# Investment Trust options



## AaronK (8 May 2020)

Hi,
I had planned on investing a lump sum in ETF's (not in pension account) but the 8 year taxation system is off putting.
So that has led me to Investment Trusts. Being taxed the same as shares is the big advantage over ETFs.

However, choosing what Investment Trusts to invest in is not as easy as choosing ETFs!

So if you wanted to choose an Investment Trust or a selection of them, the idea being to mirror what a global ETF does...
What would you buy?

Thanks


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## Sarenco (8 May 2020)

F&C Investment Trust plc (FCIT) might fit the bill -


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## Live Well (8 May 2020)

Thank you for passing that on. I don't know much about IT's, is it possible to get one that accumulates as well? 

I'll go do some homework.


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## Sarenco (8 May 2020)

Live Well said:


> is it possible to get one that accumulates as well?


No, ITs are required under UK tax rules to distribute 85% of all income generated on their holdings in every accounting period.

IMO, ITs are a good option for somebody with significant capital outside a pension wrapper, with a low marginal income tax rate. 

For example, a retiree on a modest pension who receives a significant inheritance.


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## Steven Barrett (8 May 2020)

Live Well said:


> Thank you for passing that on. I don't know much about IT's, *is it possible to get one that accumulates as well*?
> 
> I'll go do some homework.



You can't have you cake and eat it. The sole reason for deemed disposal is accumulating funds under the gross roll up regime. The reason the revenue allow investment trusts against deemed disposal is they distribute and the revenue get their tax each year. 


Steven
www.bluewaterfp.ie


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## Zebedee (8 May 2020)

The best you can do is to find one with a low dividend yield. FCIT dividend yield is 2pc (per their latest factsheet). Scottish mortgage has a yield of 0.5pc.

These are examples rather than recommendations. You need to do your own research to ensure you find one that matches your needs, risk profile etc.


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## AaronK (8 May 2020)

Sarenco said:


> F&C Investment Trust plc (FCIT) might fit the bill -


FCIT certainly has good historic credentials dating back to 1868! It also has very good global diversity even including emerging markets...
It also seems to have outperformed the FTSE All World Index over most periods.

So if you invest in the FCIT and reinvest any dividends does that not make more sense than buying a global ETF?


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## Sarenco (8 May 2020)

AaronK said:


> So if you invest in the FCIT and reinvest any dividends does that not make more sense than buying a global ETF?


It depends!

Firstly, over the longer term you would expect FCIT to modestly outperform its benchmark because (a) it carries a degree of leverage; and (b) it has a private equity allocation.  Equally, you would expect the return on FCIT to be more volatile than its benchmark.

The next major consideration is your personal marginal tax rate, which could be anywhere between 0 and 55%.  If you have a low marginal tax rate, then you are clearly better off being taxed under the standard income tax/CGT regime.

There are a significant number of other threads on the taxation of ETFs but the bottom line is that the exit tax/deemed disposal regime does not necessarily produce a worse tax outcome than the standard income tax/CGT regime.  It very much depends on (a) your marginal tax rate; and (b) the contribution of dividend income to total return over your holding period.


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## AaronK (8 May 2020)

Nothing is ever straight forward when taxes are involved!
I'm usually on the lower tax rate but aspire to be on the higher one 

With the Investment Trust, isn't it easier to add money to that fund monthly compared to the ETF alternative, as with the ETF it's a lot of work to account for all the monthly additions after the 8 year periods?
And wouldn't the IT do better with compounding as you don't deduct tax till the end of your investment period (20 years)?


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## Sarenco (8 May 2020)

AaronK said:


> With the Investment Trust, isn't it easier to add money to that fund monthly compared to the ETF alternative, as with the ETF it's a lot of work to account for all the monthly additions after the 8 year periods?


Yes, I'd agree that the admin/accounting is probably easier with an IT.


AaronK said:


> And wouldn't the IT do better with compounding as you don't deduct tax till the end of your investment period (20 years)?


Well, you would only have CGT when you actually sell (there's no deemed disposal) but don't forget that you will have to pay income tax on dividend payments every year.

But if you have a reasonably low marginal tax rate (including PRSI and USC), then I would definitely favour an IT (such as FCIT) over an ETF that is subject to the exit tax regime.


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## Lisboa (24 Aug 2020)

I'm also looking into Investment Trusts and the tax advantages over ETF's.

