# Degiro Accumulation Funds Which Are Taxed Like Shares



## hughpearse (12 Feb 2021)

I am a PAYE worker and I am trying to find investments on Degiro which accumulate (pay no dividends, aka Scrip Dividends) so that income tax cannot be applied at the marginal rate (20/40%) and I can avail of compounding through retained earnings. I also want to avoid the gross roll up (deemed disposal) every 8 years, and I would like CGT to be applied at the standard rate of 33% instead of the special rate of 41%. Also I would like to be able to offset losses against gains. I know its a lot to ask...

I have found a few different places on the revenue website giving guidance on this. The interesting items I could find to reduce Tax are:

Purchase shares. Simple but diversification will cause high transaction fees from my broker
Invest in offshore funds which fall outside of chapters 2&4  747AA (eg, Luxembourg unregulated fund, SCS/SCSp), see Tax and Duty Manual Part 27-04-01 (§4.2) - revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-04-01.pdf
Invest in ETFs domiciled in non-EU OECD country (not the USA as they are required by US law to pay dividends): UK, Switzerland, Norway, (Liechtenstein? its an EEA member, Guernsey its UK... ish?), Turkey, see Tax and Duty Manual Part 27-01A-03 (§3) - revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-03.pdf
Invest in trusts out of the UK - no explicit revenue rules available
Invest in a "tax transparent" vehicle like a Common Contractual Fund (CCF) or Investment limited partnership (ILP) so it's as though I purchased the shares themselves. See Notes for Guidance: Finance Act 2020 Part 27: Unit Trusts and Offshore Funds (§739i) revenue.ie/ga/tax-professionals/documents/notes-for-guidance/tca/part27.pdf
Hold the ETFs in a CFD account, according to revenue CFDs are capital assets to which the capital gains tax rules apply and loss relief is available. Cost is approx 1.5% above base rates. revenue.ie/en/tax-professionals/historic-material/ebrief/2007/no-362007.aspx
Invest in synthetic non-EU OECD (eg USA) ETFs which accumulate to circumvent DWT, as it doesn't hold the assets directly as it uses a swap-based model. Can still buy US ETFs in the EU if you sell a Put Option, however synthetic ETFs are not common in the USA.
And I found the following investments:

Funds
ISIN LI0030512359 (Liechtenstein) - Top World Equity EUR
ISIN GB00B4M5NH84 (UK) - iShares Emerging Markets Equity Index Fund (UK) L Acc
ISIN GB00B87JKQ15 (UK) - Close FTSE TechMark X Acc
ISIN GB0008838707 (UK) - Close FTSE TechMark Fund A Acc

ETFs
ISIN NO0010257801 (Norway) - DNB OBX ETF
ISIN CH0492935355 (Switzerland) - UBS ETF (CH) MSCI Switzerland IMI Socially Responsible (CHF) A-acc

Trusts
ISIN CA1358251074 (Canada) - Canadian General Investments, Ltd (GBP) CGI
ISIN GG00B2QQPT96 (Guernsey) - BH Global Limited GBP BHGG

My reasoning is that they accumulate (no dividends), they are domiciled outside the EU and inside the OECD. I think they are treated by Irish revenue like shares so there should be no gross roll up (deemed disposal) every 8 years, and CGT should be applied at the standard rate of 33% instead of the special rate of 41%. I believe I can offset losses against gains with these, and additionally they also are eligible for the CGT allowance of €2,270 per annum. They seem to be mostly non-UCITS investments, so I am not sure if they can be marketed in the EU. I know there is a second certification for alternative investment funds (AIFs) called AIFMD, they might fall under that. It might be easier to find a non-EU OECD ETF which doesn't accumulate all earnings and simply pays a very small dividend.

Can anybody confirm if I am approaching this problem correctly? How can I get diversification and pay less tax? I don't want to buy individual shares because then I will have crazy transaction fees with my broker. I would love if someone could send me some ISINs to investigate which don't incur a lot of tax.

Edit: found a nice summary of the tax for different securities

gillenmarkets.com/featured_articles/oeics-investment-trusts--etfs-demystifying-the-terminology.cfm
gillenmarkets.com/featured_articles/tax-issues-for-irish-residents.cfm
pwc.ie/industries/asset-management/insights/irish-alternative-funds-industry-overview.html


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## hughpearse (14 Feb 2021)

It seems the UK regulated Tax Transparent Fund is the equivalent to Irish Common Contractual Fund (CCF) or Investment limited partnership (ILP) so we might be seeing more of those transparent vehicles being domiciled here since Brexit if they cannot get passporting.


