US Fund 'Cost basis' - what is best choice for UK reporting?

I have some US Vanguard funds that I never withdrew from so I can still choose the cost basis - specific shares, First in-first out, cost averaging etc.

Given my withdrawal strategy in the years ahead, it really does not matter to me which I choose for US tax purposes.
So which basis  makes the most sense for UK tax reporting?

E.g will HMRC require a strict accounting of cost basis  of particular shares purchased  on certain day many years ago  with the exchange rate of that day  - or are they ok with cost averaging?

I have some US Vanguard funds that I never withdrew from so I can still choose the cost basis - specific shares, First in-first out, cost averaging etc.

Given my withdrawal strategy in the years ahead, it really does not matter to me which I choose for US tax purposes.
So which basis  makes the most sense for UK tax reporting?

E.g will HMRC require a strict accounting of cost basis  of particular shares purchased  on certain day many years ago  with the exchange rate of that day  - or are they ok with cost averaging?

I do this all the time and yes it does matter, I think. When reporting the sale of shares on an HMRC return I have not seen anywhere that allows the average cost of shares, on “date of purchase” I don’t believe there is an option of “various”, because when reporting a capital gain or loss of foreign shares the exchange rate of the dates of purchase and shares needs to be known.

Even before I left the USA I used the specific share lot option when selling shares so I could optimize the taxes.

If these are holdings in direct shares or UK reporting funds one would calculate and use the “Section 104 share pool” for capital gains. This is not optional. If they are non-reporting funds, where a holding in a US domestic mutual fund or ETF has been acquired on more than one date, shares acquired later are identified with the ones sold; a LIFO (Last In First Out) method (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51565).

If these are holdings in direct shares or UK reporting funds one would calculate and use the “Section 104 share pool” for capital gains. This is not optional. If they are non-reporting funds, where a holding in a US domestic mutual fund or ETF has been acquired on more than one date, shares acquired later are identified with the ones sold; a LIFO (Last In First Out) method (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg51565).

Up until reading your link  I thought UK taxes would be way easier that US!

Still, Durhamlad's point to use specific shares  accounting makes sense in that it gives me the most information about shares so I can pick which specific shares to sell.
The doc you cite seems to be telling me that I should sell most recently acquired first - am I reading that right?

Assuming - unusually - these are non-reporting funds any gain is subject to UK income tax - not capital gains tax.  Losses cannot be offset. A LIFO basis is required for non-reporting funds.

Assuming - unusually - these are non-reporting funds any gain is subject to UK income tax - not capital gains tax.  Losses cannot be offset. A LIFO basis is required for non-reporting funds.

Good point. Prior to moving back I converted my Vanguard mutual funds to their HMRC Reporting ETF equivalents.

Assuming - unusually - these are non-reporting funds any gain is subject to UK income tax - not capital gains tax.  Losses cannot be offset. A LIFO basis is required for non-reporting funds.

Actually both. I have three funds that can convert to reporting ETF's but the 4th cannot.

So when I sell the non-reporting fund, the gains will be taxed at the higher income rate but can I still use the CG personal exemption - since the Gains are still Capital Gains?

For the reporting funds one reports actual income plus ERI.  Capital gains are calculated and taxed as for all other capital gains. For the non-reporting funds one reports actual income - but no ERI. Capital gains are calculated using a LIFO basis (still with spot exchange rates naturally). Losses are not offset. No CGT exemption.

What is ERI ? Can't find anything that fits using Google.


Please check me on an example:

Let's say I check my US dividends for the UK tax year and calculate the GBP numbers using the  exchange rate on date of each payment.
All total I have £10k in 'reporting fund' dividends and £5k in non reporting fund divs.

I also have £1k in reporting fund CG's and £5k in non reporting CG which I also calculated using the exchange rates on the dates bought and  sold to figure out the gains.

total of above is £21,000

I can take off £2k  (my dividend allowance )
I can take off £1k of CG from my £12,300 CG allowance  -  but not the £5k from the non reporting fund.

That leaves £18k

I can take off my £12,500 personal allowance from the remaining part that benefits me the most so I choose to take it off the £5k none reporting CG and the £5k non reporting dividend + £2500 of remaining dividends

what is left is £5500 of  'reporting' dividends that are taxed at 7.5%  = £412.50

Did I get that right?

This link includes an official HMRC explanation of ERI: https://www.tax.org.uk/sites/default/files/Sample%20letter%20with%20factsheet%20Nov%202019.pdf

I assume that Mrbillium is a UK resident US citizen.
If so, he should claim the notional 15% withholding tax from his US dividends, whether from reporting or non-reporting funds. He will have no UK tax to pay on his illustrative amounts, once he has included this claim.