[GNC] Reporting transactions

D. sunfish62 at yahoo.com
Sun May 3 10:42:50 EDT 2020 

If it works for you and it's clear to you, then that's what matters.


-------- Original Message --------
From: Ruaraidh Sackville Hamilton <ruaraidh.sh at gmail.com>
Sent: Sun May 03 15:19:16 GMT+05:30 2020
To: Christopher Lam <christopher.lck at gmail.com>
Cc: "D. via gnucash-user" <gnucash-user at gnucash.org>
Subject: Re: [GNC] Reporting transactions

FWIW, after further research on SIPPs I think I have the "correct" solution
for how to manage them in GnuCash. Basically, keep them in their own
GnuCash file separate from your other assets.

To quote https://www.ii.co.uk/ii-accounts/sipp/inheritance-tax , "Your
pension does not normally form part of your estate" (that is, it's not part
of your assets and liabilities whose net worth is assessed for inheritance
tax, and whose associated income and expenditure is assessed for income
tax).

It all fits and makes sense. A SIPP is a pension fund. Pension funds
themselves are not part of your assets, and their investment activities are
not part of your income and expenditure. When you pay into a pension fund,
this is an expense, which reduces your estate's net worth now and which you
can claim as an allowable expense against income tax. When you withdraw
funds from a pension fund, this is income, which is subject to income tax
and increases your estate's net worth. This applies to SIPPs in the same
way as to other pension funds.

The difference is, a SIPP is managed by you. As investor-manager of the
SIPP, you can specify who the SIPP will pass to when you die, but that is
done separately from your estate under different tax rules.

So, keep your estate assets and liabilities in one GnuCash file (your
estate file), and your SIPP in a separate file (your SIPP file). Payments
from your estate bank account into your SIPP appear correctly as expenses
in your estate file, and withdrawals from your SIPP into your bank account
appear correctly as income in your estate file - so they will be correctly
reported in your estate tax report. If you want the GnuCash tax report to
fully reflect all your expenses, including contributions made by employers
or by the government pay directly into your SIPP, you would need route them
through a notional asset in your estate file: record each
employer/government contribution as a (tax-free) income to the notional
asset, and then as an immediate expense from that asset, on the same date
as the income to the SIPP - i.e. zero net change in your estate net worth,
and an increase in the SIPP net worth.

If you still want to keep your estate and your SIPP in the same GnuCash
file, be aware that (1) the net worth shown in the GnuCash file will not be
your estate net worth; (2) GnuCash tax reports won't be able to show all
your reportable expenses while you are building up your SIPP; and (3)
GnuCash tax reports won't be able to show all your taxable income when you
withdraw funds from the SIPP.

Hope this is of interest to some.

Ruaraidh

On Fri, 1 May 2020 at 12:53, Ruaraidh Sackville Hamilton <
ruaraidh.sh at gmail.com> wrote:

> Yes :)
>
> They differ from other brokerage accounts in regulations on tax and on
> when and how you can withdraw funds. e.g. when you use it in retirement as
> your pension income, withdrawals from the fund into your normal bank
> account are taxed as income at the point of withdrawal (again, from a tax
> perspective, paying into a SIPP is a business expense, whereas withdrawing
> from a SIPP is a taxable income).
>
> But yes, they are brokerage accounts, to be managed as you say.
>
> On Fri, 1 May 2020 at 12:00, Christopher Lam <christopher.lck at gmail.com>
> wrote:
>
>> IIUC the SIPP is simply a wrapper around stock-type and cash-type
>> investments, so, you'd handle it exactly the same as any Broker and Broker
>> investments.
>>
>> See https://www.gnucash.org/docs/v3/C/gnucash-guide/invest-setup1.html -
>> the SIPP wrapper would be the "Brokerage Accounts" asset. You may choose to
>> record each stock fluctuation, or (my preference) trust the SIPP statements
>> instead.
>>
>> Annually you'd print a Transaction Report from SIPP account. Or you can
>> run a cash flow report, originating from SIPP account and children.
>>
>> On Fri, 1 May 2020 at 10:26, Ruaraidh Sackville Hamilton <
>> ruaraidh.sh at gmail.com> wrote:
>>
>>> Yes sure that's one perspective and I agree with it, and that's why I
>>> have my SIPP in the same GC file as everything else. I was just noting that
>>> the way contributions are reported (i.e. as expenses eligible for tax
>>> rebates, not as income that is taxed) seems more in line with a
>>> different perspective, that the net worth of a SIPP is independent from
>>> personal net worth. Isn't a business's net worth different from personal
>>> net worth? Isn't it possible to view it both ways?
>>>
>>> Ignore me. I'm a novice to GnuCash and naive in economics. I just find
>>> it interesting, learning new concepts as part of learning GnuCash.
>>>
>>> On Fri, 1 May 2020 at 10:41, Christopher Lam <christopher.lck at gmail.com>
>>> wrote:
>>>
>>>> I wouldn't classify sipp contributions as expense. You'd be incorrectly
>>>> reducing your net worth whenever you contribute to it.
>>>>
>>>> On Fri, 1 May 2020, 5:23 pm Ruaraidh Sackville Hamilton, <
>>>> ruaraidh.sh at gmail.com> wrote:
>>>>
>>>>> Ah yes you are right! I didn't think of the case where an employer pays
>>>>> directly into a SIPP. In that case it is clearly an income. Not in
>>>>> mine.
>>>>>
>>>>> Conceptually, it might be better thought of as a business expense. The
>>>>> business is the SIPP and the government encourages investment in the
>>>>> business by giving tax rebates on allowable business expenses. Payments
>>>>> into the SIPP are reported in the tax report as expenses rather than as
>>>>> income. And a SIPP is not like other assets: I can't sell it or trade
>>>>> it,
>>>>> and there are strict rules limiting when and how much income I can take
>>>>> from it in retirement. So maybe we should look at the SIPP as its own
>>>>> independent entity, with income to the SIPP being expenses to our other
>>>>> assets, just as reported in tax reports.
>>>>>
>>>>> But that seems a theoretical discussion, and we have a sort of
>>>>> pragmatic
>>>>> solution that works (even though I have to go outside of GnuCash to
>>>>> calculate what to put in the tax form)
>>>>>
>>>>> Thanks again for enlightening comments!
>>>>>
>>>>> On Thu, 30 Apr 2020 at 16:30, D. <sunfish62 at yahoo.com> wrote:
>>>>>
>>>>> > Ah, then yes it's a terminology thing. In my own case, money from my
>>>>> > income goes directly into the SIPP as a payroll deduction, so I just
>>>>> > transfer from income into the SIPP. It can just as easily go from an
>>>>> asset
>>>>> > to another asset.
>>>>> >
>>>>> >
>>>>> > -------- Original Message --------
>>>>> > From: Ruaraidh Sackville Hamilton <ruaraidh.sh at gmail.com>
>>>>> > Sent: Thu Apr 30 19:42:46 GMT+05:30 2020
>>>>> > To: "D." <sunfish62 at yahoo.com>
>>>>> > Cc: "D. via gnucash-user" <gnucash-user at gnucash.org>
>>>>> > Subject: Re: [GNC] Reporting transactions
>>>>> >
>>>>> > Sorry David, I didn't mean to imply I prefer the second to the first
>>>>> > option. I just thought it easier to show by editing one of your
>>>>> versions,
>>>>> > and happened to pick the second. I could as easily have picked the
>>>>> first.
>>>>> >
>>>>> > In my reply I replaced your "Income:Me" with "Assets:my bank
>>>>> account". The
>>>>> > point is that, when the SIPP is in the same GC file as my other
>>>>> assets, the
>>>>> > transaction is from one asset (the bank account I used to pay into
>>>>> the
>>>>> > SIPP) to another asset (my SIPP). It's not from an income account to
>>>>> the
>>>>> > SIPP, so it can't appear in a report of income.
>>>>> >
>>>>> > If I keep the SIPP in a separate dedicated GC file, then no problem:
>>>>> my
>>>>> > contribution appears in the main GC file as an expense against my
>>>>> bank
>>>>> > account and as an income in the SIPP GC file. I just wondered if
