Investment trusts

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FintanJ

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Does anyone here invest in investment trusts ? If so, what has been the experience and reasons ?

Are all investment trusts taxed as cgt or are some subject 41% exit tax?
 
Have Revenue ever indicated if the tax treatment of ITs is likely to continue as is in the long term? Seems to me they’re not all that different from foreign funds or ETFs, and with the world talking more about taxing unrealised gains I wonder how likely it is this discrepancy will still exist on the 20/30/40 year time horizon we’re investing for?
 
Here is something where the Revenue indicates that investment trusts are offshore funds: https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-27/27-02-01.pdf I would add that there is at least two different tax regimes of offshore funds (E.U. funds and non E.U. funds) and these are ridiculously complicated for retail investors.

In the past when I've looked into this the key thing that differences between IT and offshore funds are that the former are closed ended (and do not encash units) and that ITs are not regulated. When looking at the E.U. onshore off-shore funds the focus is on regulated funds (e.g. UCITS) and bearing a resemblance to Irish regulated funds. A lot of UCITS are open ended which means that sale of units is via redemption whereas for IT sale is for a straight forward sale of a share. I've focused on the underlying units not reflecting the share/unit prices (via a discount/premium) in a submission to the Revenue once and this didn't get every far.
 
dublin67 said:
Here is something where the Revenue indicates that investment trusts are offshore funds: https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-27/27-02-01.pdf I would add that there is at least two different tax regimes of offshore funds (E.U. funds and non E.U. funds) and these are ridiculously complicated for retail investors.

In the past when I've looked into this the key thing that differences between IT and offshore funds are that the former are closed ended (and do not encash units) and that ITs are not regulated. When looking at the E.U. onshore off-shore funds the focus is on regulated funds (e.g. UCITS) and bearing a resemblance to Irish regulated funds. A lot of UCITS are open ended which means that sale of units is via redemption whereas for IT sale is for a straight forward sale of a share. I've focused on the underlying units not reflecting the share/unit prices (via a discount/premium) in a submission to the Revenue once and this didn't get every far.
Click to expand...
Thanks! That doesn't give me a warm fuzzy feeling that ITs are simply a tax efficient alternative to ETFs that people can blindly invest in or that if they are today they'll stay that way on a typical 20/30/40 year horizon, right? For example I often see the JPMorgan American Investment Trust suggested as an alternative to an S&P500 ETF but with better tax treatment (CGT instead of exit tax).
 
Thanks for sharing that Revenue document dublin67, very interesting.

Skimming it, it seems that UK Investment Trusts (for example), would still be subject to the same CGT on gains and income tax on dividends as any other shares?
The fact that it's an "offshore fund" would then also require that all such investments be declared in a form 11 in section 322?
"Offshore Funds (Part 27 Ch 4). Give the following details in respect of any material interest in 'regulated offshore fund(s)' (those coming within S. 747B(2A))"
https://www.revenue.ie/en/self-assessment-and-self-employment/documents/form11.pdf
Even before any were sold or any dividends paid out.

So I suppose if someone were doing a lot of small Investment Trust share purchases, they'd have to prepare a longer return. But not a really big deal?

I suppose some confusion may arise due to Revenue calling pretty much any investment outside Ireland an "offshore investment". While many people might call such things "overseas investment". The term "offshore fund" is often more commonly associated with non-OECD locations as opposed to shares from England or Germany.
 
I have the same concerns, which I voiced in this thread, but got no response;

Another eBrief from Revenue on ETFs

https://www.revenue.ie/ga/tax-professionals/ebrief/2022/no-0382022.aspx 21 February 2022 Exchange Traded Funds Tax and Duty Manual (TDM) Part 27-01a-03 on the taxation of investments in Exchange Traded Funds has been updated to confirm the interaction of the 8 year "deemed" disposal rule with...
www.askaboutmoney.com

My own opinion is that if revenue want to be consistent in taxing unrealised gains of equity which an investor would be comfortable holding for decades, they will eventually slap the exit tax rule on ITs.
That is the reason they have the exit tax, right?

It really discourages long term equity investing here.
A conglomerate could be an option not subject to CGT, but I would be far less comfortable holding this than a market index - one bad decision from the CEO could have a huge impact on retirement plans.
There is also the issue of most conglos being based in USA and subject to their high estate tax.
 
Investment Trusts are not subject to the offshore fund 41% tax regime.

If Revenue were reasonable, they’d concede that distributing share classes of “funds” are not subject to the offshore fund 41% tax regime.

The aim is to stop people rolling up money in accumulating structures and never paying tax, but distributing share classes, investment trusts, REITs, US ETFs, etc pay out income.

But I feel safe buying ITs. They trade at discounts to NAV on foot of being closed-ended, which is the beginning and the end of it.
 
Interesting take @Gordon Gekko

I assumed the exit tax was in place to get a bigger source of tax from capital gains from investors that are diversified enough to not have to sell for decades.
Going by your take (and again if Revenue were reasonable!), a distributing European ETF would be treated differently to an accumulating one.
 
alwaysonit said:
Interesting take @Gordon Gekko

I assumed the exit tax was in place to get a bigger source of tax from capital gains from investors that are diversified enough to not have to sell for decades.
Going by your take (and again if Revenue were reasonable!), a distributing European ETF would be treated differently to an accumulating one.
Click to expand...
It should be.

There’s no logic to the system.
 
alwaysonit said:
Interesting take @Gordon Gekko

I assumed the exit tax was in place to get a bigger source of tax from capital gains from investors that are diversified enough to not have to sell for decades.
Going by your take (and again if Revenue were reasonable!), a distributing European ETF would be treated differently to an accumulating one.
Click to expand...
The whole reason for deemed disposal was the Revenue complaining that they weren't receiving any tax income for decades from investors under the gross roll up regime. There are however, plenty of distributing funds/ETFs but the Revenue have refused to treat these any different. They reviewed the whole taxation of ETFs last year and didn't make any changes except to say that you can no longer assume that US ETFs are CGT and not exit tax. Given they have just reviewed it and it is likely that the next government is a socialist one, don't expect the rules to change to a more favourable one. We still seem to have the outdated view that only the wealthy invest.


Steven
www.bluewaterfp.ie
 
Did revenue officially state anywhere why exit tax/deemed disposal was brought in?
From their actions at least, it seems they want to penalise investors who don't pay CGT for decades by buying and holding a diversified portfolio, not just those reinvesting dividends.

As for the OP, given that Investment Trusts seem to be the most tax efficient manner of diversified equity investment, I am surprised there is not more discussion about them on this forum.
Is there a reason for this?
Is there a particular trust that acts the same as Vanguard All-World ETF, but is taxed differently?
From my understanding, management fees of trusts are higher, and there is the additional risk that the fund falls into a deeper discount - although I am far from well versed in Investment Trusts.
 
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