# Index tracker products with CGT



## Minnow2 (8 Apr 2020)

Hi,
My preference is to invest in stock market index trackers, which I have done through ETFs to date.
Given the tax downside of ETFs (deemed disposal, income tax rate), I was wondering if there are any investment products other than ETFs which are structured to track the markets but are subject to CGT? I read somewhere that some Vanguard trackers are treated as shares rather than ETFs, but cannot find reference 

Would appreciate any advice.


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## Sarenco (8 Apr 2020)

Non-EU domiciled index funds (including ETFs) are subject to the normal income tax/CGT regime.

Accessing those funds is another matter ...


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## Steven Barrett (8 Apr 2020)

There is a huge amount of posts on here about people trying to avoid deemed disposal and exit tax. 

The tax regime in Ireland is gross roll up on ETFs/ funds and 41% exit tax, paid every 8 years or sooner if you actually cash it in. 

If you want to avoid that, you can:


Invest in unit trusts. These are actively managed though so you will have to test your "can't beat the market" philosophy in the bid to pay less tax. 
Buy individual shares. 
Build up a big enough pot of money so you can use a discretionary fund manager who can buy them. 

We'd all love to pay less tax but don't let the tail wag the dog on this one. I've been investing in funds for years and have made significant gains from them. 


Steven
www.bluewaterfp.ie


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## Bob Harris (12 Apr 2020)

SBarrett said:


> The tax regime in Ireland is gross roll up on ETFs/ funds and 41% exit tax, paid every 8 years or sooner if you actually cash it in.
> 
> 
> 
> ...



If you were to invest a monthly amount are you essentially condemning yourself to doing a monthly deemed disposal every month after 8 years?


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## jpd (13 Apr 2020)

Yes - this has been explained many, many times on the forum


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## Duke of Marmalade (13 Apr 2020)

SBarrett said:


> Invest in unit trusts. These are actively managed though so you will have to test your "can't beat the market" philosophy in the bid to pay less tax.
> Steven
> www.bluewaterfp.ie


Steven, do you mean investment trusts?  Unit trusts are usually UCITS and subject to the exit tax regime.
Observation;  when the exit tax regime was introduced in 2001 there was no deemed disposal and the exit tax was set at 23% (3% above DIRT because of gross roll up).  There is now deemed disposal and the rate is at a penal 41%, 8% above DIRT with limited benefit from gross roll up.  Oh, I almost forgot the 1% insurance levy - does anybody actually invest in life company savings products these days?


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## Gordon Gekko (13 Apr 2020)

Life company products are good for people who are investing small amounts, who require simplicity, who don’t have access to good investment advice, and who don’t want to have to submit a tax return.


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## Steven Barrett (14 Apr 2020)

Duke of Marmalade said:


> Steven, do you mean investment trusts?  Unit trusts are usually UCITS and subject to the exit tax regime.
> Observation;  when the exit tax regime was introduced in 2001 there was no deemed disposal and the exit tax was set at 23% (3% above DIRT because of gross roll up).  There is now deemed disposal and the rate is at a penal 41%, 8% above DIRT with limited benefit from gross roll up.  Oh, I almost forgot the 1% insurance levy - does anybody actually invest in life company savings products these days?



Sorry, yes investment trusts. 

I can understand the Revenue's argument on the reason for deemed disposal, they weren't getting any income from gross roll up. But they should therefore allow people to pay CGT on dividends as per shares. 

With the move to the left and the gap between those who have and those who haven't getting bigger, there doesn't seem to be an appetite to reduce the exit tax of 41%. 

Steven
www.bluewaterfp.ie


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## Sarenco (14 Apr 2020)

SBarrett said:


> allow people to pay CGT on dividends as per shares.


Income tax on dividends, CGT on gains.


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## onfire (14 Apr 2020)

Looking for investment options for my post tax income. I have already maximized my pension contributions and overpaying mortgage.

This article shows the performance of EU ETFs that are accumulating vs distributing (I understand US ETFs are unavailable to retail investors).


Does anyone have anything similar that would compare Investment Trusts to accumulating/distributing ETFs?


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## Sarenco (14 Apr 2020)

Investment trusts are taxed in the same way as direct shares or US-domiciled ETFs (income tax on dividends, CGT on capital gains).

I take the view that our tax code is such that it rarely makes sense to invest after-tax income while carrying a mortgage.  Just overpay the mortgage until it's paid off in full.


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## Steven Barrett (14 Apr 2020)

Sarenco said:


> Income tax on dividends, CGT on gains.



