Not upheld: tax certificate accuracy and dividend reporting on accumulation units complaint against VANGUARD ASSET MANAGEMENT LTD

Decision detail

Summary

Mrs R complained that Vanguard issued inaccurate tax certificates showing dividend income she did not receive as a cash payment. She sold her accumulation units on 8 May 2024, before the effective date of 31 May 2024 for a dividend distribution, and was confused about why she received a tax certificate for dividends she did not receive. The ombudsman found that for accumulation units, dividends are notionally reinvested and tax reporting is based on the effective date per HMRC requirements, making the certificates accurate. The ombudsman also clarified that Mrs R would not avoid taxation by selling before the ex-dividend date, as any benefit from reinvested dividends would be subject to capital gains tax instead.

The Ombudsman's reasoning

The ombudsman explained that for accumulation units, dividend payments are notional values reflecting the increase in unit value due to reinvested dividends, not actual cash payments. HMRC requires tax reporting based on the notional payment date (effective date), not when dividends were actually received by the Fund. The tax certificates were therefore accurate. Mrs R's concern about double taxation was unfounded because reinvested dividend income can be added to the capital cost of units, reducing capital gains tax liability. The ombudsman found Vanguard's agents provided helpful explanations despite some complexity in the presentation.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website