Sunday, 19 October 2025

Avoid paying too much tax or too little tax on Accumulating ETFs (UK, Austria, Denmark, Switzerland)?

Accumulating ETFs don't pay out dividends, so you don't pay dividend tax on them - right?

Uhh - WRONG! - you may still need to declare and pay dividend tax each year to the tax man!

If you are a tax resident in Austria, Denmark, Switzerland or the UK you may be paying too much tax or not enough tax on your ETFs! Not only that, but you are probably not declaring your income correctly and you could wind up in trouble with the tax man (or tax woman)!

Does this apply to you?

1. You hold Accumulating ETFs 
2. in a General Investment Account (GIA) - for example, an MSCI Core World Accumulating ETF like SWDA or HMSW.
3. You are a tax resident in Austria, Denmark, Switzerland or the UK.
4. The annual dividends that are paid INSIDE the accumulating ETFs and all other dividends exceed your dividend tax threshold (e.g. if you are a standard income tax payer in the UK, then all dividends need to exceed £500 before dividend tax is payable).

Yes, if you live in the UK (or one of the other three countries) you still may have to pay dividend tax each year even if you did not receive a dividend payment from your accumulating ETFs!


See video at 5:00 and


Accumulating ETFs

If you hold an accumulating ETF that holds stocks paying dividends you should declare those dividends each year and pay any dividend tax if due. Typically your stockbroker online platform will not report how much dividend you earned each year on your accumulating ETF. You will have to look up each dividend payout on the ETF suppliers website. For instance if you hold an Invesco accumulating ETF, you must look on the Invesco website to find a report of that year's reported dividend income for your particular ETF.

e.g. HSBC MSCI World UCITS ETF USD (Acc) - ISIN: IE000UQND7H4

A document on the Invesco site says that for UK tax payers:
  • Details of which Share Classes have UK reporting fund status can be found on the United Kingdom HM Revenue & Customs’ website at https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds. 
  • Shareholders in reporting status funds may be taxed on the reportable income arising in an accounting period whether or not that income is distributed to them. 
  • The amount taxable per share will be the total reportable income for the period (adjusted by any qualifying equalisation) divided by the number of relevant shares in issue at the end of that reporting period. 
  • The Company will make available to shareholders the reportable income information that they will require for their UK tax returns at www.etf.hsbc.com by 30 June each year. If investors do not have access to the internet they can apply in writing for a copy of this information to HSBC ETFs PLC, 3 Dublin Landings, North Wall Quay, IFSC, Dublin 1, Ireland. G
Below shows the documents available for download...
HSBC Reportable Income Reports can be downloaded - here is the 2024 one...

Find the ISIN entry for your ETF

We can see that IE000UQND7H4 has an ERI per share of 0.4977 dollars.

Assuming I had 100 shares on 31.12.2024, the dividend would have been $49.77. We know need to find out what the USD/GBP Fx rate was on 30.06.2025 and convert $49.77 to GBP! This was around 0.737885, so that gives us £36.72p declarable dividends.

If I had sold all my HMWS before 31.12.2024 then I would not have to declare any dividend for 2024/25 tax year, as far as I understand it.

If I now sell my HMWS and make a gain of say £1000, I can deduct all the ERI amounts that it had earned in all the years I had held it before CGT is due, e.g. CGT due on £1000-£36.72 if I just held it for one year including on 31.12.2024.

The dividend allowance is £500, so I would not pay any dividend tax on any ERIs or dividends totalling less than the allowance, and by taking it off of the £1000 gain, I don't pay the CGT on that amount either if I exceeded the £3000 CGT allowance on all my sells for that tax year.

Now we should do this calculation for each Accumulating ETF we hold in our GIA accounts!


Note: Some distributing ETFs also may declare a small ERI too. In practice, the amount is quite small however. Strictly speaking you should check the earnings report every year of all your ETFs!
Key takeaways
  • Liability for ERI is determined by owning the ETF on the last day of the fund's reporting period.
  • The sale date is irrelevant for determining whether you owe ERI for a past reporting period - if you held them on the Reporting date then you must report the notional ERI each year.
  • The tax on the ERI is paid in the tax year that includes the fund's distribution date, which is six months after the reporting period ends. The Fx rate on the distribution date should be used when calculating GBP ERI.
  • When you sell the shares, any profit is subject to Capital Gains Tax, but you can add any ERI you have paid tax on to the cost of your investment to reduce the gain.
  • If you hold Accumulating ETFs, keep a record of the number of shares you held on their reporting date. e.g. If the reporting date of ABC is 30 Nov. then keep a record of how many shares of ABC you held on that date each year because you will need to calculate the taxable ERI later for your tax report and also the total ERIs you paid each year on ABC so you can deduct it from the capital gain when you sell ABC. Otherwise you will have to work out from your Broker's transaction report how many shares you held on the Reporting date for each ETF.

Easily avoid ERI calculations

So inside a GIA, it is far easier to buy a distributing ETF and you can choose to auto re-invest the dividend payments (or do it manually).

Investing in accumulating ETFs inside a GIA should be avoided, especially if you have lots of ETFs!

If the dividends from all your investments in all your GIAs for the tax year do not exceed the UK £500 dividend allowance, then you won't need to pay any dividend tax.

Basic Rate Tax Payers
If you are a Basic Rate income tax payer in the UK, you pay 8.75% on dividends and your dividends will be reported by your broker each year. Also, many brokers will automatically re-invest your dividends for you for zero or minimal extra cost.

