The Lemon Fool

I have read on another board about the Lyxor money market fund CSH2. This is seen as a good place to park cash in a stocks and shares ISA if your broker pays next to no interest on cash. But if you hold CSH2 outside of an ISA, how would it be taxed, please?

Cinelli

cinelli wrote:But if you hold CSH2 outside of an ISA, how would it be taxed, please?

Money market funds are usually taxed as interest. It can depend on their exact structure and domicile whether the taxation is on a yearly basis or whether if in accumulation form they are taxed on disposal.

This discussion may give some insight.
https://community.hmrc.gov.uk/customerf ... 2248c8750a

Thanks, Alaric, for a very useful link. I wasn't aware that the HMRC had discussion boards. But in this particular case, experts seem to offer different views:

HMRC Admin 20 says

"You will only pay the tax when you sell them ..."

whereas HMRC Admin 19 says

"This means that you are taxed each year on the amount reinvested in the same way ..."

But that is by the by. I had hoped CSH2 would be taxed as a capital gain ...

Cinelli

cinelli wrote:But that is by the by. I had hoped CSH2 would be taxed as a capital gain ...

Perhaps this is only applicable to funds investing in bonds and loans, but an IT structure may be able to be taxed as an equity in the hands of the holder. That required listing in the Channel Isles where the definitions were a little less stringent.

Whether it's advantageous to be taxed as capital gain or interest has changed over the years with shifts in tax rates and policy, but HMRC usually seek to rule out such arbitrage when they have the chance to frame rules.

I've parked some cash in this ETF, and it's gaining over £2k/month. Since it's an ETF I will treat it as a capital gain upon disposal. After all, if gilts collapsed, the ETF would also fall. That's not interest.

rhys wrote:I Since it's an ETF I will treat it as a capital gain upon disposal. After all, if gilts collapsed, the ETF would also fall. That's not interest.

It's not totally your decision as HMRC would likely have a view. They would probably want a split of proceeds into return of capital, either at a profit or a loss, and accumulated interest.

It is taxed as interest. The interest shows up as Excess Reportable Income:

https://monevator.com/excess-reportable-income/

You may be able to find the Excess Reportable Income for CSH2 here:

https://www.kpmgreportingfunds.co.uk/

Otherwise, contact the fund manager.

I have had another thought about CSH2. Suppose you were to spread bet them. CSH2 is quoted by IG Index as follows:

March 24 sell 111384 buy 111413 spread 29
June 24 sel 112962 buy 112991 spread 29
Sep sell 114540 buy 114569 spread 29

These quarterly prices do not incur any overnight fees. I don't really believe these quotes as usually the spread increases the further away is the expiry. But they amount to total costs of only 0.03%.

Usually gains from spread bets are tax free. Would this be true too for CSH2?

Cinelli

Doesn't it track ESTR rather than SONIA (which is higher last time I looked)?
There may be a exchange rate gain/loss involved also

Further to my idea of spread betting CSH2, I now realise why this wouldn't work. The buy prices of monthly bets are now

March 111357
June 112943
September 114530

These prices have gone down in five weeks. That this would happen is, perhaps, obvious to more experienced spread betters.

Cinelli