The tax rules aim to put the investor broadly in the same position as if they had invested in the fund’s assets directly (rather than investing in the fund)2.
Income
Investors may receive dividend distributions and/or interest distributions3:
- Dividend distributions are treated in the same manner as any other UK company dividend.
- From 6th April 2017 interest distributions are paid gross and taxed in the same way as interest income from a bank4.
In case of an accumulating fund (instead of distributing dividends or interests it re-invests them in the fund) amounts reinvested are taxed as income (dividend or interest) accruing to investors in the same way as if they had been distributed. Remember to deduct these on sale when computing capital gains tax5.
Disposal
A sale will give rise to capital gain6.
Units are treated as shares in a company and capital gains tax is computed in a similar way7.
Bonus
- In India tax rates for equity and debt funds differ, its not the case in UK.
Source:
Roy Accountants 