for tax to be paid is 31/1/24.

Thank you.

 

Hi, I am sorry, I do not understand your response. In my example, I owned the units in the Money Market fund in two tax years i.e. 21/22 and 22/23. This was the example: If I bought the units in the fund on 01/01/22 and sell the units on 31/12/22 when do I pay the tax? Do I simply calculate the uplift (based on the increase in value of the fund units) in the fund from 01/01/22 to 05/04/22 and include that in my 21/22 Self Assessment, then calculate the uplift in the fund from 06/04/22 to 31/12/22 and include that in my 22/23 Self Assessment? Are you saying that I only pay the tax in the year that I sell the units in the Money Market fund, so if I own the units for 10 years I only pay the tax in the final tax year?? Many thanks.

Hi Eric01 Kendall,

You will only pay the tax when you sell them and in your example this is the 22/23 tax year, the due date for tax to be paid is 31/1/24.

Thank you.
 

Hi, Ok, you are telling me that the only year in which I report this notional income from the Accumulating fund is for the tax year in which I sell the units. So if I owe the units for 10 years, I only pay tax for the final year. I just want to double check that this is the case. Elsewhere on the internet I have read descriptions that say you report the tax on the notional interest in every tax year in which you own the units. Which of these two descriptions is correct? Is there any legislation / tax rules that exist that clarify this for certain please? I just want to pay the right amount of tax! Many thanks.

Hi,

The guidance at IFM3120 advises that income arising during a distribution period is not distributed to investors as cash, but is retained in the fund as an additional captital investment on behalf of the investor. The amounts reinvested are taxed as income accruing to investors in the same way as if it had been distributed.  

This means that you are taxed each year on the amount reinvested in the same way as if it had been paid in cash. This prevents investors delaying payment of Income Tax, through long term accumulation of income.  

IFM03120 - Investors in authorised investment funds (AIFs): accumulation units

Thank you.

Hi I bought the Royal London Short Term Money Market Y Acc in May 2023 and sold it in October 2023. Do I need to report this gain as income or capital gain?

Hi,

Accumulation funds are funds that automatically reinvest in the fund. The distributions are chargeable to Income Tax.

Investors in Authorised Investment Funds (AIFs) may receive dividend distributions or interest distributions. You can see further guidance here:

IFM03120 - Investors in authorised investment funds (AIFs): accumulation units

IFM03200 - Investors in authorised investment funds (AIFs) receiving trail commission

Thank you.

I have an investment in an Accumulation (Acc) fund and annually declare any notional distributions of dividends and interest as additional income. I understand that the sums of these notional distributions can later be subtracted from my Capital Gains calculations if I later sell the investments (as they have already been subject to Income Tax):- See https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2022#accumulation-units "If you receive notional distributions which are subject to Income Tax, you’re allowed the amount of these distributions as additional expenditure on your accumulation units." My question is:- If I transfer all of my Acc shares to a spouse, when they sell them can they subtract the value of the notional distributions of income and dividends made during my ownership as allowable expenditure when calculating their Capital Gains liability? Or perhaps do my notional distributions (as allowable expenditure to me for CGT) become part of the acquisition costs when I transfer the shares (also thereby reducing my spouse's CGT liability)?

Hi dc991,
No, as the tax has been paid by you and by transferring them to your wife, this is a no gain/no loss situation for you.
She is then liable for any increase.
You then do no thave any acquisitions costs due to the no gain no loss situation.
Thank you. 
 

Thank you for your response. In order to be sure that I understand it properly, could I give a simple example? 1. I buy shares in an Accumulation fund for £1000 2. The value of the shares goes up to £1200 3. My shares then have a notional interest distribution of £100 which I declare as additional income for Income Tax purposes. If I sold the shares at this point, my capital gain for CGT calculations would be:- £1200 - £1000 (acquisition cost) - £100 (notional distribution) = £100 Is that correct? 4 . Instead of selling the shares, I transfer them to my wife (no gain/no loss to me). 5. She decides to sell them immediately and receives £1200. What is my wife's capital gain on this transaction for CGT calculation purposes? Thanks.

Hi ,
 

We have provided the guidance, to help you calculate any gains.  We cannot comment of scenarios.  If you require an answer to this question, you will need to seek financial advice .

Thank you .