In an ISA account the 4.5% interest paid by T212 is attractive compared to CSH2, which is presently growing at about 5.09%. But consider what happens in a taxable account.
The excess reportable income (ERI) is taxed as income (interest or dividends), and this tax falls due even if you do not sell. Liability occurs to holders of the fund on October 31 2023 and is deemed to have been paid 30 April 2024, and thus taxed in the tax year to 5 Aprif 2025. If ERI were to be 4.5% then income tax would be much the same as having the money on deposit. ERI can be taxed as interest or dividends. I am guessing any ERI from CSH2 should be taxed as interest. See * below.
Suppose £10,000 of CSH2 grows to 10,500 over one year, bought 1/11/23 and sold 30/10/24 so no ERI liability is accrued as it was not held on a 31 October. For a higher rate taxpayer the 20% capital gain tax on 500 will be 100. But interest payment on a deposit with T212 or bank at 4.5% would be 450 and at 40% rate this would increase income tax by at least 180, possibly more depending on other income, see **. This assumes you have no unused CG tax free allowance or tax free interest allowance. Since these allowances are reducing (to 3000 and 500), more and more taxpayers will be paying tax on capital gains and interest. In this example, the after tax net from CSH2 is 400, and from a 4.5% interest account is 270, maybe less, see **.
If course you would not want to move in and out of CSH2 on a frequent basis since you would lose on buy/sell spread.
*HMRC say “if the offshore fund is a unit trust which is non-transparent, then you should report the income [ERI] as miscellaneous income”.
“if the offshore fund is ‘transparent’, then income arising from the offshore fund retains its original character — this could be a mixture of different types of income (for example, property income, dividends, or interest) which you should report separately”.
So, for example, ERI arising from Vanguard tracker funds like VFEM is reported as dividends. Note that, unfortunately, even distributing ETFs can sometimes have taxable ERI, albeit small. It is not only accumulating ETFs that have ERI. For example, VFEM distributes quarterly. But those who held this fund at the end of the accounting year at 30/06/22 incurred $0.0220 per share, deemed distributed at 31/12/22 and this should be declared as dividend on the 22-23 tax return Probably most people are completely unaware and only declared the four distributed dividend payments.
I just had a look at IUSA, a popular S&P500 tracker. This is also distributing, but also has $0.0007 per share ERI at 31/08/2023. A share was trading at £35.60, so the ERI is a very small percentage. HMRC will lose very little by people failing to report. The very popular VUSA had some ERI at 31/12/2020, but not in more recent years.
**Suppose the taxpayer has 100,000 of income and 30,000 dividends. An increase of income of £100 attracts £40 income tax, and also pushes £100 of dividend income from the 33.75% band to the 39.35% band, costing an additional £5.60. This also happens for a taxpayer with income 48,000 and dividends 4,000. Now £100 attracts £20 income tax, but £100 dividends is pushed from the 8.75% band to 33.75% band, increasing tax by a further £25. The marginal tax rate on interest income is in these examples 45.6% and 45%. The 20% capital gains tax rate on CSH2 looks much more attractive.