How to pay less Capital Gains Tax in the UK (also Austria, Denmark and Switzerland)

If you sell an Accumulating ETF inside your GIA investment account, and exceed the current UK £3K annual tax free allowance, you will have to pay Capital Gains Tax on any gain that you made.

But, if you have not calculated the ERI then you may well be paying too much CGT because you could be declaring too high a gain!

Many Accumulating ETFs also publish an ERI at the end of their reporting period.

Yes, for UK tax purposes, Excess Reportable Income (ERI) is treated as a form of income, which is often categorised as a dividend (or interest, depending on the fund type).

 
ERI is the profit earned by an offshore "reporting fund" that is not physically distributed to investors as cash but is instead accumulated within the fund.

 
Even though you do not receive the cash, the UK tax authority, HMRC, still considers this as taxable income in your hands in the tax year it is "deemed" to be distributed.

When you sell the Accumulating ETF, you can deduct any ERI 'paid' from the gain.

Key Points:

• Tax Treatment: ERI is subject to income tax or dividend tax, not Capital Gains Tax (CGT).
• Categorization: For equity-based funds, the ERI is reported as "Dividends from foreign companies" on the foreign pages (SA106) of your Self Assessment tax return. For bond funds (where more than 60% of assets are in interest-bearing assets), it is reported as interest.
• Increased Base Cost: To prevent double taxation, the total amount of ERI on which you have paid tax is added to the original cost (base cost) of your investment. This reduces your potential capital gain when you eventually sell your units.
• Reporting: The fund manager or your broker should provide you with a tax certificate or a "Report to Participants" that details the ERI amount per unit and the "fund distribution date" (the date the ERI is treated as received). This is typically not provided by self-investment platforms like Trading 212, etc..
For further guidance, consult the official GOV.UK guidance on offshore funds or seek professional tax advice.

Example

You have held an Accumulating ETF (ACME Global Acc.) since 3 Nov 2023. The ERI Reportable date is 30th November each year. You sell the ETF on 3 Nov 2025.

The reported ERI per share at the end of the 2023 reporting period was £0.5 and you held 1000 shares, so the ERI was £500. The distribution date for the notional ERI when you are deemed as receiving it would be 31 May 2024 (2024/25 tax year).

For your 2025/26 tax report, the ERI per share was £0.4, so the total ERI was £400 notionaly received on the Distribution date of 31 May 2025. Again, under the £500 allowance for 2025-2026.

You sold in 3 Nov 2025 for (let us say) a gain of £4000 (in the 2025-2026 tax year), so CGT is due on £1000 - however, you need to also add all the ERI totals to the cost of those shares, thus reducing the taxable gain from £1000 to £100 (£1000-£900).

So the true taxable gain was £100 not £1000 and CGT is due only on £100.

Tax Treatment of ERI (Income Tax)

ERI is a notional distribution (income you are deemed to receive) and is subject to income tax in the tax year the "fund distribution date" falls (which is 6 months after the reporting period ends). 

2023 Reporting Period (£500 ERI):

• The reporting period ends 30 November 2023. The fund distribution date is likely around 31 May 2024 (in the 2024-2025 tax year).
• This £500 ERI would be treated as dividend income (for an equity ETF) and would fall within the Dividend Allowance. The dividend allowance was  £500 for the 2024-2025 tax year.
• If the ERI plus any other dividends fell within your allowance for the relevant tax year (2024-2025 - £500), no tax would be due on the ERI itself.

2024 Reporting Period (£400 ERI):

• The reporting period ends 30 November 2024. The fund distribution date is likely around 31 May 2025 (in the 2025-2026 tax year).

Again, this is treated as dividend income. 

Note: If the annual ERI is reported in a foreign currency - e.g. $USD, then you will have to convert the amount in $USD to an amount in £GBP based on the exchange rate on the distribution date of the fund (which is always 6 months after the reportable date of the fund).

Tax Treatment of Sale (Capital Gains Tax)

When you sell the ETF, any gain is subject to CGT (provided the fund had UK Reporting Status throughout your holding period). Your calculation of the adjusted cost is correct: 

• Original Cost: Let's assume you bought the shares for £X per share. Total cost = 1000 * £X.
• Total ERI paid/accrued: £500 (2023) + £400 (2024) = £900.
• Adjusted Cost Basis: Original Cost + Total ERI. This prevents you from being double-taxed (once as income, once as capital gain). 

1. Calculate total capital gain (sale proceeds minus original cost).
2. Subtract the total ERI you've already reported as income (£900 in the example) from the capital gain.
3. The result is your net taxable capital gain (£3,100), which is then measured against your annual CGT allowance (which is £3,000 for the 2025-2026 tax year currently). You can find more details on reporting your ERI on the GOV.UK helpsheet HS265.

If your total ERI on your Accumulating ETFs exceeds your annual dividend allowance, you should declare the total ERI as well as any paid dividends each year. In the UK, the basic rate dividend tax is 8.75% and is far less than the basic CGT rate of 18%. The higher income tax dividend rate is 33.75% however, and is much higher than than the 24% higher CGT rate - so in this case, if you are a higher rate tax payer, you are probably not paying enough tax and are 'cheating' HMRC if you are not correctly declaring your ERI each year!

If you sell any Accumulating ETFs before the reportable date, then no notional ERI is due on the distribution date 6 months later and so you don't need to calculate ERI. Just beware of the 30-day rule and don't buy the same accumulating ETF within 30 days of selling!

Of course, if you only invest in Distributing ETFs in your GIA and avoid Accumulating funds which have a non-zero ERI, then you do not need to work out any of this ERI stuff!