US domiciled ETF via US broker analysis

irishguy

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Due to the complex deemed disposal rules, for a regular monthly Irish investor does buying US domiciled ETFs via a us broker make the most sense?

There are a number of us discount brokers (firsttrade/tradestation/tasty works) still accepting Irish customers, without any ETF purchase restrictions.

These brokers are US based and don't market to EU citizens so they believe they are compliant with PRIIPs legislation (rightly or wrongly)

Disadvantages
1) currency conversion/transfer fees,but some brokers support USD via currencyfair + $20 handling fee, which is fine with bigger amounts
2) US estate tax for portfolios >$60,000 on death. You can double this for joint accounts, but this would complicate annual Irish tax reporting. There is obviously still a risk if you breach this limit and the worst happens. There are some options in avoiding this, but would add complexity/costs.
3) Potentially marginally higher tax if most of your gains come from dividends, which is unlikely if your investing in an allworld/s&p etf as it will be mostly capital gains.
4) yearly tax returns for dividends required, which is a straight forward process, but would be more costly as a higher income earner
5) increased currency risk due to unhedged USD holdings , which in theory you could hedge against that if you wanted to, but I would ignore the risk for simplicity sake
6) broker could stop allowing me to purchase us ETFs
7) US dividend withhold tax, fill out w8 form and us against Irish tax, which is going to be higher as a higher rate tax payer




Advantages

1) less complex tax reporting i.e deemed disposal rules for monthly investor Vs annual income tax + CGT on disposal
2) able to offset losses against investments and make use of €1250 CGT exemption
3) able to invest monthly in multiple ETFs if desired, as tax reporting is simplified and offsetting is allowed
4) lower tax for gains
5) marginally lower charges on us etfs & no UK stamp duty/higher charges as you would have on UK investment trusts (which seem to be the next best alternative)
6) potential to us loss harvesting to avail of yearly CGT exemption, I won't be doing this to keep things simple

The above process can be fairly automated with a standing order to currency fair + automated convert& transfer to US broker from currency fair and manual purchase once a month (which could also be automated via broker API, if desired)

In my mind this seems to make the most sense for a younger monthly Irish investor and removes the downsides of deemed disposal, if the above risks are acceptable. Which in my situation they are.

So am I missing anything in the above summary of this?
 
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Just to add to this you can advoid the US estate tax by using a canadian based broker, as Canada does not have this. Questtrade(one of the top brokers there) also provide accounts to Irish residents and accept USD transfers via TransferWise.
 
Just to add to this you can advoid the US estate tax by using a canadian based broker, as Canada does not have this. Questtrade(one of the top brokers there) also provide accounts to Irish residents and accept USD transfers via TransferWise.
You have to invest in Canadian domiciled ETFs to avoid US estate tax.

If you do some google research on foreigners and US estate tax you will find that this is largely ignored by foreigners investing through the US. However, if the IRS decide to clamp down on this, they will enforce it through the brokers by way of heavy fines to ensure its compliance.


Steven
www.bluewaterfp.ie
 
Is this really less complex than EU ETFs and deemed disposal?

Either way you end up having to do an annual tax return, either way you have to track your purchases/sales in a spreadsheet (which would make deemed disposal calculations fairly trivial), this route you have to deal with DWT/W8 forms, currency risk, risk of possible changes to the taxation in two jurisdictions, risk the broker stops allowing this and US estate tax risk.

This approach might be more tax efficient (with added risk), but I think the complexity of deemed disposal is quite exaggerated (online generally, not by you specifically).
 
Is this really less complex than EU ETFs and deemed disposal?

Either way you end up having to do an annual tax return, either way you have to track your purchases/sales in a spreadsheet (which would make deemed disposal calculations fairly trivial), this route you have to deal with DWT/W8 forms, currency risk, risk of possible changes to the taxation in two jurisdictions, risk the broker stops allowing this and US estate tax risk.

This approach might be more tax efficient (with added risk), but I think the complexity of deemed disposal is quite exaggerated (online generally, not by you specifically).
For a monthly longterm investor it is a pain tracking it, especially if your buying more than 1 etf per month.

You also don't have the ability to offset losses, even in the same investment so you could pay tax in a year even with an overall loss.

Your going to be exposed to some currency risks anyway in an all world portfolio.

Tax/broker changes that's hard to know alright and could cause an issue.

Overall for my circumstances, if my analysis is correct I think us based ETFs makes the most sense.
 