On the Revenue website it states-


> If you are an individual, you have a personal exemption of €1,270 each year.



Can one legally sell all their shares on say December 31 and buy them back immediately to 'use up' their allowance?

Revenue also state-


> *Rate of CGT*
> The rate of CGT is 33% for most gains.
> 
> There are other rates for specific types of gains. These rates are:
> ...



Do UK Investment Trusts fall under the 'foreign investment product' category?


Re the above recommended F&C Investment Trust and comparing it to the VWCE Vanguard FTSE All-World ETF;

F&C -
0.35% management fee;
0.56% total expenses (assume that does NOT include management fee);
0.65% Ongoing charges.

Total = 1.56% charges.

Tax - 33% on gains (if NOT a foreign investment product).
Personal exemption of €1,270 each year.
Dividends taxed at your regular income tax bracket.

VWCE -
0.22% annual fee.

Tax 41% on gains.
Deemed disposal every 8 years.
Dividends taxed at your regular income tax bracket or accumulating ETF if desired.

Is there anything else I'm missing?


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## jpd (24 Aug 2020)

IT are treated like shares - in fact, they are shares; you are buying shares in a company that invests

The CGT allowance of 1,270 can only be offset against capital gains not dividends

Selling enough shares to use up the CGT allowance will attract fees and commission charges


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## Lisboa (25 Aug 2020)

jpd said:


> IT are treated like shares - in fact, they are shares; you are buying shares in a company that invests


Thanks, good to know. I wasn't sure if Revenue differentiate between 'Investment Trust' and 'foreign investment product' and didn't want a nasty surprise in the future. 



jpd said:


> Selling enough shares to use up the CGT allowance will attract fees and commission charges



I can do the calculations to see if it's viable, but are there any legal issues with doing it?


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## Live Well (25 Aug 2020)

Sarenco said:


> But if you have a reasonably low marginal tax rate (including PRSI and USC), then I would definitely favour an IT (such as FCIT) over an ETF that is subject to the exit tax regime.



What if the opposite is true, in that you pay a high marginal tax rate, in that case is an EFT (accumulating) better?


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## Sarenco (25 Aug 2020)

Live Well said:


> What if the opposite is true, in that you pay a high marginal tax rate, in that case is an EFT (accumulating) better?


It's not clear cut - it depends on the contribution of dividends to total return over your holding period (which is obviously unknowable in advance).

I would invariably advise (a) to maximise all tax-relieved pension contributions; and (b) to pay off all debt (including mortgage debt) before investing after-tax savings in equities.


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## RobFer (25 Aug 2020)

Lisboa said:


> F&C -
> 0.35% management fee;
> 0.56% total expenses (assume that does NOT include management fee);
> 0.65% Ongoing charges.
> ...


Really quite substantial fees


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## Gordon Gekko (25 Aug 2020)

With a lot of these trusts, the leverage should take care of the costs over time.

Take an all equity trust...one would expect it to deliver decent returns over time; those returns will be ‘juiced up’ by the borrowings, e.g. 20% leverage should enhance the expected returns by 1/5 which should cover some or perhaps all of the costs.

There’s also an element of wanting to have one’s cake and eat it. It looks like a small price to pay to get a better tax outcome.


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## Sarenco (25 Aug 2020)

Lisboa said:


> 0.56% total expenses (assume that does NOT include management fee);


No, the management fee is included in the total expenses figure.  

Equally, total expenses are included in the ongoing charges figure.


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## japester (9 Sep 2020)

My wife will be on a modest PS pension in retirement, around 11k (total) from 60 to OAP age where she will then get around 16k (total). She can transfer some of her standard rate allowance to me so I think I can be at the 20% rate up to around 44k. Would buying some Investment Trust "shares" for my wife (say through DeGiro) be a good option in terms of boosting her retirement income via dividends, taking advantage of the lower 20% tax allowance she has "spare"?


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## AJAM (11 Sep 2020)

Hey All, I though I would share my Investment trust portfolio, along with the reasoning behind it.
Just to  expand on Sarenco's point about Tax first. Both my father and I use Investment Trusts but our tax situation is very different. As a result our portfolios are also completely different.

I am in the highest rate tax band. As a result I am trying to avoid dividends. My investments are for the long term, 10-30 years, so I also want to avoid the 7 year exit tax and also want to avoid higher 41% exit tax rate vs the 33% CGT.
So for me, I want Investment Trusts with low dividend yields and low fees. I want to be globally diversified and have exposure to small and mid-cap stocks. Ideally I want a mix between growth and value (but as you'll see below my portfolio is a little light on Value because I'm trying to avoid dividends). I only choose funds that have a Bronze (or better) rating from Morningstar. My Portfolio is as follows.


