26 June 2022 4:07

How should accumulation type units in unit-trusts/OEICs held outside of an ISA/SIPP be handled for tax?

What is a unit trust accumulation?

What Is an Accumulation Unit? An accumulation unit is a measurement of the value invested in a variable annuity account during the accumulation period or a kind of investment where a unit trust’s income is reinvested into the trust.

What happens accumulation units?

With accumulation units income is retained within the fund and reinvested, increasing the price of the units. Generally, for investors who wish to reinvest income, accumulation units offer a more convenient and cost-effective way of doing so.

How are unit trusts taxed in UK?

The income from unit trusts and OEICs is always taxable regardless of the share class or whether the income is actually taken or reinvested. However, it may be tax free if it falls within one of the allowances (dividend allowance or starting rate for savings/personal savings allowance).

What are OEICs and unit trusts?

Unit trusts and open-ended investment companies (OEICs) are two popular forms of collective investment funds that invest yours and others’ money in a carefully selected portfolio of investments. Both are commonly referred to more simply as a type of fund.

Are accumulation units better than income?

The income share class is suited to those who want to draw an income, for instance those using their investments to help fund their retirement. In contrast, the accumulation share class is better suited for those who do not need an income and are focused on building up their ISA and/or SIPP.

Are dividends on accumulation units subject to income tax?

Sadly, yes. Fund accumulation units attract income tax on dividends and interest at the same rates as their more transparent ‘income unit’ cousins. You owe dividend income tax (or income tax on interest in the case of bond funds) even though you don’t physically receive a payout to your bank account.

How are accumulation unit trusts taxed?

When you come to sell accumulation units, you’ll pay capital gains tax (CGT) on any increase in value that exceeds your annual CGT allowance – £12,-23. CGT will be payable on the value of the accumulation units when they’re sold, minus the original investment and any income that has been accumulated.

Are accumulation units fixed?

An annuity unit is an accumulation unit for which the annuitant has annuitized their contract. This is a sub-account of the retiree’s total accumulated annuity. These units represent a fixed share of ownership of the insurer’s accounts portfolio and are different in key ways from mutual fund shares.

Do you pay income tax on accumulation funds?

You do not have to pay income tax on any income or capital gains tax on any disposals. If you hold Portfolio+ in a Fund & Share Account: Income: Income on the holdings (such as dividends and interest) is received gross but will be subject to income tax. Income rolled up into your accumulation units is also taxable.

Can you put an OEIC in trust?

The Discretionary Trust for OEICs is suitable for clients:
who are able to make an outright, irretrievable gift and have no requirement for access to the gifted amount or the income it generates.

Are OEICs limited liability?

OEICs are structurally different to their more established unit trust counterparts too; as limited liability companies rather than trusts.

What is the difference between an investment trust and an OEIC?

While OEICs are fluid in the size of their funds and investments, investment trusts hold a fixed number of shares and will typically retain the same value between the investors when an investor withdraws from the fund.

What is the difference between income and accumulation shares?

In the case of accumulation shares, the income is simply re-invested in more shares and bonds, thereby contributing to the growth in the fund holders’ capital. But with income shares, it’s used to finance distributions to fund holders at predetermined intervals – usually monthly, quarterly, bi-annually or annually.

How do accumulation fund dividends work?

Usually dividends (or other income) get paid into the fund and the price of the fund’s units increases accordingly. The fund manager then reinvests the dividends on your behalf in more shares and bonds. Funds that operate in this way are called “accumulation” funds (often abbreviated to “acc”).

Do accumulation funds buy more shares?

The accumulation class of a fund reinvests your dividends back into itself. This buys you more of the fund, increases the value of your holding, and compounds your return.

How do you account for accumulated funds?

The value of the accumulated funds can be calculated at any time by valuing the net assets (i.e. assets less liabilities) of the organization. The accumulated fund is the equivalent of the capital of a profit-making organization.

What is an accumulation/distribution from a trust?

Accumulation distribution. An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed (other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed currently.