I've had an etrade account for 20 years now and have been buying us domiciled etfs for years now as well with no issues. However recently I updated my address, I could have left it as is because I still have access to old address and now I have been precluded from buying these etfs due to PRiiPS and EU address even though I was perfectly able to buy them with old address also EU a few short weeks ago. Anyway around this given that this was only triggered by me updating address if I had left everything as is I would still be able to buy these etfs
 
Check Europoor.com for a guide on how to buy US ETF's using CFD's from Europe, great blog resource...

Double check what you read though, you have been warned... get more posts by hitting Blog in the top right
 
Check Europoor.com for a guide on how to buy US ETF's using CFD's from Europe, great blog resource...

Double check what you read though, you have been warned... get more posts by hitting Blog in the top right
Thanks I have seen those approaches. It would remove the us estate tax and the risk of the US broker preventing me purchasing US ETFs.

It does open you up to the additional complexity, costs, additional taxable event(I think) and risk of options trading and as a result of these disadvantages I wouldn't think this is a better option than a us broker.
 
Just to add to this you can advoid the US estate tax by using a canadian based broker, as Canada does not have this. Questtrade(one of the top brokers there) also provide accounts to Irish residents and accept USD transfers via TransferWise.
Just to add to this you can advoid the US estate tax by using a canadian based broker, as Canada does not have this. Questtrade(one of the top brokers there) also provide accounts to Irish residents and accept USD transfers via TransferWise.

Would love to hear more about this if anyone has done it, was it easy etc?

From the discussion above I understand the key would be to invest in Canadian domiciled ETFs rather than just use a Canadian broker to purchase US domiciled ETFs
 
Would love to hear more about this if anyone has done it, was it easy etc?

From the discussion above I understand the key would be to invest in Canadian domiciled ETFs rather than just use a Canadian broker to purchase US domiciled ETFs
If you read the thread above you will see this doesnt help and you still have a libility for the withholdings tax
 
Just an update. I decided to proceed with this via Tradestation and just purchased my first ETF with them (VT). Setup was very quick with them (few days) and customer services were very responsive.

I did the FX via currencyfair and had a wire transfer ($20 intermediary bank charge + $4 transfer fee) had the funds same day. I was hoping to use a local ACH(which is free), but as the currencyfair bank account is not in your name you can't use ACH. It's the same with all fintechs (n26/wize/revolut etc) I'll keep an eye out for one which would allow this, but doesn't appear there are any for now.

So in total it cost $29 to purchase the ETF, so if your doing it regularly for small amounts it would add up so quarterly/bi monthly would be an option too. You do however get a lower ongoing fun management fee, which offset it TER of 0.03% for VT or 0.08% for VTI compared to c. 0.22% for the EU equivalent.

In addition to the above as you are now under the CGT tax system you can also do tax loss harvesting during a market correction and move into another similar ETF to crystallize a loss to offset future CGT while still ensuring a similar investment profile.
 
Just the thorny issue of the exposure to US Estate Taxes at a marginal rate of up to 40% with no credit against Irish CAT for some Irish residents.
 
Just the thorny issue of the exposure to US Estate Taxes at a marginal rate of up to 40% with no credit against Irish CAT for some Irish residents.

If you read the thread above you will see this doesnt help and you still have a libility for the withholdings tax

Thanks guys, I don’t understand though if we are talking about Canadian ETFs or US ETFs,if I buy Canadian domiciled ETFs on the Canadian stock exchange through a Canadian broker would I still be liable to US estate tax?

Probably won’t do it anyway, at least not without professional advice, but curious to know.
 
Sorry miss read the comment. If it's non us domiciled, regardless of where it invests your not liable for US estate tax, assuming your not a US resident/national
 
Just the thorny issue of the exposure to US Estate Taxes at a marginal rate of up to 40% with no credit against Irish CAT for some Irish residents.

True as am young and healthy the risk is alot less. Obviously this becomes more of a risk as you get older, but who knows what tax system will be in place by then, I'll have to review this approach over time.
 
I was speaking to a tax consultant yesterday and she said Revenue are considering rolling back on their previous e-brief and taxing non-EU ETFs under the gross roll up regime.

so much for progress - buying a flight to Australia in the morning!
 
I was speaking to a tax consultant yesterday and she said Revenue are considering rolling back on their previous e-brief and taxing non-EU ETFs under the gross roll up regime.

so much for progress - buying a flight to Australia in the morning!
But presumably if they do that it can only be for newly purchased etfs after they change the rule, they cannot have gross roll up for etfs already purchased under the existing regime ?
 
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