Difference between "Growth" and "Income" for tax return entry.

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I am both lucky and unsure, and hope someone can help me a little.

 

(The lucky bit).  At the start of last year (2020) I was given some money which I invested in the UK, and now I need to include the earnings from it in my German tax return.

 

(The unsure bit). There are two figures shown on the redacted "Summary of your Portfolio" document I received from L&G and I don't know which to include in my tax return: "Income Total" (bottom left) and "Growth" (upper right). The two figures are very different.  One is below the roughly 800€ which must be declared, and the other a lot higher.

 

I assumed that the "Growth" figure would be it, but the clear reference to "Income" has got me confused.  Can anyone clarify... thanks.

 

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Im certainly wrong but...

 

I think you should not mention the growth in the tax return. Nowhere. The income is the one to report.

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I am just starting to look into this for my German tax return and have in fact dissolved all my UK-held investments and hold them now in Germany to make everything easier next year but I think if you have ETFs then the growth is also taxed.

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If you have ETFs that reinvest (thesaurierend) then for sure some of the growth is taxable as it's really a capital gain that was used to buy new shares. If the fund is not reinvesting and pays a simple dividend then it should be easier tax wise. I don't want to offer any advice beyond that as I like Auntie Helen only have German depots because the bank has to do all the heavy lifting for tax purposes since 2017 or so.

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5 hours ago, murphaph said:

you have ETFs that reinvest (thesaurierend) then for sure some of the growth is taxable

AFAIK that doesn´t apply to ETFs only but to managed funds as well (closed-end funds or whatever thy are called in the UK).

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On 21/11/2021, 13:16:40, jeba said:

AFAIK that doesn´t apply to ETFs only but to managed funds as well (closed-end funds or whatever thy are called in the UK).

That is correct.  In the UK they are called Unit Trusts (you purchase Units) or Open-ended Investment Companies (OEICs) (you purchase shares).  They are treated as distributing 100% of the income they receive each year (interest or dividends depending on the investments held by the fund - let's ignore open and closed ended Real Estate Investment Trusts for now).  You get a tax certificate showing you taxable income each year and whether it is interest or a dividend distribution.  If the fund pays actual distributions then you get cash in your bank but if it is a re-investment (accumulation) fund, then that distribution is used to purchase new units/shares in the fund. 

 

You capital growth will therefore be different for the original units/shares and those purchased later by reinvesting amounts of annual income.   The annual income is subject to Income Tax each year and the various amounts of capital growth are subject to Capital Gains Tax when you sell your units/shares.

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4 hours ago, GaryC said:

That is correct.  In the UK they are called Unit Trusts (you purchase Units) or Open-ended Investment Companies (OEICs) (you purchase shares).

Is there a website equivalent of  e.g. cefdata.com or cefconnect.com which provides for info on these UK unit trusts and allows for comparisons? Will they have to pay some sort of corporate tax at the company level or are they regarded pass-through entities like REITS or MLPs in the US?

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The principle is pass-through like REITs, i.e. the investor should be taxed as though they had invested in those assets directly.  t's a long time since I was closely involved with the tax policy but for funds holding shares the pass-through works with no tax sticking in the fund.  For funds wholly invested in interest-bearing assets the same applies as they receive and distribute interest and open-ended property authorised investment funds (PAIFs) which is our name for open-ended REITs create distributions of property income.  This article talking about some change planned for 2022 sets things out quite well.  Tax on property funds—overview - Lexis®PSL, practical guidance for law... (lexisnexis.com).  I think the challenge comes when a fund holds a mixed portfolio of asset types.  When I was involved in policy development of the taxation of these things (too many years ago to mention), we were looking at whether they too could be made transparent for tax purposes, so that the investor got taxed on whatever type of income the fund received as if they had invested directly but that was challenging to say the least within the confines of the UK tax rules in general and I have lost track with where that all reached since I moved on.

 

This link gives a broader overview of the UK regime  Taxation of authorised investment funds (AIFs)—overview - Lexis®PSL, p... (lexisnexis.com)

 

You can browse the various types of funds on a platform like Fidelity.co.uk.

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Since the last tax reform in 2018, the taxation of ANY investment funds, managed or ETf, stock based or bond based, follows the following rules:

1. Value at beginning of the year against value at the end of year

2. Dividends paid  (if you have an accumulating fund/reinvesting or in German: thesaurierend, a so-called Vorabpauschale will be calculated and taxed)

3. Type of fund: 100% shares, mix of shares and bonds, 100% bonds lead to different taxation

 

When in doubt, contact @PandaMunich or search for contributions from her here on Toytown because most likely she has already answered this a couple of times since 2018 :-)

 

Cheerio

 

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