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## Younginvestor93 (14 Feb 2021)

I can barely find any of these on Degiro, can't understand why. Why would you seek to go for such unusual funds, when the UK investment trusts have proved very effective already for many Irish investors?

What about buying Berkshire Hathaway which is like S&P 500 in a share wrapper. It has mirrored the S&P very closely over 20/30 years now and is taxed nicely at 33%?


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## hughpearse (14 Feb 2021)

Younginvestor93 said:


> I can barely find any of these on Degiro, can't understand why. Why would you seek to go for such unusual funds, when the UK investment trusts have proved very effective already for many Irish investors?


Thanks for the reply! My motivation is to reduce costs and tax as much as possible. Actively managed funds have slightly higher operating costs, and with Brexit I am not sure if UK trusts can still be marketed in the EU.


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## Younginvestor93 (14 Feb 2021)

hughpearse said:


> Thanks for the reply! My motivation is to reduce costs and tax as much as possible. Actively managed funds have slightly higher operating costs, and with Brexit I am not sure if UK trusts can still be marketed in the EU.


Are all the funds in your OP available on Degiro when you checked?

Did you see my suggestion on Berkshire, I edited my post so you may have missed it.

Degiro are currently are looking at their internal tax treatment of some trusts and whether they can offer them but some are still available and Davy and Trading 212 as I understand have no limitations on them currently.


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## hughpearse (14 Feb 2021)

Younginvestor93 said:


> Did you see my suggestion on Berkshire, I edited my post so you may have missed it.


Yea I guess I could buy shares, it's the simplest option, but the amount of diversification is a bit questionable as their holdings are less transparent.


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## SPC100 (14 Feb 2021)

Well done on trying to find the silver bullet! When you have a path picked, you can always write to revenue to ask them to confirm the tax treatment.

Remember, finding perfection will take time, better to be invested and getting some of the market return (and helping out the finance industry and the country), rather than having no return as you search for perfection.

Funding your pension in advance (you can carry the relief forward), especially if it is one you can access from 50, is the best compromise I have found.

Even if you start now with a deemed disposal route, you can move in the future, e.g. after the deemed disoposal event, or if your investment happens to fall back to close to your intial costs.

Please keep us informed on your progress!


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## SPC100 (14 Feb 2021)

I'd also add pasive index tracking to your list of requirements.


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## hughpearse (14 Feb 2021)

SPC100 said:


> I'd also add pasive index tracking to your list of requirements.


True, but I don't want to make the requirements so strict that I cannot find anything to invest in. A passive investment is an added bonus (look after the pennies and the pounds will look after themselves). If a managed fund is selling at a +1.5% premium, I'm willing to forego that in exchange for a significantly lower tax rate (41-33=8%), and can avail of compounding as there will be no deemed disposal every 8 years.


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## 50andOut (14 Feb 2021)

SPC100 said:


> Funding your pension in advance (you can carry the relief forward), especially if it is one you can access from 50, is the best compromise I have found.


Can you expand on this point pls SPC. Not sure I understand the point.

Tnx


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## Younginvestor93 (14 Feb 2021)

hughpearse said:


> True, but I don't want to make the requirements so strict that I cannot find anything to invest in. A passive investment is an added bonus (look after the pennies and the pounds will look after themselves). If a managed fund is selling at a +1.5% premium, I'm willing to forego that in exchange for a significantly lower tax rate (41-33=8%), and can avail of compounding as there will be no deemed disposal every 8 years.


I dont think anything would have come anywhere close to ITs like Scottish Mortgage and US Growth Trust the last few years. Ann. Charge is only 0.5 or so, so I think even if you want passive elsewhere, you won't get better than their returns.


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## hughpearse (14 Feb 2021)

Younginvestor93 said:


> I dont think anything would have come anywhere close to ITs like Scottish Mortgage and US Growth Trust the last few years. Ann. Charge is only 0.5 or so, so I think even if you want passive elsewhere, you won't get better than their returns.


