What happens with reinvesting income in ISA

Is there a difference between buying a Accumulating ETF and instantly reinvesting income from a Distributing ETF within an ISA? Don’t take into account fees of reinvesting, these would be covered by an Alpha account.

Does reinvesting impact the ISA allowance? (I’m assuming that income is distributed into the ISA account/wrapper)
I don’t expect it to be taxed if inside the wrapper, but don’t want to lose allowance vs buying Accumulating ETFs.

Main reason I’m asking is to buy index funds and Freetrade currently only has distributing versions of the ETFs.

Accumulating ETFs will automatically reinvest dividend income to buy more of the ETF.

Income distributing ETFs will pay the dividends as cash and if you reinvest those, they too don’t count towards ISA allowance.

Only new money you physically transfer into the ISA will count towards the allowance.


Your ISA allowance isn’t affected, no.

It’s annoying that Freetrade has only (mainly?) dist versions. It makes it easier for people outside an ISA. But inside an ISA it’s easier to have the acc version.

Performance differences between them should be marginal, but I think in theory an acc would perform better since you don’t have a time delay between receiving the dividends and investing them.

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Personally, I don’t mind the inc/distrubuting versions.

I don’t always want to use the income to purchase the same investment, so may use it to top up another investment or buy a new one.

Hear what you’re saying regarding the time delay though, as accumulating’s auto-invest will mean no time for the cash to be sitting idle.

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Thanks weenie & sendu!
It makes sense that the allowance is only affected by topups.