If I hold income type units (call them "INC") of a fund (or investment trust shares or regular equities for that matter) outside of an ISA/SIPP wrapper, it's obvious enough how to fill in a tax return: you declare any income as dividends or interest as appropriate, and if you sell anything (or there's some other "chargeable event") there may be capital gains to declare and tax to pay.
But for accumulation units (call them "ACC")... it's less clear to me how to handle it (and my google-fu is failing me). I'm guessing it must be something like one of:
- As the income is retained in the fund, there's no income to declare... but the tax hit gets taken eventually in the form of capital gains.
- There's some monstrous complication involved in keeping track of the income, the tax on the income, the amount reinvested and the consequently updated "book cost" against which capital gains are assessed.
- ...something I haven't thought of...
Really hoping it's not 2. I've always avoided any sort of dividend reinvestment programme ("DRIP") schemes for some non-ISA/SIPP equity holdings because they've a reputation for being a nightmare to keep track of tax-wise. I'd hope accumulation units in funds would be reltively simple.
My puzzlement partly arises because I see some out-of-ISA/SIPP "ACC" fund units make a point of reporting dividends (gross/net and tax credit) on a tax voucher... but it's not clear to me what to do with that information (depends on whether ACC units should be treated more like 1. or 2. or ...? above).
So: just how should ACC units be treated? Thanks for any enlightenment