Yea I have heard Degiro wanted to get that product relisted on their platform as it was very popular. However I haven't investigated the details of the Brexit withdrawal agreement yet. Maybe someone can post a summary of how ETFs and funds domiciled in the UK are taxed in Ireland after the transition period ended on the 31st December 2020 11:00pm.

Edit: I'm assuming the Brits have assigned a special status for investment vehicles and services (TCA).

Edit 2: there was another document accompanying the Brexit withdrawal agreement called "Joint declaration on financial services regulatory cooperation between the European Union and the United Kingdom" but overall it looks like the ability to use passporting has been completely lost.

mccannfitzgerald.com/knowledge/financial-services-regulation/the-brexit-deal-impact-on-financial-services


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## hughpearse (14 Feb 2021)

I guess I can check on the central bank website for approved Common Contractual Funds (CCF) or Investment limited partnerships (ILP).

registers.centralbank.ie/FundSearchPage.aspx
They don't have many options available for ILPs at the moment, but they seem to have a decent amount of CCFs.

(6 results) ILP
(133 results) CCF
(829 results) Unit Trust
Would be worthwhile to investigate how earnings from unit trusts are taxed.

Edit:
> Unit Trusts, PLCs, and ICAVs are taxed under Ireland’s taxation regime for regulated funds. The key features of this regime are:

> Exit tax at rate of 41% applicable to taxable Irish individual investors (25% rate applicable to Irish corporate investors) and a full exemption for foreign investors and Irish tax-exempt investors

Source: home.kpmg/xx/en/home/insights/2020/08/ireland-internationally-distributed-investment-funds.html

So it looks like CCF is the best AIF choice in Ireland due to being tax transparent. Theres one available with "growth" in the name, so I assume it doesn't pay dividends and avoids the marginal rate of income tax

AMX CCF - Sands - Global Growth
registers.centralbank.ie/FundRegisterDataPage.aspx?fundReferenceNumber=C403563&register=22
ISIN IE00B73XMF35
markets.ft.com/data/funds/tearsheet/summary?s=IE00B73XMF35:GBP

"This fund may be marketed to Qualifying Investors only in accordance with the Central Bank of Ireland’s AIF Rulebook/NU Notices and therefore a minimum subscription of Euro 100,000 is required"

And the rich get richer...


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## SPC100 (14 Feb 2021)

50andOut said:


> Can you expand on this point pls SPC. Not sure I understand the point.
> 
> Tnx


The best vehicle that I have found for tax free growth is your pension. But the money is tied up. Some products allow access from 50 years old, so it is not tied up for that long...depending on your age.

You can put as much as you want in your pension tomorrow, but you can only claim relief based on revenue limits. If you had the money you could put in e.g. 200k in your pension tomorrow, and then claim the allowable relief each year, until you claim it all or actualy retire.

The 200k will grow tax free from the day you put it in.


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## SPC100 (14 Feb 2021)

hughpearse said:


> True, but I don't want to make the requirements so strict that I cannot find anything to invest in. A passive investment is an added bonus (look after the pennies and the pounds will look after themselves). If a managed fund is selling at a +1.5% premium, I'm willing to forego that in exchange for a significantly lower tax rate (41-33=8%), and can avail of compounding as there will be no deemed disposal every 8 years.


I would be actively worried with an active fund, not only do you have the guaranteed additional costs of active management, but you also will typically underperform the market. So the cost is a lot more than 1.5%


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## hughpearse (15 Feb 2021)

Due to restrictions investing in tax transparent CCFs in Ireland (€100k minimum investment), it might be worth investigating tax transparent vehicles in other countries like the Netherlands and Luxembourg.

Fonds Commun de Placement (FCP), offered in Luxembourg
And the Dutch also developed their own version of this fund, the Fonds voor Gemene Rekening (FGR)
Authorised Contractual Scheme (ACS) set up in UK
Source:
theamx.com/wp-content/uploads/2019/07/Tax-Transparent-Funds.pdf

Edit:

the FGR can take the form of an open-ended, semi-open-ended and closed-ended investment fund;
FCP structures may be open or closed-ended, but must be open-ended if they are UCITS


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## hughpearse (15 Feb 2021)

Circling back to this comment


Younginvestor93 said:


> Why would you seek to go for such unusual funds, when the UK investment trusts have proved very effective already for many Irish investors?