FundTickerRatingAllocationYieldFeeStyleStrategyBerkshire HathawayBRK.B25%​0.00%​Lg BlendUSF&C Investment TrustFCITSilver 520%​1.59%​0.56%​LG GrowthGlobal (CORE)Scottish Mortgage Investment Trust plcSMTGold 515%​0.62%​0.38%​LG GrowthGlobal TechSchroder Asian Total Return Inv. CompanyATRGold 510%​1.78%​0.87%​Lg BlendAsia Pacific (ex Japan)Jupiter European Opportunities Trust PLCJEOGold 510%​0.78%​0.90%​LG GrowthEurope (CORE)BMO Global Smaller Companies PlcBGSCSilver 45%​1.13%​0.60%​Sml GrowthGlobal SmallFinsbury Growth & Income Trust PlcFGTGold 55%​1.71%​0.67%​Mix GrowthUK High QualityJPMorgan Emerging Markets Inv TrustJMGSilver 55%​1.35%​1.02%​LG GrowthEmerging Mkts

Note the Morningstar ratings etc. might have changed since I put the table together some time ago. I also have 5% for individual stocks. I don't consider Berkshire an individual stock, it is basically an investment fund in a stock wrapper.

My father is retired, married and in the lower tax bracket. He also has significant unrealized losses from BOI and AIB shares. If he uses ETF's he can't offset any gains against those losses. He wants an income stream from his portfolio. So he want High dividend yields, low fees, and that ability to offset previous losses. So again Investment trusts fit the Bill. His portfolio is


FundTickerRatingAllocationYieldFeeStyleStrategyBankers Investment Trust PlcBNKRSilver 420%​2.37%​0.52%​Lg GrowthGlobal BlendMurray International Trust PlcMYISilver 215%​5.55%​0.61%​Lg ValueIntl Hi Div YldJPMorgan Global Growth & IncomeJGGIBronze 415%​4.28%​0.57%​Lg GrowthWorld Dividend GrowthiShares Global Corporate Bond EUR HedgedCRPH3​15%​2.80%​0.25%​BOND ETFDiversified Corp BondiShares European Prpty Yld ETF EUR DistIPRPBronze 410%​3.82%​0.40%​Mid BlendEuro Property REIT ETFCity of London OrdCTYGold 49%​5.46%​0.39%​Lg Valuecore UK equity incomeTemple Bar Investment Trust PlcTMPLSilver 17%​6.40%​0.49%​Mix ValueUK ValueiShares Fallen Angels High Yield Corp BondWING4​5%​4.50%​0.50%​BOND ETFHigh Yield BondMercantile Investment TrustMRCBronze 44%​3.43%​0.47%​Sm GrowthUK Midcap

Again exact figures and ratings will be slightly off as the table was generated some time ago. Note that He does use ETF's for his Bond and Property REIT allocations - As the majority of the income from them are expected to come from Dividends and not price appreciation, the tax and loss harvesting issues are not a big concern, so ETF's fit the bill. Arguably his Bond allocation is too low and he is increasing it each year.

But the point I want to make here is that your tax situation will have a large impact on what your optimal portfolio will look like.


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## japester (11 Sep 2020)

Many thanks for that information AJAM, its excellent to see some real portfolio figures and I may end up doing something similar, in the sense that my wife, on a relatively low retirement income, could opt for the higher dividend trusts while I, on a higher tax bracket pension, could do something similar to yourself, aiming for lower dividends and trying to grow the fund over time.


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## Ravima (11 Sep 2020)

city of london has a great record


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## ohlegmacnole (22 Jan 2021)

FYI there are a lots of Investment Trusts that do not pay dividends:
Third Point Offshore, Allianz Technology, HarbourVest, Mobius, Pantheon, Polar Capital Tech & Smithson.

Rank by dividend at theaic.co.uk & there are lots with no dividend.


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## Younginvestor93 (22 Jan 2021)

Sarenco said:


> It's not clear cut - it depends on the contribution of dividends to total return over your holding period (which is obviously unknowable in advance).
> 
> I would invariably advise (a) to maximise all tax-relieved pension contributions; and (b) to pay off all debt (including mortgage debt) before investing after-tax savings in equities.