Getting all mixed up in this thread


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## Daithi7 (26 Apr 2020)

Jeez,  the tax treatment of ETFs in Ireland is a complete mess imho.  Differentiating between US domiciled (with a KIDD) and European domiciled is clearly just plain stupid!! 

Revenue are being very unkind and inconsistent with the after tax investor. 

p.s. they must think that everybody has the gold plated public sector pension they do or something!?


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## torblednam (26 Apr 2020)

Daithi7 said:


> p.s. they must think that everybody has the gold plated public sector pension they do or something!?



Revenue don’t determine tax policy; that’s the Government, via the department of finance. In any event, I very much doubt that is the reason for policy being as it is.


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## jpd (26 Apr 2020)

> Differentiating between US domiciled (with a KIDD) and European domiciled is clearly just plain stupid!!


The requirement for the ETF to have a PRIIP (*P*ackaged *r*etail *i*nvestment and *i*nsurance *p*roducts ) document has nothing to do with the Revenue. It is an EU requirement to protect retail investors in the EU from themselves (and unscrupulous investment brokers, if any such exist)

US ETF can't be bothered producing a PRIIPS as the market for their funds in the EU would be too small for the cost of producing and keeping it up to date.


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## Daithi7 (26 Apr 2020)

jpd said:


> The requirement for the ETF to have a PRIIP (*P*ackaged *r*etail *i*nvestment and *i*nsurance *p*roducts ) document has nothing to do with the Revenue. It is an EU requirement to protect retail investors in the EU from themselves (and unscrupulous investment brokers, if any such exist)
> 
> US ETF can't be bothered producing a PRIIPS as the market for their funds in the EU would be too small for the cost of producing and keeping it up to date.



Do European ETFs also have to produce PRIIPs?

(& if so,  why is it worthwhile for them to do so & not US ETFs I wonder?....)


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## RedOnion (26 Apr 2020)

Daithi7 said:


> Do European ETFs also have to produce PRIIPs?


Yes, if they want to sell their products in the EU.



Daithi7 said:


> (& if so, why is it worthwhile for them & not the US ETFs I wonder?....)


Because almost all their sales are in the EU...


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## Daithi7 (26 Apr 2020)

torblednam said:


> Revenue don’t determine tax policy; that’s the Government, via the department of finance. In any event, I very much doubt that is the reason for policy being as it is.



Re Revenue/ Dept of Finance point,  that's semantics tbh. Fact is Revenue implement ETF tax policy & issue guidelines on it,  so I attribute responsibility for this cack handed scheme in my post to them (as a proxy for all government depts involved).

Genuinely curious: What do you consider is the reason for the bewildering differentiation in tax treatment of different etf options??


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## jpd (26 Apr 2020)

Daithi7 said:


> Re Revenue/ Dept of Finance point,  that's semantics tbh. Fact is Revenue implement ETF tax policy & issue guidelines on it,  so I attribute responsibility for this cack handed scheme in my post to them (as a proxy for all government depts involved).
> 
> Genuinely curious: What do you consider is the reason for the bewildering differentiation in tax treatment of different etf options??


That's a ridiculous statement - Revenue, as all other Civil & Public Servants, implement policy as laid down by them government of the day. It is true that the Revenue and the Department of Finance can propose policy changes but it is the prerogative of the government of the day to accept or reject those changes

Are you implying that the government of the day is not responsible for decisions made by them?


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## joe sod (26 Apr 2020)

Daithi7 said:


> Do European ETFs also have to produce PRIIPs?
> 
> (& if so, why is it worthwhile for them to do so & not US ETFs I wonder?....)



because demand for US domiciled etfs in Europe would only be marginal, its easier just to buy the european version. The only real demand is from the small number of irish investors disadvantaged by the irish specific tax code. The US ETFs are not going to jump through hoops for this very small market.

Paradoxically ireland is the domicile country for many of these european etfs . Its a wonder an irish financial institution cant construct a few ETFs themselves produce the PRIIP themselves and domicile them in the US for irish investors. Afterall I thought the IFSC in Dublin was managing huge sums of money for everyone else yet they cant construct a few investment products for irish investors !


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## Gordon Gekko (26 Apr 2020)

No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.


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## Sarenco (26 Apr 2020)

joe sod said:


> Its a wonder an irish financial institution cant construct a few ETFs themselves produce the PRIIP themselves and domicile them in the US for irish investors.


It's no wonder at all.

Firstly, getting an US-domiciled ETF approved by the SEC is a very time-consuming and expensive process.

Secondly, there is a mismatch between the requisite disclosures in US offering documents and the requisite disclosures to EU investors.  

The latter is the real reason why the big fund promoters (BlackRock, State Street, etc.) have separate US and EU-domiciled products.