My Degiro account has finally been re-opened. Searching for "investment trust" in the shares section there are 3 UK investment trusts which accumulate earnings:

ISIN GB00B18JK166 - JPMorgan European Investment Trust plc (Growth class)
ISIN GB00BJL5F346 - JPMorgan US Smaller Companies Investment Trust
ISIN GB00B3SXM832 - BlackRock Frontiers Investment Trust plc Class Acc
So those are 3 investment vehicles available, until the financial Brexit in March.


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## RedOnion (15 Feb 2021)

hughpearse said:


> Authorised Contractual Scheme


Minimum investment £1m, unless an institutional investor.

None of these vehicles remove your tax liabilities, but mean the fund itself is not taxed, as there is 'look through' to the tax status of the individual investors.


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## hughpearse (15 Feb 2021)

RedOnion said:


> None of these vehicles remove your tax liabilities, but mean the fund itself is not taxed, as there is 'look through' to the tax status of the individual investors.


If I had enough money to invest in a CCF, it is "tax transparent" so it's as though I own the underlying holdings themselves. So as long as the CCF has disclosed shares in their holdings, then I would have diversification but the special exit tax of 41% wouldn't apply, it would be treated as capital gains at 33%.


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## hughpearse (15 Feb 2021)

hughpearse said:


> it might be worth investigating tax transparent vehicles in other countries like the Netherlands and Luxembourg.
> 
> Fonds Commun de Placement (FCP), offered in Luxembourg
> And the Dutch also developed their own version of this fund, the Fonds voor Gemene Rekening (FGR)
> ...



It looks like Irish revenue treat European equivalents of a UK investment trust like any closed-ended fund. I guess the simplest way to check on degiro is:

"shares" -> search("fund") -> "company profile" -> "industry" -> "closed end funds"

I guess for X you could use search terms like "fund", "trust", "emerging", "growth" etc

source:
gillenmarkets.com/featured_articles/oeics-investment-trusts--etfs-demystifying-the-terminology.cfm






It does start to get a bit abstract investing in a capital appreciation fund as it pays no dividends, so the investment is pure speculation on future price of the equity which doesn't even hold a household name like 'Google'. Amazingly the value of the find units do seem to appreciate.

These type of closed-ended funds which accumulate dividends to reinvest and appreciate their holdings are only taxed by revenue with CGT of 33%, but with CGT allowance of €1,270 per annum. So with an investment of €1000 earning 7% in the first year (€70), after applying the CGT allowance of €1,270... €0 tax is due.

revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/what-is-exempt-from-cgt.aspx

Each tax year, the first €1,270 of your gain or gains (after deducting losses) are exempt from CGT. You are entitled to this exemption whether you are resident or non-resident. You cannot transfer this exemption to your spouse or civil partner.
The GCT charge is triggered on disposal of the asset

But at 7% per year, with an initial lump sum investment of €1000
(1000-(1000*1.07*1.07*1.07*1.07*1.07*1.07*1.07*1.07*1.07*1.07*1.07*1.07))*-1
it would take you 12 years to reach the €1,270 threshold, so you could take home 1000+1252

Theres an example here in Tax and Duty Manual Part 19-04-06A, Disposal of shares, §6A.4 (Example 1 - Liability on shares including FIFO rule)
revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-06a.pdf


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## hughpearse (16 Feb 2021)

Another interesting article

taxsummaries.pwc.com/ireland/individual/income-determination

Profits from occupation of certain woodlands: The total profits and gains are treated as exempt from income tax if the woodlands are managed on a commercial basis with a view to realising a profit. Profits and gains from the occupation of woodlands are being removed from the High Earners Restriction.
Tax and Duty Manual Part 07-03-09, Profits from the occupation of woodlands: Quantifying profits or gains, §1.1 - revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-07/07-03-09.pdf

Profits or gains from the occupation of woodland in the State which is managed on a commercial basis and with a view to a profit are exempt from Income Tax and Corporation Tax (but not Universal Social Charge and Pay Related Social Insurance)
So in theory for a modest investment of €1000 earning 7% in the first year (€70), the standard rates dictate:

assets.kpmg/content/dam/kpmg/ie/pdf/2020/10/ie-budget-2021-tax-rates-and-credits.pdf

PRSI = 4%
USC = 0.5%
DWT = 0%
Marginal income tax relief = 100%
CGT relief = 100%
Total rate of tax = 4.5% on dividends, 0% on capital gains


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