>>>>> there was
>>>>> > a way of keeping all assets in one file.
>>>>> >
>>>>> > Ruaraidh
>>>>> >
>>>>> > On Thu, 30 Apr 2020 at 14:41, D. <sunfish62 at yahoo.com> wrote:
>>>>> >
>>>>> > > ???
>>>>> > >
>>>>> > > Perhaps this is a terminology thing, but aren't you just
>>>>> re-presenting
>>>>> > the
>>>>> > > second option I gave originally?
>>>>> > >
>>>>> > > Think of it another way: there are two sources for the funding of
>>>>> your
>>>>> > > SIPP: your contribution, and the government's. How you handle your
>>>>> own
>>>>> > > contribution depends on your workflow; the government is giving you
>>>>> > money,
>>>>> > > so that's an income account. I offered two methods of recording
>>>>> that
>>>>> > > two-step; yours is a repetition of my second method.
>>>>> > >
>>>>> > > I personally use the first, since the two events are inextricably
>>>>> linked
>>>>> > > (the second never happens without the first).
>>>>> > >
>>>>> > > Or am I missing something?
>>>>> > >
>>>>> > > David
>>>>> > >
>>>>> > >
>>>>> > > -------- Original Message --------
>>>>> > > From: Ruaraidh Sackville Hamilton <ruaraidh.sh at gmail.com>
>>>>> > > Sent: Thu Apr 30 17:20:34 GMT+05:30 2020
>>>>> > > To: "D." <sunfish62 at yahoo.com>
>>>>> > > Cc: Gnucash Users <gnucash-user at gnucash.org>
>>>>> > > Subject: Re: [GNC] Reporting transactions
>>>>> > >
>>>>> > > That covers it if the SIPP is in a separate GC file of its own,
>>>>> where my
>>>>> > > contribution is an income (and an expense from my bank account in
>>>>> the
>>>>> > main
>>>>> > > GC file, which I use to fund the contribution).
>>>>> > >
>>>>> > > But if it's all in one GC file we have
>>>>> > >
>>>>> > > 01-01-2020 SIPP Contribution   Assets:SIPP  £100
>>>>> > > My contribution          Assets:my bank account          £100
>>>>> > >
>>>>> > > 01-01-2020 SIPP Govt Contribution   Assets:SIPP  £25
>>>>> > > Government contribution Income:GovContrib £25
>>>>> > >
>>>>> > > Am I wrong?
>>>>> > >
>>>>> > > Ruaraidh
>>>>> > >
>>>>> > > On Thu, 30 Apr 2020 at 12:33, D. <sunfish62 at yahoo.com> wrote:
>>>>> > >
>>>>> > > > Set up an independent income account for the government
>>>>> contributions:
>>>>> > > >
>>>>> > > > Income:GovContrib
>>>>> > > >
>>>>> > > > Then add either a split to your contribution for the government,
>>>>> > > >
>>>>> > > > 01-01-2020 SIPP Contribution   Assets:SIPP  £125
>>>>> > > > My contribution          Income:Me          £100
>>>>> > > > Government contribution Income:GovContrib £25
>>>>> > > >
>>>>> > > > or a separate transaction,
>>>>> > > >
>>>>> > > > 01-01-2020 SIPP Contribution   Assets:SIPP  £100
>>>>> > > > My contribution          Income:Me          £100
>>>>> > > >
>>>>> > > > 01-01-2020 SIPP Govt Contribution   Assets:SIPP  £25
>>>>> > > > Government contribution Income:GovContrib £25
>>>>> > > >
>>>>> > > > That should cover it, yes?
>>>>> > > >
>>>>> > > >
>>>>> > > >
>>>>> > > >
>>>>> > > > -------- Original Message --------
>>>>> > > > From: Ruaraidh <ruaraidh.sh at gmail.com>
>>>>> > > > Sent: Thu Apr 30 15:17:04 GMT+05:30 2020
>>>>> > > > To: gnucash-user at gnucash.org
>>>>> > > > Subject: [GNC] Reporting transactions
>>>>> > > >
>>>>> > > > I have another question related to UK tax reporting obligations.
>>>>> > > >
>>>>> > > > In the UK we can have a type of asset called a SIPP
>>>>> (Self-invested
>>>>> > > Personal
>>>>> > > > Pension). You pay money into a SIPP with the idea of building up
>>>>> an
>>>>> > > income
>>>>> > > > for your retirement. The carrot is, you get a tax rebate. For
>>>>> example
>>>>> > if
>>>>> > > > you
>>>>> > > > pay 100 GBP into the SIPP, the government pays in another 25 GBP.
>>>>> > > >
>>>>> > > > For our annual tax reports, we have to report the total added to
>>>>> the
>>>>> > SIPP
>>>>> > > > during the tax year: the amount we pay in personally, plus the
>>>>> amount
>>>>> > > that
>>>>> > > > the government pays in, i.e. 125 GBP in the above example.
>>>>> > > >
>>>>> > > > This is easy to do if I keep the SIPP in a separate GC book.
>>>>> Then all
>>>>> > > > personal contributions and the Government's additional
>>>>> contributions
>>>>> > can
>>>>> > > be
>>>>> > > > put into the same income account. Easy. What's not so good is
>>>>> that (a)
>>>>> > I
>>>>> > > no
>>>>> > > > longer have an overview of all assets in one book and (b) to do
>>>>> my one
>>>>> > > tax
>>>>> > > > report I have to do two separate GC tax reports.
>>>>> > > >
>>>>> > > > Is there a better solution? Either something that allows me to
>>>>> keep
>>>>> > > > everything in one book, or a way that allows reports to query two
>>>>> > books?
>>>>> > > >
>>>>> > > >
>>>>> > > >
>>>>> > > > --
>>>>> > > > Sent from:
>>>>> > > http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html
>>>>> > > > _______________________________________________
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>>>>> >
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