Why Are Investment Brokers Able to Avail of CGT Treated ETF's? Are They Taking a Risk?

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justme

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I've been doing a little research into the tax treatment of ETF's and I've read up on the threads here. As it would seem is the case with most people here, I came away from this nonethewiser, or at least with no definitive answer anyway. That leads me to this question, how come investment professionals, wealth managers etc., can access US based ETF's and be so certain that they are treated with CGT, are they just chancing their arm by telling us that they will be treated as CGT because it suits them from a business perspective to interpret the law that way?

To add context, I have a wealth manager managing funds on my behalf, there are a couple of ETF's in the portfolio and he assures me they will treated CGT. There are also professionals on here who have said the same thing. So how is it that they are so sure because it's certainly not a clear cut case from the research I've done.

If anyone can shed some light on this I'd appreciate it.

P.S. I understand you need to be a professional investor to access US based ETF's.
 
justme said:
That leads me to this question, how come investment professionals, wealth managers etc., can access US based ETF's and be so certain that they are treated with CGT, are they just chancing their arm by telling us that they will be treated as CGT because it suits them from a business perspective to interpret the law that way?
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The latter, IMHO.

To quote the late Charlie Munger -

“Show me the incentive, I’ll show you the outcome”.

Others may take a different view.
 
T McGibney said:
Who on earth takes tax advice in relation to a product from people selling that product?
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I don't know, where did I say that?
I asked a direct question, what makes them so sure they can treat US based ETF's as CGT? I'm not relying on what he says at all, in fact, it's his confidence which has led me to asking the question to a form regarding investments.
 
justme said:
What makes them so sure CGT will be applied to the ETF rather than the more punitive 40 something percent exit tax.
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They're probably not at all sure. Their job here is to market a product, not provide tax advice.
 
T McGibney said:
They're probably not at all sure. Their job here is to market a product, not provide tax advice.
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Yes, I suspect they're not sure at all. I wonder will there be a lot of upset customer in 10 or 15 years when it comes time to cash out and the their account or the tax man is not as sure about the tax treatment as they were.

T McGibney said:
Their job here is to market a product, not provide tax advice.
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Not the case. There are professionals on this board, as well as others I have spoken to who specifically offer tax advice and have tax specialists as partners, and they will tell you the ETF's in their portfolio's incur CGT at 33% and not the 41% exit tax.
 
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justme said:
There are professionals on this board, as well as others I have spoken to who specifically offer tax advice and have a tax specialists on the time, and they will tell you the ETF's in their portfolio's incur CGT at 33% and not the 41% exit tax.
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Will they provide a tax opinion, backed by appropriate PI cover, addressed to you personally to this effect?

I doubt it...
 
Sarenco said:
Will they provide a tax opinion, backed by appropriate PI cover, addressed to you personally to this effect?

I doubt it...
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I don't know, I suspect not. Perhaps one of the professionals on the board here could answer that?

I do know that they will tell customers face to face that they will incur CGT at 33%.
 
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My understanding of the legislation is that a KIID must be provided for investments (pensions excluded). Fund managers and investment firms are deemed PRIIPS manufacturers and so have to produce a KIID. US based funds are obviously not subject to regulations in other jurisdictions, so they understandably do not produce a KIID. The likes of Vanguard etc. will simply point to their EU version of the fund which is compliant.

The person advising or recommending the fund must provide the KIID.

Discretionary fund managers are exempt from this and I believe this is the angle that some advisors have taken.

The fines are up to $5m or 3% of turnover.

I know I am certainly not a DFM and while I do have access to US domiciled etfs and funds, not being able to produce that 3 page document is a risk I am not willing to take.

BTW, the risk is on the advisor and not on the client. There is nothing illegal with holding US domiciled ETFs. As long as you pay your taxes in the correct manner, the Revenue don't care. The risk is on the advisor.

Steven
http://www.bluewaterfp (www.bluewaterfp)
 
Steven Barrett said:
As long as you pay your taxes in the correct manner, the Revenue don't care. The risk is on the advisor.
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Not really. Tax advisors are not fools. Where an uncertainty exists in relation to a tax treatment, they advise their customers of that uncertainty, and it is up to the customer in each case to decide what to do. An advisor who sets themselves up to act as a mudguard to indemnify their customers against an inherent risk won't last long in the game.
 
