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How do I handle accumulation funds and their dividends?

Accumulation funds automatically invest dividends in the acquisition of more shares. A tax deduction certificate should be issued by the firm managing the accumulation fund showing the gross amount of each dividend credited and any tax deducted. If the investor is a basic rate tax payer no further tax should be payable.

The amount eventually received is not pure capital as to calculate any capital gains tax on disposal it will be necessary to take into account any income credited to the fund as otherwise there could be double taxation.

The way to deal with such investments through Probate Plus would be to enter the dividend credited as though the income had been received showing any tax deducted. This would ensure that the dividend is treated as income in the hands of the residuary beneficiaries. A cash tracker account should be opened in the name of the fund to show that there is a credit, albeit retained in the fund “the fund cash account”.

When the fund is realised the amount received will comprise (a) the original investment plus (b) such dividends automatically invested and finally plus or minus (c) any gain or loss of these investments over the period when the fund was held.

When the fund is disposed of by the executors the amount shown as “realised “ would be the actual amount received less any income already entered as above crediting the net amount to the fund cash account.

The final step in Probate Plus will be a transfer into the client cash account from the fund cash account for the full amount received. The result should be that the fund cash account will show a nil balance and the client account will show the actual amount received from the fund manager on the sale of the fund.

Summary of steps to take

  1. Enter the dividend (showing any tax deducted) as income.
  2. Show that dividend as being held in a new cash tracker called ‘Fund cash account’
  3. When the fund is closed, realise the final figure also into the ‘Fund cash account’ (minus the income already recorded above).
  4. Transfer the balance in the ‘Fund cash account’ into your client account for the full amount received.


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