Switching from US ETFs to UK investment trusts

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dazmck10

Registered User
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Hello,

Since we are unable to purchase US ETFs anymore, I was thinking about buying into UK based investment trusts.

My understanding is that UK investment trusts fall under regular CGT+income tax?

Is there any risk in only holding a single global equity investment trust?
Should you split funds between multiple global equity trusts so as to not put all your eggs in one basket?

Thanks,
Darren
 
The problem I would have switching to UK investment trusts is that they seem to have less of a passive ethos. Also their fees, although their fees are far from exorbitant, they are higher and seem to be less transparent than US ETFs.
 
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Investment trusts are closed-ended, actively managed collectives that often employ a degree of leverage.

Structurally, ITs are quite different to ETFs and their shares often trade at a material discount (and less commonly a premium) to NAV.

However, I don't agree that IT fees are opaque - they disclose an OCF that is calculated in accordance with a published methodology.
 
I have been investing in investment trusts over the last 2 years and am very happy with this strategy. Although its easy to be happy in a rising market. Some of them have very long histories and are alot less volatile than buying individual shares.I find that Im happy to buy them and forget about them rather than trying to figure out if it is time to sell like I would be with individual shares. Most of the fund managers know more than I do even though they get a bad rap
 
In March 2019 the UK will be come a third country and as it now seems that will have an impact on accessing financial products offered out of the UK....
 
Yes I accept that the fees are more transparent than I implied but I do feel there is a lot less information online compared to ETFs (understandably enough as it is a smaller market) and hence it is harder for non specialists to understand their structure.

Also a lot of people are drawn to ETFs for their passive strategy and I find it hard to learn if some Investment Trusts are passive or passive-like.
 
Apologies for sounding like a broken record but once again, I’m the bearer of bad tidings for some of you I’m afraid.

UK Investment Trusts are mainly listed on the LSE and therefore domiciled in the UK and therefore subject to UK inheritance tax.

The nil rate band is currently £325,000 with anything above that is subject to UK inheritance tax at a rate of 40%.

So if a sole investor holds more than the nil rate band the estate is subject to UK IHT.

Under the double tax treaty the country where the asset resides (the lex situs) has the right to tax. So UK law applies and a credit is given against Irish tax.

Now, if the account is joint between a married couple or civil partnership things get more complex.

If the first to die is a UK National and the other one isn't then HMRC see the surviving spouse as “non domiciled”

There is a restriction on non domiciles inheriting UK assets (like my Irish wife inheriting from me on my death) the max tax free amount is twice the nil rate band (£650k )

Anything in excess is subject to UK IHT at 40%.

Since there is no tax on transfers between spouses/civil partners in Ireland then there is no credit given against Irish CAT.

Worst case scenario tax at 73%.

Standard UK trust planning won’t work because of a timing difference between UK IHT and Irish CAT so a “typical” UK Will will also trigger the tax liability.

Most of the UK Wills I’ve reviewed don’t work for Irish investors holding UK assets.
 
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RobFer said:
Also a lot of people are drawn to ETFs for their passive strategy and I find it hard to learn if some Investment Trusts are passive or passive-like.
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ITs are not index trackers - they are actively managed.

The industry association - www.theaic.co.uk - is a good source of information.
 
dazmck10 said:
My understanding is that UK investment trusts fall under regular CGT+income tax?
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Your understanding is correct.
dazmck10 said:
Should you split funds between multiple global equity trusts so as to not put all your eggs in one basket?
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It depends what you are trying to achieve. Foreign & Colonial, for example, holds positions in more than 500 companies, across 35 countries, so it's already highly diversified.
 
Thanks Sarenco, sounds good.

Yep I am definitely interested in F&C. I am just worried about putting most of my money into one company, even if it has been around since 1868.
 
No harm spreading your investment across a few different global equity ITs but you will inevitably find a degree of overlap between their underlying holdings.
 
Sure I will see.

The AIC website says F&C has an annual charge of 0.54%, is this figure likely to change through the years?

Also any idea what a "Special Dividend" is?
 
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Anyone notice this about UK UCITS becoming something called AIFMD funds? Might be the solution to all problems?:
 
According to the FRCL KID document the RIY is actually 1.2%

To buy the investment you would also need to open a brokerage account, pay the dealing charge, FX charge to change euro to sterling, stamp duty and stock exchange levy. You’d then need to account for your own taxes.

The vanguard world equity fund has a TER of 0.1%

To buy the investment you would need to open a brokerage account and engage a DFM, pay the dealing charge, FX charge to change euro to us$, NO stamp duty or stock exchange levy. You’d then need to account for your own taxes.

FX is wholesale rates with no mark up and not having to pay 0.5% stamp duty is a significant initial cost saving.

Example (min investment €100k)

Custody 0.11%pa
DFM 0.55% inc VAT
Dealing 0.25 with estimated turnover of 10% =0.05%pa
TER of the ETF say 0.10%

A document on Vanguard’s UK website estimated transactions costs some of its funds.

The transaction cost of the Global Equity UCITS ETF is 0.1%.


Total Reduction in yield 0.82%pa compared with 1.2.% for FRCL on a like for like basis.

Add to that the 15% tax credit available on US dividend income under the tax treaty

Uncle Sam takes 0.15% under the Irish US tax treaty.Revenue in Ireland give a credit for the US withholding tax.

This means that staying with US ETFs makes more sense for a lot of people
 
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Marc said:
According to the FRCL KID document the OCF is actually 1.2%

The vanguard world equity fund has a TER of 0.1% add to that the 15% tax credit available on US dividend income under the tax treaty means staying with US ETFs makes more sense for a lot of people
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US ETFs still aren't available to most people Marc, hence the point of this thread.


Steven
www.bluewaterfp.ie
 
Stephen,

They’re available to everyone hence the point of my comment.

Available and accessible are different issues l
 
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