eddyglowe

I spoke to HMRC and they pointed me towards the document below - I have seperated out the final line as that clearly states the key date for Accumulation Funds is when "unit holder became entitled to the notional distribution". That is the XD Date, which makes perfect sense and avoids double taxation. CG57707 - Unit trusts: accumulation units No distributions are made to holders of accumulation units. Instead the net amount that would normally be distributed is automatically reinvested in the fund. No new units are issued but the value of the existing holding of units is increased. The notional distribution is treated as allowable expenditure where it is subject to Income Tax in the hands of the unit holder. This treatment applies to both UK resident and non-UK resident trusts. Indexation allowance is given from the date the unit holder became entitled to the notional distribution.

The problem with an Accumulation Fund is the dividends are never actually paid - they just result in a increase in the unit share price. If it was an Income Fund there wouldn't be a problem - I would actually receive the dividend cash in the 24-25 Tax Year and the unit price would drop, resulting in a lower capital gain in the 24-25 Tax Year (or a bigger reportable loss!). As I highlighted previously, with an Accumulation Fund I pay the capital gain in the 23-24 Tax Year and dividend tax in the 24-25 Tax Year, without the fall in capital value you get with an Income Fund (effectively delaying the capital gain by one year). Unless I am missing something, this is double taxation on the income I received in the 23-24 Tax Year. The obvious solution is to have the income Distribution Date the same as the ex-dividend date for an Accumulation Fund - for Income Funds the Distribution Date would remain the Payment Date for the fund (if declared). I know I could have avoided this situation by selling the units before ex-dividend date but I wasn't aware of the XD date and wanted to sell as close as possible to the Tax Year end, so as to reinvest some of the proceeds into an ISA in the following Tax Year, with the minimum amount of time out the market. I will try and contact HMRC direct, as you suggest, but it might be useful for others to have the position clarified here, for this somewhat unusual scenario.

I know how to determine the disposal date - as I said my initial question, that took place in the 23-24 Tax Year. My question is about using the Allowable Cost for the Dividends accumulated during the 23-24 Tax Year (but payable in the 24-25 tax year) when determining the Capital Gain for the 23-24 Tax Year. My understanding is that the proceeds of the disposal would include the notional dividends that have accumulated during my period of ownership, as the unit price is adjusted as the Dividends are applied in an Accumulation fund. Any notional Dividends that apply to Accumulation units should be used as an allowable cost when calculating the Capital Gain on the sale - if that is not done I would be treating the accumulated dividends as a Capital Gain, not as income. However, my platform did not include the dividends for that fund in the CTC for the 23-24 Tax Year - I have confirmed with my platform that as the payment date falls into the 24-25 Tax Year they will appear in the CTC for 24-25. This means I will be paying capital gains tax on the accumulated income for the 23-24 tax year and dividend income tax for the same accumulated income in the 24-25 tax year - that means I would be subject to double taxation. To avoid the double taxation (and to correctly report the accumulated income in 23-24 as subject to dividend tax) I believe the best approach is to report the accumulated income as happening in the 23-24 tax year and use it as a allowable expense in that year. I would then ignore the dividend reported for that in the 24-25 tax year. Is that an acceptable approach for HMRC?

I have an Accumulation Fund where the XD date is in one tax year but the Payment Date is in the next Tax Year. I sold all my shares in the Accumulation Fund in the 23-24 tax year after the XD date - the dividends do not appear in my 23-24 CTC. I assume they will appear in my 24-25 CTC as my platform bases the Tax Year for the dividend on the Payment Date. My question is about using the Allowable Cost for the Dividends in determining the Capital Gain for the 23-24 Tax Year - am I right in thinking I can use the Dividends from the 24-25 Tax Year, as I assume the Dividends will be part of the share price when I sold?