Why would you pay off the mortgage quickly when the interest is low like 2% and you csn get a better return by investing the money in Etfs? Surely the only benefit is the poece of mind of not having a mortgage over your head but if you run the figures its better to slowly pay off the mortgage and invest instead?

Also, I am wondering whether pensions are actually beneficial if you are in the 20% income tax bracket? Are you not worth taking the tax hit and then investing separately perhaps in Degiro with an ann charge of say 0.2 rather than a 1% charge with a pension, say its a prsa and your employer does not contribute. Might it be better to avoid the pension route in this case?


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## Sarenco (22 Jan 2021)

Younginvestor93 said:


> Why would you pay off the mortgage quickly when the interest is low like 2% and you csn get a better return by investing the money in Etfs?


It's about the risk/return trade off.

By paying down your mortgage ahead of schedule, you are guaranteed to get a (tax-free) return equivalent to the weighted average mortgage rate over the original term of your mortgage.  That's guaranteed.

If you invest in a global equity fund or ETF, you might get a return that is higher than the savings you would make on your mortgage, over the same term.  Or you might not.  

But you have to pay tax on any return that you make on the investment fund.  Currently an exit tax of 41% is payable on any return on an Irish/EU domiciled fund so your fund would have to return nearly double your mortgage rate for you to come out ahead.

That's certainly possible, but it's far less likely.  So, paying down your mortgage has a higher projected return, on a risk adjusted basis.


Younginvestor93 said:


> Also, I am wondering whether pensions are actually beneficial if you are in the 20% income tax bracket?


There are certainly circumstances where it makes sense to contribute to a pension in circumstances where you do not pay income tax at the higher rate.

However, unless your employer is making a matching contribution to your pension, I would concentrate on paying off debt (including mortgage debt) in the first instance.


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## Younginvestor93 (22 Jan 2021)

Sarenco said:


> It's about the risk/return trade off.
> 
> By paying down your mortgage ahead of schedule, you are guaranteed to get a (tax-free) return equivalent to the weighted average mortgage rate over the original term of your mortgage.  That's guaranteed.
> 
> ...


Thanks.

I am trying to figure out currently whether to invest in etfs within a pension 1% charge or outside a pension in Degiro. Pension has tax free growth and compounding and tax savings straight off the bat although it is only at the 20% tax bracket. Outside investments have exit tax at 41% although the money is yours and you you get a better annual charge and dont get tax at the end like a pension. You do have access unlike a pension which is another pro.

The figures are complex on this one, do you have thoughts on this scenario?


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## RedOnion (22 Jan 2021)

Younginvestor93 said:


> The figures are complex on this one, do you have thoughts on this scenario


If you're a lower rate tax payer, and will be for a while, why look at ETFs at all?


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## Younginvestor93 (22 Jan 2021)

RedOnion said:


> If you're a lower rate tax payer, and will be for a while, why look at ETFs at all?


I want to invest excess income to make more money of course...I could put it in my pension but there is a question whether, there would be better returns outside of a pension when at the low tax rate?


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## RedOnion (22 Jan 2021)

Younginvestor93 said:


> I want to invest excess income to make more money of course...


Why question was why ETFs in particular?

All gains are taxed at 41%.

You're a low rate tax payer. With shares, dividends would be 20%, and capital gains 33%.

I'm not saying one us better than the other, but trying to understand why you've decided ETFs are best option outside of a pension wrapper.


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## Younginvestor93 (22 Jan 2021)

RedOnion said:


> Why question was why ETFs in particular?
> 
> All gains are taxed at 41%.
> 
> ...


Very good points. Well wouldn't building a big portfolio of shares bringing dividends push me into the high income tax bracket. Im just on the edge I think. What wiuld you suggest, investing in the big value stocks like Johnson a Jonnson etc, apple et all and take the dividends?

Shares are riskier though and I feel like you can't go wrong with All World etfs, a safe set and forget approach. Yes dividends at 41% is not the best but Etfs are solid over the long run and if I miss out on a little income then so be it, it will just take me slightly longer to be FI. What do you think?


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## Sarenco (22 Jan 2021)

I think you are over complicating things.

An All World ETF is far from “safe”.  Equities are volatile and there is no guarantee that they will produce a positive return over your holding period.

If you have a mortgage, pay it down ahead of schedule.  

Keep it simple.


