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Cofunds Dilemma

Self Assessment

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I have a really interesting dilemma that has even confused HMRC and was wondering what your take on this would be please.  I have a client who has funds invested in Aegon, formally Cofunds, where by dividends and interest received on these investments are simply reinvested into the fund and are not paid out to my client. Do I still need to declare these dividends and interest received on his personal tax return?  Because my other concern is that if he was to cash in any of the investments then CGT would be due..?

Would be interested to hear if anyone has a similar dilemma?

Replies (23)

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By Accountant A
31st Oct 2019 12:11

dilemma: noun
"a situation in which a difficult choice has to be made between two or more alternatives, especially ones that are equally undesirable"

You haven't got a dilemma. Just apply the rules for taxation of dividends and gains and you'll get the right answer.

Thanks (1)
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By Wanderer
31st Oct 2019 12:42

samnico wrote:

I have a really interesting dilemma that has even confused HMRC and was wondering what your take on this would be please.  I have a client who has funds invested in Aegon, formally Cofunds, where by dividends and interest received on these investments are simply reinvested into the fund and are not paid out to my client. Do I still need to declare these dividends and interest received on his personal tax return?  Because my other concern is that if he was to cash in any of the investments then CGT would be due..?

Would be interested to hear if anyone has a similar dilemma?

This isn't a dilemma, interesting or otherwise, it's a really common situation.

You've been in practice for over 23 years, have you seriously never come across this before? Or is there a possibility that you haven't treated this situation properly in the past?

Thanks (1)
Replying to Wanderer:
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By samnico
31st Oct 2019 15:04

Thanks for replying but are you having a really boring day as your reply is not even worth your effort...really unhelpful and a touch too arrogant and next you're going to tell me that you are GOD!!

People like you need to come off this forum as you are totally useless!! Be interest to know what your clients think of you, assuming you have some!

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Replying to samnico:
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By Wanderer
31st Oct 2019 15:03

samnico wrote:

Thanks for replying but are you have a really boring day as you reply is not even worth your effort...really unhelpful and a touch too arrogant and next you're going to tell me that you are GOD!!

People like you need to come off this forum as you are totally useless!! Be interest to know what your clients think of you, assuming you may have some!

Didn't know you knew me that well? As you're interested generally clients like me.
Anyway samnico thanks = 5
Wanderer thanks = 1,189
Based on that obviously I'm useless.
Perhaps you'd explain why you think this is either interesting or a dilemma or both?
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Replying to Wanderer:
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By samnico
31st Oct 2019 15:09

Thought as much, you do think you're GOD!!!

1,189 Thanks for being an [***]!!

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Replying to samnico:
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By Wanderer
31st Oct 2019 15:15

samnico wrote:

Thought as much, you do think you're GOD!!!

1,189 Thanks for being an [***]!!

Yes I do.
Now if you answer the question then maybe we can help.
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By cathygrimmer
31st Oct 2019 12:46

I'm surprised to hear that HMRC are confused about the correct treatment as this is pretty standard stuff. Dividends and interest are taxable even if reinvested by the portfolio manager - but then the reinvested amount, if used to purchase new securities, is additional expediture for CGT purposes. If this is not a simple portfolio but some sort of bond/ISA/pension/investment wrapper, then it could be different.

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Replying to cathygrimmer:
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By johnhemming
31st Oct 2019 13:34

Obviously ISAs or SIPP would be different as dividends can be reinvested without a taxable receipt occurring.

An interesting aspect about "flexible" ISAs is that during the tax year you can dip into an ISA for cash and as long as you return the cash by the end of the tax year it stays in the tax wrapper. That is in addition to any cash you contribute during the year.

As far as I know a lot of the cash ISAs are like this, but many stocks ISAs run by stockbrokers are also "flexible" in the same way.

Much that my (now ex) company provides the software to do this I hadn't spotted it until relatively recently.

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Replying to cathygrimmer:
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By samnico
31st Oct 2019 15:11

Thanks for this, really useful and will forward this to HMRC and remind them of what should happen. It was because they were unsure that i posted the question, but I thought as much...

Thanks again

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Replying to cathygrimmer:
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By Accountant A
31st Oct 2019 20:30

cathygrimmer wrote:

I'm surprised to hear that HMRC are confused about the correct treatment as this is pretty standard stuff.

Spoiler alert - they aren't! (As I am sure we all knew!)

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By Red Leader
31st Oct 2019 15:01

Blimey.

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Replying to Red Leader:
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By samnico
31st Oct 2019 15:18

My thoughts entirely ....and concerning!!

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By Tax Dragon
31st Oct 2019 15:28

I have clients with funds invested with cofunds (etc). Not so many have invested in cofunds (etc).

Assuming you just "done a typo", they should be able to tell you the underlying investments easily enough, which are taxable in the usual way.

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By penelope pitstop
31st Oct 2019 15:51

I think you should hire Wembley Stadium to sit down all HMRC employees. It sounds as if they all need a good old dressing down and lecture on how to tax dividends and interest.

By the way, this aspect of taxation was covered in my first week of Inland Revenue training.

It is evident that something has gone seriously amiss at HMRC nowadays when they do not even know how to deal with the elementary tax things.

I am going to go for a lie down now. The shock of the OP's revelation is just too much for me to bear.

I will shed a tear for all HMRC staff, especially the front-line members, in the knowledge of how it used to be in "the good old days" of "O" levels.

Samnico. It is really good to hear of your one-man crusade to clarify this confusing matter for HMRC. I have spent years on a similar crusade, but find that my vain efforts were either ignored or fell on deaf ears.

I wish you every success where other lesser mortals have failed.

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Replying to penelope pitstop:
By penelope pitstop
31st Oct 2019 15:56

P.S. If the Cofunds Annual Tax Report has the word "ISA" on it, then you can ignore the dividend and interest income.

If the income is merely reinvestment or accumulation units outside of an ISA then it all has to go on the tax return.

Remember the interest and dividend income bands taxable at 0% which may save the day, depending on the quantum of income involved.

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By penelope pitstop
01st Nov 2019 02:55

Has it actually "even confused" the entirety of HMRC.

If it has then we're all doomed.

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By Matrix
01st Nov 2019 08:25

I tend not to get HMRC involved, if I found it confusing myself then I just would not take on the work.

I do not know what a cofund is but I don’t think I need to as I only complete a tax return if the annual tax pack has been sent to me with income to declare on the tax return. So ask for this and then your client’s investment decisions are a red herring.

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Replying to Matrix:
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By johnhemming
01st Nov 2019 08:50

Cofunds is a company now part of Aegon
https://investors.cofunds.co.uk/web/index.aspx

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Replying to Matrix:
By penelope pitstop
01st Nov 2019 13:38

A Cofunds Tax Report is akin to a normal Stockbroker's Tax Report.

From memory they are actually quite decent tax reports, although I have sent one back to my client so I cannot refer to it now.

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By JCresswellTax
01st Nov 2019 09:11

You say 'even HMRC' as if they are some sort of tax specialists.

They are the worst people you could ever ask about tax!

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Replying to JCresswellTax:
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By Tax Dragon
01st Nov 2019 09:38

Surely not.

Have you not read what Anonymous writes?

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Replying to JCresswellTax:
By penelope pitstop
01st Nov 2019 13:33

HMRC = Keystone Cops of the Fiscal Universe

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Replying to penelope pitstop:
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By Tax Dragon
01st Nov 2019 14:36

Are you having a bad day dealing with HMRC, Penny?

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