App to self manage S&P 500 tracker

[wudyaquit]

I'm looking to invest in an S&P 500 tracker. It seems that outside of a pension fund if I invest in a UCITS fund I'll be subject to income tax instead of capital gains and won't be able to offset loss making years against profitable years.
Otherwise it seems that US etfs are no longer sold in Ireland.

So I would like to self manage it so that I have a trading account that tracks the S&p 500 and tells me which trades to do each day to keep the portfolio in line. Is there an app that gives this info? Or some easy way to determine it? Its unclear to me if these funds have .2% of each of the 500 stocks or a higher proportion of the more valuable stocks. And what happens when a stock doubles in value - do the funds then drop half their stock to rebalanced the portfolio?

Or... is there an easier way to track s&p 500 that would keep me in the cgt framework??
Thanks

 

[MugsGame]

Sorry not to answer your question, but wouldn't this hugely complicate your CGT returns and lead to higher trading expenses? I suppose an app could track acquisition value and gains and generate the CGT returns for you, but some of the rules are very peculiar to the Irish market.

 

[wudyaquit]

Yep trading costs would be higher alright but some of the trading apps are pretty cheap now. Overall, it would work out better than the 17% difference in the 33% cgt and 50% income tax rates.
For the cgt return, I prepare a spreadsheet every year for the few shares I trade so it wouldn't be a major hassle to expand that out a bit.

 

[Sarenco]

if I invest in a UCITS fund I'll be subject to income tax

You would actually be subject to exit tax, at a rate of 41%.

Completing tax returns for what you proposing would be an absolute nightmare.

Also, bear in mind that dividend payments on directly held shares are subject to income tax.

 

[Steven Barrett]

I'm looking to invest in an S&P 500 tracker. It seems that outside of a pension fund if I invest in a UCITS fund I'll be subject to income tax instead of capital gains and won't be able to offset loss making years against profitable years.
Otherwise it seems that US etfs are no longer sold in Ireland.

So I would like to self manage it so that I have a trading account that tracks the S&p 500 and tells me which trades to do each day to keep the portfolio in line. Is there an app that gives this info? Or some easy way to determine it? Its unclear to me if these funds have .2% of each of the 500 stocks or a higher proportion of the more valuable stocks. And what happens when a stock doubles in value - do the funds then drop half their stock to rebalanced the portfolio?

Or... is there an easier way to track s&p 500 that would keep me in the cgt framework??
Thanks

Get a job as a passive fund manager then. I have heard many passive fund managers speak and they have said that their job is extremely stressful, trying to match and index, timing when to buy during the day. To do it from your house without the software and training that a fund manager has would be a disaster.

You also need a massive pot of money to replicate the S&P 500. The 500th company, Embecta Corp has a holding of 0.000005% holding in the index. Only 13 companies in the index have a holding greater than 1%. Good luck managing that!!

And as Sarenco said, managing that from a tax point of view would almost be a full time job.


Steven
www.bluewaterfp.ie

 

[ashambles]

Get a job as a passive fund manager then. I have heard many passive fund managers speak and they have said that their job is extremely stressful, trying to match and index, timing when to buy during the day. To do it from your house without the software and training that a fund manager has would be a disaster.

You also need a massive pot of money to replicate the S&P 500. The 500th company, Embecta Corp has a holding of 0.000005% holding in the index. Only 13 companies in the index have a holding greater than 1%. Good luck managing that!!

And as Sarenco said, managing that from a tax point of view would almost be a full time job.


Steven
www.bluewaterfp.ie

I think it could be good for more people to be a nightmare for Revenue.

An individual could put something together to help automate the CGT information year by year, and I'd like to see the face of the revenue official tasked with auditing it.

Revenue want the vast bulk of people to have simple taxes - ideally just PAYE paid for via the employer. In my opinion that's why Revenue have tried to make ETFs complicated for tax purposes.

I think we need to make them work, i.e. deal with the consequences of their cynical rules such as deemed disposal on regular ETF investments. Let them audit hundreds of weekly investments and make sure the tax is correct.

 

[AAAContributor]

I think it could be good for more people to be a nightmare for Revenue.

It's not a nightmare for Revenue at all.

All they require is the proper declaration of the gain and the payment of the tax. That's two fields in a tax return.

They have substantial powers in legislation to pursue wrongful declarations and underpayments.

The system is self-assessment so the onus is on the investor to make sure the taxes are correct.

The nightmare for the investor is of automating the calculations and the responsibility of paying the proper taxes and completing those two fields in their tax return.

With tracking 500 stocks you will have to keep track of every corporate action - cash dividends, scrip dividends, rights issues, rights issues with different classes of shares, sales of rights, company takeovers etc. Foreign exchange rates also have to be factored in for income tax and CGT.