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## Younginvestor93 (22 Jan 2021)

Sarenco said:


> I think you are over complicating things.
> 
> An All World ETF is far from “safe”.  Equities are volatile and there is no guarantee that they will produce a positive return over your holding period.
> 
> ...


The last 100 hundred years of global equities says otherwise?

What do you suggest to do after as you advise maxing pension, paying off mortgage asap. Then you still have excess, whats next?


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## RedOnion (22 Jan 2021)

Younginvestor93 said:


> The last 100 hundred years of global equities says otherwise?


But, what's your investment period? You're asking a lot of questions in abstract.

Do you need the money available for anything in particular in the next 5 to 10 years? Can you handle a drop in value of investment over multi year periods?

Have you actually paid off your mortgage? Or are you planning to buy a house? Or a car? What kind of money are you talking about?

You mentioned maxing out pension already. What's it invested in?

There are several factors to consider, before suggesting a 'best' approach for your circumstances.


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## Younginvestor93 (22 Jan 2021)

RedOnion said:


> But, what's your investment period? You're asking a lot of questions in abstract.
> 
> Do you need the money available for anything in particular in the next 5 to 10 years? Can you handle a drop in value of investment over multi year periods?
> 
> ...


27. Saving in bank for house. Nearly ready to get a mortgage. Self employed sole trader. 6k in a crap irish life pension but changing it to a better one either 1% zurich dynamic fund or davy prsa 0.75% and in vwce all world vanguard fund adding 0.22 on, if pension works out to be the most efficient route. If it is, il max it out. Il maybe pay off mortgage quickly as Sarenco advised or invest any excess I have....just need to find out where. Currently have a small Degiro etf position with some excess I have now.


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## Younginvestor93 (24 Jan 2021)

AaronK said:


> Hi,
> I had planned on investing a lump sum in ETF's (not in pension account) but the 8 year taxation system is off putting.
> So that has led me to Investment Trusts. Being taxed the same as shares is the big advantage over ETFs.
> 
> ...


Curious Aaron, did you make a decision on ETFS vs Investment Trusts and what did you decide on and why?


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## Marc (25 Jan 2021)

I’d like to just check something if I may.

question: are U.K. investment trusts always subject to income tax and CGT?

if you think the answer is yes, please like the post
If not please set out your reasons below.
I’ll run this for say a week.

thanks


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## Younginvestor93 (25 Jan 2021)

Marc said:


> I’d like to just check something if I may.
> 
> question: are U.K. investment trusts always subject to income tax and CGT?
> 
> ...


I have only read that they are but could Brexit change this. I have been looking into them but some of them are not available on degiro now, which is odd, wonder if anyone knows if this is also attributable to Brexit?


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## Sarenco (25 Jan 2021)

There are some closed-ended funds listed on the London Stock Exchange that are domiciled in the Channel Islands and treated as offshore funds for Irish tax purposes.

Best avoided.


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## Younginvestor93 (25 Jan 2021)

Sarenco said:


> There are some closed-ended funds listed on the London Stock Exchange that are domiciled in the Channel Islands and treated as offshore funds for Irish tax purposes.
> 
> Best avoided.


Hi Sarenco,

I have been looking at UK investment trusts this past weekend as many knowledgeable Irish investors seem to say they are better than accumulating ETFS over a long hold period.

Where is the best place to purchase them if it is still possible with Brexit, I can only find Murray International Trust and City of London Investment Trust at the moment on the LSE? Is it a good time to purchase them now, I have an account with Degiro and a position in ETFS but I am open to looking into some Investment Trusts if they are a better alternative?


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## Sarenco (25 Jan 2021)

I don't think that UK investment trusts are necessarily "better" than accumulating ETFs.

However, I think that investment trusts are a good option for somebody with significant capital outside a pension wrapper, with a low marginal income tax rate.  For example, a retiree on a modest pension and a paid for house who receives a significant inheritance.

I'm afraid I don't know anything about Degiro - I don't hold any equities outside my pension.


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## Younginvestor93 (25 Jan 2021)

Sarenco said:


> I don't think that UK investment trusts are necessarily "better" than accumulating ETFs.
> 
> However, I think that investment trusts are a good option for somebody with significant capital outside a pension wrapper, with a low marginal income tax rate.  For example, a retiree on a modest pension and a paid for house who receives a significant inheritance.
> 
> I'm afraid I don't know anything about Degiro - I don't hold any equities outside my pension.