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## Daithi7 (27 Apr 2020)

Gordon Gekko said:


> No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.



So why not just tax the ones that don't pay dividends so!?

Not to treat them as a CGT item is an abomination imho. 

(The dept of finance & revenue should hang their heads in shame for the inconsistent,  contrived tax on EU based ETFs imho)


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## Steven Barrett (27 Apr 2020)

Gordon Gekko said:


> No, the logic is actually reasonably straightforward. EU ETFs, including Irish ones, don’t have to pay dividends. So, in the absence of our 41% tax regime, wealthy people could park their money in such products to roll up tax-free for decades. US ETFs, on the other hand, have to distribute income each year so the investor doesn’t get gross-roll-up. Accordingly, the Irish tax authorities are more relaxed as they’re getting their pound of flesh on an ongoing basis.



There are distribution versions of a lot of funds, where the dividends are taxed as income and the gain at 41%. It's an easy fix for the dept of finance but they choose not to. Higher taxation and in these days of socialist parties, politically loaded to do so as only rich people save...


Steven
www.bluewaterfp.ie


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## Gordon Gekko (27 Apr 2020)

Playing devil’s advocate, what about the plus sides? 8 years of gross-roll-up and 41% on income is better than 52%.


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## Sarenco (27 Apr 2020)

Gordon Gekko said:


> Playing devil’s advocate, what about the plus sides? 8 years of gross-roll-up and 41% on income is better than 52%.


It entirely depends on the relative contribution of reinvested dividends and capital gains to the total return over the investment period.

Over the last 20 years, dividends accounted for roughly 70% of the total return on global equities (MSCI World) so an investor would actually have been far better off falling under the exit tax regime as opposed to the normal income tax/CGT regime (assuming a high marginal income tax rate).


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## Gordon Gekko (27 Apr 2020)

Sarenco said:


> It entirely depends on the relative contribution of reinvested dividends and capital gains to the total return over the investment period.
> 
> Over the last 20 years, dividends accounted for roughly 70% of the total return on global equities (MSCI World) so an investor would actually have been far better off falling under the exit tax regime as opposed to the normal income tax/CGT regime (assuming a high marginal income tax rate).



And it depends what someone is invested in; something more income focussed like a bond fund could be more attractive in 41% world.


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## EmmDee (28 Apr 2020)

joe sod said:


> Paradoxically ireland is the domicile country for many of these european etfs . Its a wonder an irish financial institution cant construct a few ETFs themselves produce the PRIIP themselves and domicile them in the US for irish investors. Afterall I thought the IFSC in Dublin was managing huge sums of money for everyone else yet they cant construct a few investment products for irish investors !



Is it a wonder? Let's do some maths. How much demand do you think a US domiciled ETF would have in Ireland (let's forget about legal issues in the US for the moment). €100mm might be a stretch. 

Given most US tracker funds are charging management fees of 0.25bp that would be an annual management fee of €2,500. The annual review of the documents is going to cost €10k alone. Management and overheads maybe €500k even as part of a larger organisation - multiples of that if a standalone. 

Funds and especially ETF's require scale


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## Gordon Gekko (28 Apr 2020)

EmmDee said:


> Is it a wonder? Let's do some maths. How much demand do you think a US domiciled ETF would have in Ireland (let's forget about legal issues in the US for the moment). €100mm might be a stretch.
> 
> Given most US tracker funds are charging management fees of 0.25bp that would be an annual management fee of €2,500. The annual review of the documents is going to cost €10k alone. Management and overheads maybe €500k even as part of a larger organisation - multiples of that if a standalone.
> 
> Funds and especially ETF's require scale



You’re correct that the demand is probably insignificant in the grand scheme of things, but it’d be a lot more than €100m in some cases. Closer to the billion territory I would reckon. Wealth managers invest in them for their client portfolios and my understanding is that Davy alone own manage around €12bn of client money. A good slug of that would be in one of the big S&P trackers, etc.


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## Sarenco (28 Apr 2020)

Qualified fund managers can still access US-domiciled ETFs - the PRIIPS KID is only required for retail investors.


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## EmmDee (28 Apr 2020)

Gordon Gekko said:


> You’re correct that the demand is probably insignificant in the grand scheme of things, but it’d be a lot more than €100m in some cases. Closer to the billion territory I would reckon. Wealth managers invest in them for their client portfolios and my understanding is that Davy alone own manage around €12bn of client money. A good slug of that would be in one of the big S&P trackers, etc.



A significant amount of products sold to retail in Ireland are repackaged offerings of larger asset managers - Blackrock, Vanguard etc. There are very local funds sold to the Irish retail market which have significant scale


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