Capital gain calculation for accumulation funds

English Reports
1

Hi, I’m new to Performance Portfolio and really impressed. I see it can perform capital gain calculations, which is great, but unsure how to approach this for accumulation funds.

Such investments may pay a dividend, a ‘notional distribution’, that’s automatically reinvested in the fund and is taxable as dividend income. And there could be an ‘equalisation payment’ if the fund has been acquired between dividend payment dates. I hold a number of funds which have received both a notional distribution and an equalisation payment and understand if these were sold the correct approach to calculate capital gains would be: -

Net proceeds minus both the acquisition cost AND the notional distribution, plus the equalisation payment.

So, how’s this achieved in Performance Portfolio?

2

Wellcome @Rich28,

How the tax is to be settled correctly depends exclusively on your tax domicile. As a rule, you can map the tax in PP as it is actually incurred.

However, you should always use a tax tool optimised for your country in addition to PP.

Cheers, Laura

3

Thanks for getting back to me @Laura - I completely get that. Put the matter of tax domicile et al to one side though.

Accumulation funds are widely available, they may pay a ‘notional distribution’ and there could be an equalisation payment. These are aspects relating to how accumulation funds are structured to operate, which ideally PP would take into account for a capital gain calculation for this type of investment.

4

@Rich28

PP takes these aspects into account. You can book any type of distribution - including a notional distribution. You can also post any type of payment - including equalisation payments.

It does not matter that PP does not work exactly with these terms. It is important to consider which booking type in PP correctly reflects your business transaction in relation to the performance of your portfolio.

If you are unsure, please post a specific case so that we can discuss it.

Cheers, Laura

5

Thanks for getting back to me again @Laura. I’m aware a bit of time has passed but felt this matter needed some thought and wanted to develop my comprehension off PP. You were absolutely right to point out tax varies from country to country and that I need to use PP hand in hand with a tax tool optimised for where I live.

Here in the UK the tax free allowance before capital gains tax (CGT) has to be paid has been reduced massively in recent years and I’m of the view that PP has an important role to play in terms of helping to stay on top of this. For instance, its easy to record any fees involved with acquiring or selling a particular investment, and such costs can be discounted from any subsequent gain, so isn’t subject to CGT.

In terms of payments from accumulation funds I’ve come to the conclusion that it makes sense to record a notional distribution as a dividend payment on PP, with a note indicating the payment relates to a accumulation distribution - the latter can be easily searched for in a spreadsheet, so can be taken into account in a GCT calculation.

I’ve struggled to identify what would be most appropriate approach for equalisation payments. In the end I decided to classify them as a fee refund, again with a note, to identify the payments for the dreaded CGT…