Sarenco said:
Yes but what tax - CGT or exit tax?
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As we have seen from the clear as mud Revenue note a few years back, the CGT blanket has been removed on US domiciled ETFs and each one has to be viewed on its own merits. So, some will be subject to CGT, others subject to exit tax.

T McGibney said:
Not really. Tax advisors are not fools. Where an uncertainty exists in relation to a tax treatment, they advise their customers of that uncertainty, and it is up to the customer in each case to decide what to do. An advisor who sets themselves up to act as a mudguard to indemnify their customers against an inherent risk won't last long in the game.
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I did say "correct manner". My point was referring to clients holding US domiciled ETFs. I have spoken to plenty of people who think there are doing something wrong by holding them. There is nothing wrong with holding them. But if an Irish advisor sold them to you, the advisor could be in trouble if they didn't satisfy the PRIIPS regulations.
 
Steven Barrett said:
I did say "correct manner". My point was referring to clients holding US domiciled ETFs. I have spoken to plenty of people who think there are doing something wrong by holding them. There is nothing wrong with holding them. But if an Irish advisor sold them to you, the advisor could be in trouble if they didn't satisfy the PRIIPS regulations.
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Thanks for clarifying. Sorry, I misunderstood what you meant by "advisor". You are of course correct on both counts.
 
Sarenco said:
Yes but what tax - CGT or exit tax?
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Exactly, obviously if you're okay paying the exit tax there is no issue. But these advisors, wealth managers or whatever name you want to use have a lot of customers on their books. Many of them are claiming that the clients investments in US ETF's will incur CGT. A lot of people will take the advisors word for this and I suspect a lot of those same people will be very disappointed / annoyed several years down the line when they cash out and they realise that it's an extremely grey area and no one will stand over that previous claim.

It's not just one or two, I've only gotten into the world of investing, wealth management etc. recently after selling a company and in the little time I've been learning the ropes I've spoken with a half dozen prestigious firms and smaller outfits who have told me this. So if I've experienced that many, it's a fair assumption to say it's rampant throughout the industry. Which will lead to a lot of pissed off people in years to come.


Steven Barrett said:
Discretionary fund managers are exempt from this and I believe this is the angle that some advisors have taken.
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What is a discretionary fund manager is? Is that just a term that covers all wealth management companies who invest on your behalf like Brewin and Quilter and the smaller advisors out there? Or is there a difference between them and discretionary fund managers?
 
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As far as I know, there is nothing wrong with what the wealth manager is doing. Revenue issued a note a few years back, that US domiciled ETFs fall under CGT. They then removed that guidance, but crucially did not replace it with anything else. There is no way that Revenue are going to go in front of a judge and argue that you owe exit tax on your US ETF's because they removed guidance that said the exact opposite.
Revenue might leave it murky in the hope that you will pay exit tax. But they will never pursue you for it.
You can't sell US ETF's to an individual without a KIID, but processional advisor can access them and package them up for you.

It's CGT all the way for you justme. Enjoy!
 
AJAM said:
Revenue issued a note a few years back, that US domiciled ETFs fall under CGT. They then removed that guidance, but crucially did not replace it with anything else.
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No, there’s still guidance in existence. It’s vague, certainly, but it exists.
AJAM said:
There is no way that Revenue are going to go in front of a judge and argue that you owe exit tax on your US ETF's because they removed guidance that said the exact opposite.
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They wouldn’t have to go before a judge.

Revenue would simply raise a demand for the tax due (plus interest and penalties, where relevant) and it’s up to the taxpayer to prove them wrong on appeal.
AJAM said:
But they will never pursue you for it.
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Quality analysis. :rolleyes:
 
I get your point Sarenco. But Revenue aren't idiots. They know that they would lose that case in front of a judge.
And public sector in general and Revenue in particular, are risk averse and would avoid this like the plague.

There are a host of Exit Tax haters like me, who would be only too happy to crowdfund the case!

And while they have issued new guidance, the point still stands. The old guidance specifically said US ETF's fall under CGT. The new guidance does not specifically say anything on the subject.

You've already lost when your argument is: I used to say 1 thing, then I stopped saying it, so you were supposed to interpret that to mean that I was now saying the opposite o_O
 
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