Thanks, I wonder has there been anyone who has run the figures on ITs vs ETFs?
That makes sense for low income individuals as they can take the dividends @20% tax and get growth at 33% plus they dont have to sell after 8 years like ETFs.
I think the returns on some Investment Trusts can be higher than the Index, for example SMT or F&C IT although they are arguably not as safe as holding a global equities tracker. 

ETFs allow dividends to compound tax free which might is a benefit, despite the deemed disposal they are a comfortably safe long term investment.


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## RedOnion (25 Jan 2021)

Younginvestor93 said:


> Where is the best place to purchase them if it is still possible with Brexit, I can only find Murray International Trust and City of London Investment Trust at the moment on the LSE?


Are you sure they are ordinary shares and not preference shares that are listed?


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## fistophobia (25 Jan 2021)

Younginvestor93 said:


> That makes sense for low income individuals as they can take the dividends @20% tax and get growth at 33% plus they dont have to sell after 8 years like ETFs.


Dividends taxed at 25% from 01 JAN.
Yes, lower rate tax payer could claim back excess, but its an ordeal.
The form ask for a lot of proof, including screenshots from Bloomberg.


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## Younginvestor93 (25 Jan 2021)

RedOnion said:


> Are you sure they are ordinary shares and not preference shares that are listed?


City of London Investment Trust looks to be available. Ticker: CTY
LSE. C. I think common stock. Ordinary Shares.

Scottish Morgage not available. F&C IT not available, only I had it in my favourites is the only reason I can see. I can't search for it. No company profile, financial or ratios and cannot be traded at the moment.


Any idea whats that about?


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## Sarenco (25 Jan 2021)

fistophobia said:


> Dividends taxed at 25% from 01 JAN.
> Yes, lower rate tax payer could claim back excess, but its an ordeal.


Irish DWT (if that’s what you are talking about) does not apply to dividend payments from UK investment trusts to Irish resident taxpayers.


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## RedOnion (25 Jan 2021)

fistophobia said:


> Dividends taxed at 25% from 01 JAN.
> Yes, lower rate tax payer could claim back excess, but its an ordeal.
> The form ask for a lot of proof, including screenshots from Bloomberg.


Is there 25% DWT on UK share dividends to Irish Residents?


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## Younginvestor93 (25 Jan 2021)

fistophobia said:


> Dividends taxed at 25% from 01 JAN.
> Yes, lower rate tax payer could claim back excess, but its an ordeal.
> The form ask for a lot of proof, including screenshots from Bloomberg.


Another hassle for Irish investors, nothing is straightforward here! What do you think is the best option for outside pensions investments in Ireland?

Straight up stock picking, low dividend ITs or just suck up deemed disposal on the Etfs, or buy your own forest? I here its tax free!


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## Sarenco (25 Jan 2021)

Younginvestor93 said:


> Another hassle for Irish investors..


Not really.  There’s no DWT to worry about - @fistophobia is mistaken.


Younginvestor93 said:


> What do you think is the best option for outside pensions investments in Ireland?


Buy a home and pay off the mortgage ASAP.


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## Younginvestor93 (25 Jan 2021)

Sarenco said:


> Not really.  There’s no DWT to worry about - @fistophobia is mistaken.
> 
> Ok, thats on dividend income from US stocks hes referring to is that correct?
> I must research how that works, Im not well versed in how much dividend income you get, how much is witheld and how much yiu announce to revenue?
> Buy a home and pay off the mortgage ASAP.


When thats done and the pension is maxed?


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## fistophobia (25 Jan 2021)

RedOnion said:


> Is there 25% DWT on UK share dividends to Irish Residents?



Yes. As of 01 JAN. Irish brokers deduct.
for UK shares, this is new development.


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## RedOnion (25 Jan 2021)

Younginvestor93 said:


> When thats done and the pension is maxed?


To be clear, you've bought a house, paid the mortgage, and you're maxing your pension contributions? 

Or are you asking hypothetical questions again?

There isn't one 'right' or 'best' answer that works for everybody.


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## Younginvestor93 (25 Jan 2021)

RedOnion said:


> Or are you asking hypothetical questions again?
> 
> There isn't one 'right' or 'best' answer that works for everybody.