As a Basic rate taxpayer, you only pay 8.75% tax each year on the dividends which exceed the £500 allowance.

So instead of buying an accumulating ETF, simply buy a distributing ETF inside your GIA.

If your total dividends each year is below £500 then you won't need to pay any dividend tax.

If you do not do this calculation each year, when you sell the ETF you will be paying CGT on the entire gain (including the dividends added) at a CGT rate of 18%. So you are paying more than you should in tax on the ERI/dividend portion (18 - 8.75 = 9.25% more).

Theoretically, you will be paying approx. 9% more on the dividends inside your accumulating ETF than you need to (and it is technically illegal).

Higher Rate Tax Payers
You could, of course, buy distributing ETFs, but the dividend tax higher rate is 33.75%. This means if you simply ignore paying ERI dividend tax each year on an accumulating ETF, you will be paying 24% CGT on the dividend portion when you sell them, as opposed to 33.75% if you paid dividend tax on the ERI each year.

In this case, if you have large holdings of accumulating ETFs in your GIA account(s) and haven't declared the ERI each year, HMRC may be after you for insufficient payment of taxes!

Not All Accumulating ETFs have dividends
The simple solution is to always go for distributing funds in a GIA. However, some swap-based ETFs and most currency hedged and leveraged ETFs may have 0 ERI - so check first as you may not always need to switch to a distributing ETF! 

For example, Invesco EQGB is a currency hedged accumulating NASDAQ ETF which had an ERI of £1.5015 per share treated as paid on 31/3/2025 (for shares held 30/09/2024). 

Invesco report for EQGB IER for 2024 (falls in 2024/2025 tax year)

EQQQ is a distributing NASDAQ ETF and so is good to hold inside a GIA.

Instead of SWDA, you could look at a distributing MSCI Core World ETF like IWDD or WRDD. Instead of IITU or XLKQ Tech ETFs you could look at XSTC (USA) or WITS (World).

This, of course, applies to reportable funds (which most are), if they are not reportable (they don't report to HMRC) then gains may be subject to income tax and not CGT or dividend tax.

Call to Action

Most ETF providers have a reporting date of the end of November or end of December (please check each ISIN number).

This means if you do not hold Accumulating ETFs on these days (and do not buy them back within 30 days), you will not have to calculate ERI. So if you have accumulating ETFs in a GIA, you may want to sell them before the end of November (that may incur CGT) and buy a distribution version if you think that your dividends+ERIs may exceed £500 the tax year.

Note that due to the 30-day CGT rule, you could buy them back within 30 days and not suffer CGT charges and not suffer a taxable gain, but the ERI would apply because you would be deemed to have held the shares on the reporting date even though you did not own them on that date.

For the purpose of Excess Reportable Income (ERI) liability, the bed and breakfasting (30-day matching) rule is also applied. The rule exists to prevent investors from artificially manipulating their tax positions by selling and quickly re-purchasing assets.
How the bed and breakfast rule applies to ERI
Scenario: You sell your ETF on 29 November 2024, one day before the reporting period ends on 30 November 2024.
  • The buy-back: If you buy back the same ETF within 30 days of that sale (e.g., in early December 2024), HMRC's share-matching rules will apply.
  • The outcome: The buy-back is matched with the earlier sale. For ERI purposes, you will be treated as if you had never sold the shares, and therefore, you will be liable for the ERI for the reporting period that ended on 30 November 2024. 
The key date for ERI
  • The crucial date is the fund's reporting period end.
  • To avoid ERI liability for a particular reporting period, you must ensure you do not hold the shares on that date and do not buy them back within the following 30 days.

Tax treatment of ERI example
Assumes you buy the ETF 25 November 2024 and sell it 5 December 2024...
  1. ERI liability: Your liability for the Excess Reportable Income (ERI) is determined on the reporting date (30 November 2024). You are liable for the ERI because you held the ETF on that date.
  2. Sell the ETF: You sell the ETF after the reporting date (e.g., in early December 2024). This falls into the 2024/2025 tax year.
  3. Calculate Capital Gain: When you calculate your capital gain for the 2024/2025 tax year, you can and should add the ERI for the November 2024 reporting period to your cost base. This ERI will not be known until 6 months after the reporting date (distribution date). Any currency conversion of the ERI, if needed, is done using the current (i.e. 30 May 2025) Fx rate.
  4. Report ERI as income: The ERI is deemed to be received on the distribution date (e.g., 30 May 2025), which falls in the 2025/2026 tax year. You will declare this ERI as income on your 2025/2026 tax return.  You will report the ERI as dividend income on the "Dividends from foreign companies" section of the SA106 (Foreign Pages) of your Self-Assessment tax return (note: if the ETF is heavy in bonds, ERI may be treated as interest income not dividend income).

The list below shows the typical reporting dates for different ETF providers - but you must check yourself using the ISIN number as some ETFs have different dates:

Provider   Typical Reporting date
Amundi      7/11
Invesco     30/09
iShares      30/11
HSBC       31/12
Van Eck    31/12

The distribution date will be 6 months from the reporting date. For Invesco, the ERI falls within the same tax year as the reporting date, but for most others, you will need to declare the ERI amount in the following tax year.

I am not a tax or investing expert, so please check with your accountant before you take any action!

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