Investing in a Tax Efficient Manner?

[ronaldo]

I hate seeing tax allowances that I'm not taking advantage of. One that I'm currently missing out on is my annual CGT allowance of €1,270.

I will be soon coming into about €10k - €15k which I intend to invest for 5+ years and was considering putting this into a low-cost fund such as Eagle Star's Matrix fund. However, I was thinking that it might be better to pick 10 good shares (possibly throughout Europe or the UK) and put 10% in each.

This will give two advantages:

• I will avoid the 1% AMC which will amount to 5% over 5 years, and
• I give myself the opportunity to take advantage of the CGT allowance should I decide to sell some of the shares that will have possibly risen in value.

I know this allowance is only worth €254 a year but it's better in my pocket than the governments.

My plan is to invest the initial €10k - €15k in my choice of X shares through NIB whom only charge 0.75% (min €20 per trade). In order to minimise the charges, it would be best to invest €2,500 in each which means I can pick 4-6 shares. I would then plan to invest another €2,500 savings per quarter in different shares until I have a basket of 10. An strategy would be to save up money in the Best Buy regular savings accounts until I get €25,000 and start with a basket of 10 shares. I haven't decided which to do yet though.

 

[ClubMan]

Are you maximising your pension tax/PRSI relief already? That is worth a lot more than annual CGT allowances.

 

[Brendan Burgess]

Hi Ronaldo

It's unlikely that you need to invest in 10 shares immediately or at all.

This would be a requirement for a retired person with no other source of income who would need that level of diversification.

If you buy 3 shares, the portfolio might not be diversified, but if you own your own home, it will only be a small percentage of your total wealth.

I would buy in units of €5,000.

After the charges of buying and selling the shares, the annual exemption is just not worth availing of. If you were selling shares anyway coming up to the end of the year, you might sell some before the end of the year and some after to avail of both years' exemptions.

Brendan