Then on disposal you'll have to make sure you have categorised each acquisition into "blocks" and apply FIFO (or LIFO where applicable) appropriately. Perhaps indexation will have been reintroduced. How will that be factored in? What if dividend withholding taxes change - will the spreadsheet or algorithm be robust enough for adjustments over time?

Quite a task! As Sarenco said, a full time job!

 

[interested21]

All these alternatives sound significantly more burdonsome than just putting up with Deemed Disposal and Exit Tax, or just going down the Investment Trust route with JAM.

 

[ashambles]

It's not a nightmare for Revenue at all.

Not a nightmare for revenue at time of payment - they just take whatever you send them.

I'm talking about the audit, then it's Revenue's turn to work out what you should have sent them and they've to go through the same process as you did. Or at the very least ask you to explain every payment. That will not be fun for you or for them.

Let's say 50,000 people take up regular investment, that's potentially 50,000 people moving from PAYE to self-declared, and probably for in general relatively small amounts of tax. Revenue don't have unlimited auditing capacity, they do not want this to happen.

Revenue's preference would be for you to do all your investing via pensions, or if not via some investment company who'll pay your tax for you.

 

[Steven Barrett]

In my opinion that's why Revenue have tried to make ETFs complicated for tax purposes.

ETFs and deemed disposal isn't complicated. Tax on investments is high in this country. the Revenue have a very valid reason for deemed disposal under gross roll up investments. It is a pity that they do offer different taxation for those willing to pay tax on dividends on distributing etfs/funds.

The history behind deemed disposal - Bluewater Financial Planning

Of the 350 blogs that I have written so far, the most read and most commented ones are the articles about deemed disposal. People do not like paying tax and especially when they are paying tax on a gain that they have not realised. But how did we get to this situation? Net roll up […]

www.bluewaterfp.ie

 

[Steven Barrett]

Not a nightmare for revenue at time of payment - they just take whatever you send them.

I'm talking about the audit, then it's Revenue's turn to work out what you should have sent them and they've to go through the same process as you did. Or at the very least ask you to explain every payment. That will not be fun for you or for them.

Let's say 50,000 people take up regular investment, that's potentially 50,000 people moving from PAYE to self-declared, and probably for in general relatively small amounts of tax. Revenue don't have unlimited auditing capacity, they do not want this to happen.

Revenue's preference would be for you to do all your investing via pensions, or if not via some investment company who'll pay your tax for you.

The Revenue do want people to submit tax returns, so they are quite happy for people to submit returns. They have systems in place that flag instances that will warrant extra investigation. They also get providing information from the source, so they can easily get a record of all trades on your account and not be reliant on your spreadsheet.

 

[AAAContributor]

I'm talking about the audit, then it's Revenue's turn to work out what you should have sent them and they've to go through the same process as you did. Or at the very least ask you to explain every payment. That will not be fun for you or for them.

I realise you are talking about the audit.

I am struggling with the logic here though. You want to create an investment process that causes you a pain in the you know what (for certain) in order to give Revenue a pain in the you know what (on the off chance you get audited)? Talk about cutting off your nose to spite your face.

Also, thinking through the nuances of the proposal and giving myself a headache in the process, you are more likely to either underpay your taxes or overpay your taxes. What if you lose all this data and it's tax time?

Let's say 50,000 people take up regular investment, that's potentially 50,000 people moving from PAYE to self-declared, and probably for in general relatively small amounts of tax. Revenue don't have unlimited auditing capacity, they do not want this to happen.

There's definitely lots of taxpayers with investments and earning income not subject to PAYE and managing their taxes themselves or through an adviser and Revenue is well-equipped to oversee it all. Remember, if 50,000 people pursue this strategy of investing in 500 stocks individually, Revenue do not need to audit everyone to keep everyone on their toes. A random sample is enough and some punitive fines, interest and penalties and publication of the names will be enough to keep most people honest.

I suspect though that there is only one person in the country right now daft enough to pursue investing in 500 stocks and managing everything that comes with it themselves.

 

[ashambles]

want to create an investment process that causes you a pain in the you know what (for certain) in order to give Revenue a pain in the you know what (on the off chance you get audited)?

I suspect though that there is only one person in the country right now daft enough to pursue investing in 500 stocks and managing everything that comes with it themselves.

I've no interest in investing in a self made ETF, in case you're mixing up posts.

I was suggesting it'd be interesting if a lot of people pursued a strategy of regularly investing in an ETF and deal with the related deemed disposal taxes - not to create their own ETF. The reality is in Ireland what people do when faced by the difficulty of simple safer investing is they leave the money on deposit instead.

By the time you get to year 8 of regular investing in an ETF, you now might have a weekly deemed disposal tax to deal with, though I believe you can bunch them up.

