Reporting Dividends and Capital Gains Distributions from US Mutual Funds

I am a US citizen who holds residence status in the UK who will be taxed on an arising basis.  I will be filing my UK taxes using the self assessment procedure and need to know how to report semi/annual Dividends and Capital Gains Distributions from non-reporting US mutual funds as shown on my US 1099DIV statement. The capital gains I am referring to are not the result of the selling/disposal of mutual fund shares by me but instead are the semi/annual capital gains (short and long term) capital gains distributions that US mutual funds automatically distribute to share holders and then directly reinvested them back into the fund.

My questions are:
1)   Do I report the Capital Gains on form SA 108 or do I report them as income on the Foreign Income form SA 106 - in the Interest and other income section - since they are non-reporting US mutual funds?

2)   If I do report my Capital Gains on the Capital Gains form SA 108(not mentioning the capital gains are from non-reporting funds) do I list them under the - Listed shares and securities section - if so how do I calculate the Allowable Costs since the shares are not bought and sold by me but instead by the mutual fund itself?

3)   I assume the mutual fund dividends will be reported in the - Dividends from foreign companies - section on the Foreign Income form SA 106.

I would be most interested to see how other forum members handle their automatic capital gains and dividends mutual fund distributions on their UK tax forms as I have not found an in depth discussion on this topic on this forum.

Thank you in advance for any assistance you can render.

I have no direct experience of this, but I would include the gains and distributions simply as foreign income because they are from HMRC non-reporting funds. You will have to resource the US dividends etc to the UK and apply the relevant tax rates given in the treaty.

I seem to remember a thread that argued that US mutual funds actually meet HMRC reporting rules, but unless you are prepared to argue with HMRC or believe you can go undetected I'd just use UK income tax rates. The big downside is you don't get a capital gains allowance.

I've been wondering the same thing but my question is a little different. What if the fund IS a reporting fund? Where does one report capital gains distributions from a reporting fund on a self-assessment tax return?

I've been wondering the same thing but my question is a little different. What if the fund IS a reporting fund? Where does one report capital gains distributions from a reporting fund on a self-assessment tax return?

You'll have to enter your capital gains on SA108 and take a credit for US tax paid on SA106. I'm not sure if you enter the entire amount or just the amount that is resourced to the UK...in which case I suppose there'd be no need to claim the foreign tax credit. I'm sure someone will come along who has actually done this.

Capital gains distributions are so common, I'm surprised I can't find anything about it on the internet. The only place I've seen the subject discussed is here: http://www.justanswer.com/uk-law/6req5-tax-rate-capital-gains-distribution.html

Which just adds to the muddle!

The problem with reporting the distributions on the HMRC capital gains pages is that there's no way to know the purchase price and the selling price so one doesn't have the info to compute capital gains.

The problem with reporting the distributions on the HMRC capital gains pages is that there's no way to know the purchase price and the selling price so one doesn't have the info to compute capital gains.

You should have all the information you need on your brokerage report.

Each year I get a nice clear accounting of my capital gains and dividends so that I can file my US taxes.....all the information I'd need if I had to file UK taxes is there too.

My brokerage report states my long term capital gains as a figure eg $500. I don't see how that is sufficient for reporting on the HMRC capital gains pages which ask for the Bought price and Sold price along with dates of both. 

Capital gains distributions are so common, I'm surprised I can't find anything about it on the internet.

The problem with reporting the distributions on the HMRC capital gains pages is that there's no way to know the purchase price and the selling price so one doesn't have the info to compute capital gains.

I had a phone conversation with an HMRC inspector about exactly this point. He told me to report a capital gains distribution as a capital gain - put the purchase date as 1 January of the same calendar year in which the capital gains distribution is received, put the purchase price as 0, and then put the capital gain as the selling price. It sounds a fudge, but I guess it means the right amount of UK tax is paid.

Oh my goodness RW, thank you so much for this suggestion!!  I still find it surprising that more people have not run into this problem!

Very interesting thread as I'll be facing the same issues in a couple of years time.  I am converting all my mutual funds to HMRC reporting ETF's as I don't want the hassle of trying to argue that the annual capital gains of non-reporting funds are taxable as capital gains by HMRC, who are concerned I think that foreign funds may hold back some capital gains and not distribute them all annually.

Even with HMRC reported ETF's it is a good question on how to complete the HMRC forms since a distributed capital gain doesn't have buying and selling prices and dates.

Oh my goodness RW, thank you so much for this suggestion!!  I still find it surprising that more people have not run into this problem!

Oh I see now. On my US taxes when I sell mutual fund shares I have the sale date and price, but the purchase date is usually just left as "various". My brokerage give me a capital gain and I simply back out an average purchase price per share from that so the numbers add up.

For the capital gains distributions I do something similar using the brokerage data.

After doing all this research I now realise that one does not need to report capital gains in the UK unless they are over the exemption of £10,900 (£11,000 next year). The gov website says:

You don’t need to do anything if you’re not registered for Self Assessment.

If you’re registered for Self Assessment [WHICH I AM] you must still fill in the capital gains section of your tax return. To do this:

-confirm that you need to complete the capital gains section in ‘Tailor your return’

-in the ‘Details of chargeable assets…’ page select ‘No’ for each question - you won’t need to report anything else about your capital gains or losses


Mine are under the £10,900 threshold so I will need to include the CapGains pages but will not need to submit all the wretched calculations etc. I think!

Most people would think of an American capital gains distribution as "income" rather than a capital gain; because it does result from the sale of a single share in a fund, but is simply a return on an investment. This article discusses the point, although the conclusion is "not quite decided" it seems:
http://www.taxation.co.uk/taxation/articles/2007/12/20/5815/just-passing-through

Most people would think of an American capital gains distribution as "income" rather than a capital gain; because it does result from the sale of a single share in a fund, but is simply a return on an investment. This article discusses the point, although the conclusion is "not quite decided" it seems:
http://www.taxation.co.uk/taxation/articles/2007/12/20/5815/just-passing-through

I'm sure the article is great, but it's behind a subscription wall.

I suppose how you look at a US mutual fund capital gains distribution depends on how far you go back. The owner of the fund hasn't sold anything, but the fund manager has sold the underlying investment and passes on any capital gain, so does the character of that money change? The difficulty arises because there isn't a UK equivalent of a US mutual fund CG distribution so to resolve the issue just keep US funds in taxable accounts that don't generate capital gains distributions....for Vanguard that would be things like Total Stock Market Index and you can keep capital gains producers like Total Bond market in tax sheltered retirement funds.....this is actually what you should do to be US tax efficient too.

PS you can see the article if you look at the "cache" if you search on the article's link.

Most people would think of an American capital gains distribution as "income" rather than a capital gain; because it does result from the sale of a single share in a fund, but is simply a return on an investment. This article discusses the point, although the conclusion is "not quite decided" it seems:
http://www.taxation.co.uk/taxation/articles/2007/12/20/5815/just-passing-through

I did read the article and agree that it sounds as if HMRC are going to treat it as regular income rather than capital gains since US mutual funds do not report into HMRC and consequently are recognized by HMRC as passive foreign investments so all payouts from the fund will be treated as regular income, and that would include capital gain distributions, dividends and qualified dividends.

Vanguard ETF's do report into HMRC and I believe that dividends from ETF's that are comprised of all stocks are treated as stock dividends by HMRC.  I haven't held ETF's for more than a year yet so I don't know if they distribute CG's like mutual funds do, but the all stock ETF's I have do pay out quarterly dividends, which I expect/hope that will be treated favourably by HMRC as stock dividends.