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:

  1. 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.


  1. 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.


  1. ...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


My google-fu started working again and found me this monevator article which clarifies the situation completely, and it is basically case "2." in the question's list: declare the income, but deduct any reinvested income from any gains calculated to avoid double-counting and overpaying.

I do at least seem to be in the article's "In your broker’s statement, if you’re very lucky" category as I can see book-cost in my valuations being kicked up by the (internally, within the fund) reinvested income. And I had been declaring the income on tax returns (rather by accident) so nothing to revise there. Still, if I ever invest out of ISA/SIPP-wrappers on a low-cost platform which doesn't provide such nice statements... I'll definitely be sure to buy INC units for simplicity.

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