I would like Revenue to audit as many people as possible doing that to just to experience the tax themselves. Could the ensuing confusion and inevitable errors incentivize some one in Revenue to switch to a more appropriate final CGT tax, probably not, but it's not much skin off someone's nose if they end up making a profit out of regular investing.

How does that pertain to the OP - it's partly the deemed disposal that caused them to explore this DIY version.

 

[AAAContributor]

I would like Revenue to audit as many people as possible doing that to just to experience the tax themselves.

I do see what you are driving at. When I look at the fund rules and look at the terminology: "material interest", "regulated", "unregulated", "good jurisdiction", "bad jurisdiction", death being taxable events (for gains) in contrast to the CGT rules where death is not a taxable event, I do despair a bit.

I suspect if I had a fund investment and went to 3 random tax advisers I may not get a 3/3 verdict on the tax treatment. I do wonder about officials in Revenue and whether they invest in non-pension investments (other than property) and what they think of the rules. I suspect the rules were designed for an environment where HNWIs were utilising investment structures to roll up income etc and not pay tax. You do have to wonder in a time where there is a proliferation of listed retail investment products, whether the area is due a perusal by the 'Office of Tax Simplification'.

The reality is in Ireland what people do when faced by the difficulty of simple safer investing is they leave the money on deposit instead.

I'd disagree with this point. It's very simple and safe to invest in Ireland, if a little costly. The taxation of investments would be a good bit down the list as a reason people let cash sit on deposit. Non appreciation of inflation (though probably changing now!), inertia, fear of losing money would probably be the largest reasons.

 

[MugsGame]

Yep trading costs would be higher alright but some of the trading apps are pretty cheap now. Overall, it would work out better than the 17% difference in the 33% cgt and 50% income tax rates.
For the cgt return, I prepare a spreadsheet every year for the few shares I trade so it wouldn't be a major hassle to expand that out a bit.

I too have a spreadsheet to track gains from my few trades a year.

Even focussed as I am on zero dividend stocks, I'd balk at trying to track daily rebalancing trades without complete automation. And the prospect of US estate tax taxes being more actively enforced is making me reconsider some of my positions.

 

[MugsGame]

Something like an eToro Smart Portfolio might get the OP close to what they are looking for.

I still think that calculating the correct CGT returns (twice a year) could get very complicated, given the interaction between the FIFO rules and portfolio rebalancing: tracking a market index via fractional shares would involve repeatedly buying in and out of the same securities.

I suppose if you are continually adding to the portfolio, you might be able to rebalance mostly through buying rather than selling -- assuming no dramatic swings on individual securities from day to day (a big assumption).

 

[ashambles]

ETFs and deemed disposal isn't complicated. Tax on investments is high in this country. the Revenue have a very valid reason for deemed disposal under gross roll up investments. It is a pity that they do offer different taxation for those willing to pay tax on dividends on distributing etfs/funds.

The history behind deemed disposal - Bluewater Financial Planning

Of the 350 blogs that I have written so far, the most read and most commented ones are the articles about deemed disposal. People do not like paying tax and especially when they are paying tax on a gain that they have not realised. But how did we get to this situation? Net roll up […]

www.bluewaterfp.ie

In relation to regular investments which really is where ETFs could shine, lets say you invest 100 euro a week every week, after 8 years you've a new tax event every single week, after 16 years two tax events every week etc..

I think that's at least a little complicated?

 

[Steven Barrett]

In relation to regular investments which really is where ETFs could shine, lets say you invest 100 euro a week every week, after 8 years you've a new tax event every single week, after 16 years two tax events every week etc..

I think that's at least a little complicated?

It would if that was correct. But it's not.

 

[ashambles]

It would if that was correct. But it's not.

View attachment 6578

That's coming from this 84 page description of deemed disposal tax?

Part 27 - Sections 731-747F

www.revenue.ie

They say "investment undertaking". Is an individual ETF holder an "investment undertaking"? If yes they need, according to the same document, to register with Large Corporates Division, if no then the quoted paragraph doesn't provide certainty on how individual ETF tax needs to be calculated or paid.

"All investment undertakings should register for exit tax by contacting: Customer Service Support Large Corporates Division"
I'd have assumed it would be paid yearly - here they seem to be talking about 6 months but possibly again only for fund managers.

 

[ryaner]

Revenue have told multiple people over the years that each individual transaction on an ETF is to be dealt with separately and that the grouped investment isn't to be used. You do have to use the same date for all purchases of the same ETF, but you can't group things and have to calculate each purchase separately.
Same applies to loss relief, if you buy in Jan at 100, Jun at 90, sell in Dec at 95, you owe tax on the Jun purchase and get nothing from the Jan purchase. Similar applies on deemed disposals.