Looking for advice on Investment Trusts vs ETF's

Hi all. Just looking for advice on Investment Trusts and ETF's in general.

Is it still benefit to buy ETF's over IT's today? It seems the fee's are quite a bit lower, as mentioned here. However, there is the 41% exit tax (and the 8 year deemed disposal rule).

Whereas with IT's it looks like the fee's are larger and you'd be subject to FX fees. You also have have the NAV premium/discount thrown in to the picture. You only pay CGT of 33% on gains, and no deemed-disposal. However, from what I have read that the risks are higher with these actively managed funds compared to the passively managed ETF's. It also looks like most of the IT's are paying dividends too which would be subject to 52% tax.

I find the calculation of tax with ETF's due to deemed disposal starts to get quite complex if you buy frequency (e.g. every month) once you go bast the 8-year mark. I understand some probably have a nice spreadsheet to make this somewhat manageable. If you have any templates to share, please let me know. Also due to th fact you need to pay tax due to the deemed disposal, you may not have enough cash at hand to do this and may have to sell some of your shares, which to me would complicate tracking your ETF's and tax obligations further?

Does anyone know any analysis or compairsons between ETF's and IT's that track S&P 500 and FTSE 100 and if there is a great difference when it comes to typical fees and exit-tax/CGT?

Generally I am looking to grow savings for use in the 7-15 year time range. I am 30 years away from retirement and am contributing to a pension. I have not maxed my pension contributions, but am contributing AVC's in addition to my my regular own and employer contributions and have them in high grown funds.

Pumpkin Whiskey said:

I have not maxed my pension contributions, but am contributing AVC's in addition to my my regular own and employer contributions and have them in high grown funds.

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If you have surplus funds to invest, max out your pension contributions first.

Make a back-dated contribution for tax year 2021 (before the ROS deadline of 16 Nov 2022 if filing online, or 31 Oct 2022 for the paper route) and claim back tax relief and utilise as much via AVCs as you can for 2022.

Pension funds do not pay income taxes on their dividends nor capital gains or exit tax on gains. They are compounding machines. Maximise your tax efficiency here first before tying yourself up in knots on the alternatives.

If you are a higher rate tax payer, just find the lowest cost, globally-diversified, accumulating units UCITS ETF you can. Make a lump sum investment on the 01 Jan of every year with whatever you are looking to invest.

Keep it simple.

Pension funds do not pay income taxes on their dividends nor capital gains or exit tax on gains. They are compounding machines. Maximise your tax efficiency here first before tying yourself up in knots on the alternatives.

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Thanks for your reply AAAContributor. I should look into maximizing my pension contributions. Especially when the contributions comes from the gross pay, it seems like a no-brainier. It is true though that I will not have access to them funds until I retire? At least not without penalty?

If you are a higher rate tax payer, just find the lowest cost, globally-diversified, accumulating units UCITS ETF you can. Make a lump sum investment on the 01 Jan of every year with whatever you are looking to invest.

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I am a higher rate tax payer. This ETF I have been reading up on:
Vanguard FTSE All-World UCITS ETF USD (Acc) (IE00BK5BQT80)

Pension funds are what the name implies - they are only accessible when you retire

Pumpkin Whiskey said:

It is true though that I will not have access to them funds until I retire?

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Not necessarily.

If you are with an employer currently and contributing to an occupational scheme and leave that employment to move to another employment, that pension becomes a preserved benefit.

That pension could potentially be accessed from age 50 if required (assuming you didn't move it into a new employer scheme). You would not have to wait until the plan's normal retirement age once the company trustees give consent and depending on the scheme rules.

Many pension arrangements also allow early access in the event of ill-health.

If you have 30 years to retirement I put your age at 35 roughly. If you are targeting an investment horizon of up to 15 years, that takes you up to 50 years of age. Whether you would be wise or able to draw down a pension at age 50 would depend on your financial, health and employment circumstances.

The Best ETF's for S&P500

if you want to reinvest the dividends
iShares Core S&P 500 ETF (Accumulating), IE00B5BMR087,

If you want to be paid the dividends
Vanguard S&P 500 (Distributing), IE00B3XXRP09,

Both of these are free to trade on Degiro, but don't search using the name. Instead search using the IE code, this will get you the exact one that's free to trade.

The Best All World ETF's that are commission free on Degiro


HSBC MSCI World ETF (Distributing), IE00B4X9L533, TER 0.15%, Euronext Paris
iShares Core MSCI World ETF (Accumulating), IE00B4L5Y983, TER 0.2%, Euronext Amsterdam
Vanguard FTSE All-World ETF (Distributing), IE00B3RBWM25, TER 0.22%, Euronext Amsterdam
Vanguard FTSE All-World ETF (Accumulating), IE00BK5BQT80, TER 0.22%, Euronext Amsterdam

Again, search using the IE code, this will get you the exact one that's free to trade.

