Tax on dividends - back to the future

[Ozzie Osmond]

Would I be right to think that for many investors Capital Gains are starting to look a lot more attractive than Dividends?

• Dividend Income Tax 32.5%
• Capital Gains Tax 20%

(this is based on a higher rate taxpayer with significant investments)

If so, how is this best exploited? Is it as simple as switching from Inc funds to Acc funds and selling units when cash is required?

[jw673]

Whilst I may be talking complete rubbish*, I was under the impression that although it may appear Acc funds are all about capital gains - they still have a regular (internal to the fund) distribution element (or similar wording) that isn't treated, with regards to tax, as a capital gain. If this is the case it isn't as simple as switching from Inc to Acc as a way to change how the gains/increase is treated for tax purposes. I think* holding Acc funds outside of an ISA potentially has additional admin overhead with regards to calculating tax due at year end, as opposed to just paying whatever capital gains tax is due at the time of sale.

In summary: speak to an accountant*.

*Eric will be able to confirm.

[ellroy]

The tax for an income unit or accumulation unit is exactly the same,many dividend accruing will be taxable to income in the tax year recovered. Moving from to the other has no impact on taxation what so ever.

You'd need to be focussing on a different fund with more emphasis on gains rather than income generation in order to swing the tax rate slightly in your favour, but gains can of course be erratic in comparison to income. So not without risk.

[Ozzie Osmond]

Interesting. This is exactly what I had been wondering.

Some Acc funds that I own seem to send a Dividend Tax Certificate at the end of the year (even though no cash received) whereas others don't. Clearly more research/guidance required!

OzOs