Share your pie recipes

Unfortunately no. In a taxable account, accumulating ETFs are also taxable each year on the dividends that are retained and rolled up in the fund. You are expected to refer to Vanguard’s web page and find the “excess reportable income” that has been so rolled-up and report it for dividend tax. Expand the tab called “Report to Participants (current and previous years)” at this page

To give an example in the first line we read that Vanguard S&P 500 UCITS ETF USD Accumulating Share (VUAA) had $0.1126 per share of reportable income.

Having paid the dividend tax on $0.1126 per share, via your self assessment tax return, you can increase the basis cost of your units by this amount, as if you had reinvested it, and then there will be less capital gains tax to pay when you come to sell.

This has been discussed in some other posts in this community. Search for “excess reportable income”. There is also information about this on the HMRC website. See also here for a discussion of distributing vs accumulating funds. The key point is that the taxes owed are very much the same.

To make things even harder, you might think that distributing ETFs are easier because then you only pay tax on the dividends you receive. However, these can also have “excess reportable income”, albeit smaller amounts than their accumulating siblings. Vanguard does not actually distribute 100% of the income. So with either type of ETF you will need to look up the income on the Vanguard (or other provider’s) website, if you are in a taxable account are have dividend income exceeding the annual tax free allowance.

1 Like