The Best Investment Trusts (in my opinion) available on Degiro


Separated into 2 groups: Low yield and high yield. Note BRK is not an investment trust, technically it's a stock, but it acts like a fund.
The reason I like these funds are that they have relatively low fees and have good ratings on morningstar.co.uk
Fees and yields may be different now, the table is a few years old.

That's great info @AJAM Thanks for that.

I see the table above, that is very helpful.

Does anybody know the most diversified IT on DeGiro?

Protocol said:

I see the table above, that is very helpful.

Does anybody know the most diversified IT on DeGiro?

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Fcit

Below is the number of Holdings each fund has. This is a good proxy for how diversified the fund is.
Keep in mind CTY mainly invests in the UK, so while it has a good number of holdings it is UK focused.
Generally once you are above 100 stocks you are getting the majority of the diversification benefit. It's the law of diminishing returns from there.

I have a small holding of an ETF on DeGiro, built up by various purchases over last two years.

iShares Core MSCI World UCITS ETF USD (Acc)



The taxation of ETF is causing me to re-consider this holding, and buy shares in an IT instead.

It seems that the most diversified IT is F&C IT.

It is a GBP 5.4 bn investment trust, which owns over 350 shares, and it pays a quarterly dividend.



Are there any downsides to my planned change / switch?

(1) fx charges by DeGiro? These are probably low

(2) not as diversified as the ETF? But with 350+ shares, should be okay...

(3) higher management costs than the ETF? It seems to be 1.13%.

https://documents.feprecisionplus.com/priip/cti/prp/bmozero_411.pdf?inline=true



Anything else?? Thanks

Well, you will have to sort out the exit tax if you sell the ETF (which will be a bit of a nightmare to work out if you made multiple purchases).

And then, going forward, you will have to file a tax return every year for the dividends.

It’s a lot of hassle if you are talking about small amounts.

I made ten purchases of the same ETF between 2021 and 2023.

Maybe 750 each time, maybe 7500 in total.


Yes, I would prefer if the IT did not pay dividends.

I will keep thinking about it.

Protocol said:

higher management costs than the ETF? It seems to be 1.13%.

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The annual management fee is 0.54% not 1.13%

This is what annoys me so much about the current tax system!
iShares Core MSCI World UCITS ETF USD (Acc)
is exactly the right investment for Protocol (and the vast amount of other novice investors too). But because of the stupidity of the tax system you've got to muck around trying to find some non UCTIS alternative, which while possible, requires you to have a good knowledge on funds/investments/taxes etc.

SCRAP EXIT TAX!

Protocol said:

I made ten purchases of the same ETF between 2021 and 2023.

Maybe 750 each time, maybe 7500 in total.


Yes, I would prefer if the IT did not pay dividends.

I will keep thinking about it.

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Protocol, in your situation, what I would do is just buy Berkshire Hathaway BRK.B
Then you only have to worry about capital gains tax when you sell. The major risk to this approach is that Warren and Charlie are in their 90's and if/when they pass away, the stock could drop significantly for a short period of time.

Alternatively F&C is a good choice, technically you are supposed to file a tax return for the dividends (this is also stupid, there should be a flat rate dividend tax applied at the broker). However at 7,500 euro generating 112 euro in dividends, I'd guess that the taxman will not be chasing you for it. They would likely forgive you if you grouped and paid the dividend taxes with the capital gains when you sell it.

AJAM said:

Protocol, in your situation, what I would do is just buy Berkshire Hathaway BRK.B
Then you only have to worry about capital gains tax when you sell. The major risk to this approach is that Warren and Charlie are in their 90's and if/when they pass away, the stock could drop significantly for a short period of time.

Alternatively F&C is a good choice, technically you are supposed to file a tax return for the dividends (this is also stupid, there should be a flat rate dividend tax applied at the broker). However at 7,500 euro generating 112 euro in dividends, I'd guess that the taxman will not be chasing you for it. They would likely forgive you if you grouped and paid the dividend taxes with the capital gains when you sell it.

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If your total non paye income is less the 5000 euro in year you can simply declare it on my account under form 12. But with UK shares you don't get credit for any tax withheld by UK . So it appears you're double taxed on this income. This is why I stay away from UK shares personal

When people say do a tax return for dividends , do they mean just adding them into myaccount or doing a full Ros return