Hi Red Onion, Its a hypothetical question, to get a sense of what a long term plan would look like. I understand the advice recommended by most I have read is get on the property ladder, pay the pension, pay the mortgage down and if you then still have excess income....this is the part I am not 100% sure of what to do next. Euro Cost Averaging money into the best outside pension vehicle, would be the next best option to accumulate wealth I think. What that vehicle is not straightforward in the Irish context from what I understand. At the moment, I think its a 3 way contest between individual stock picking/ Uk investment Trusts/ Accumulating ETFs.


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## Sarenco (25 Jan 2021)

fistophobia said:


> Yes. As of 01 JAN. Irish brokers deduct.
> for UK shares, this is new development.


Why would Irish brokers deduct UK DWT from dividends on UK shares paid to Irish tax residents?!

The UK doesn’t even apply DWT to dividends paid by investment trusts (other than REITs).


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## Sarenco (25 Jan 2021)

Younginvestor93 said:


> When thats done and the pension is maxed?


Maintain a high equity allocation within your pension fund and keep your after-tax savings in cash.


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## Younginvestor93 (25 Jan 2021)

Sarenco said:


> Maintain a high equity allocation within your pension fund and keep your after-tax savings in cash.


I agree with high equity allocation, I would go 100% global equities when a long way off pension age.
I don't agree with leaving a lot of after tax income in cash, if yu have excess cash then I'd like to just keep investing rather than have it sit in a deposit account. Get money, Buy income and all that!


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## Sarenco (25 Jan 2021)

Younginvestor93 said:


> I agree with high equity allocation, I would go 100% global equities when a long way off pension age.


Most folks won’t be a “long way off” retirement by the time they are mortgage free, particularly if they always maximised their pension contributions  (which I think generally makes sense).

In your case, I think you should focus on your career and saving a cash deposit for a house purchase - obsessing about the “best” use for your after-tax savings is a waste of your time.


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## bish123 (25 Jan 2021)

My best investment in life - take a big mortgage as owner occupier.


Younginvestor93 said:


> Hi Red Onion, Its a hypothetical question, to get a sense of what a long term plan would look like. I understand the advice recommended by most I have read is get on the property ladder, pay the pension, pay the mortgage down and if you then still have excess income....this is the part I am not 100% sure of what to do next. Euro Cost Averaging money into the best outside pension vehicle, would be the next best option to accumulate wealth I think. What that vehicle is not straightforward in the Irish context from what I understand. At the moment, I think its a 3 way contest between individual stock picking/ Uk investment Trusts/ Accumulating ETFs.



You could pay off mortgage for the first house then trade up and start paying mortgage again for bigger one. Enjoy living in it and there will be no CGT on disposal if it remains owner occupier. Additionally, if you want to rent out a room (I won't), you can avail rent a room relief. Do you think any of three options you mentioned can give you better returns long term.


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## fistophobia (26 Jan 2021)

Sarenco said:


> Why would Irish brokers deduct UK DWT from dividends on UK shares paid to Irish tax residents?!
> 
> The UK doesn’t even apply DWT to dividends paid by investment trusts (other than REITs).



S,

Let me clarify - calling it DWT, its more accurately Encashment tax.
Yes, its 25% with-held at source by Irish brokers.
This has only happened this year.
I am talking about a standard UK equity.
I will try and find out about investment trusts, checking by ISIN.


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## Steven Barrett (26 Jan 2021)

Younginvestor93 said:


> Thanks, I wonder has there been anyone who has run the figures on ITs vs ETFs?



The higher the dividend, it is more advantageous to be in an ETF or fund and let them accumulate tax free. However, dividends on the MSCI for example is about 1.5%. At this level, it is more advantageous to pay income tax and CGT.


On the tax situation on a whole, it is what it is. The exit tax on investments is too high but do you what, so is income tax and USC. We live in a high taxation country. There is no point in comparing the tax situation of Irish investments with the tax treatment of the US. It's a different country and the US doesn't have to pay for the social protections that are provided here (get Covid in the US will cost you $73,000 if you don't have insurance). 

If you want it changed, write to the Revenue and your TD and complain about it and offer some suggestions.


Steven
www.bluewaterfp.ie


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## Younginvestor93 (29 Jan 2021)

SBarrett said:


> The higher the dividend, it is more advantageous to be in an ETF or fund and let them accumulate tax free.


What position do you think investment trusts will be in going forward, is there news on them coming out regarding Brexit fallout?

Degiro have already taken down a few of them. I wonder could they go the way of ETFS and revenue could ask for 41% tax on them although I am not sure if revenue have ever 100% clarified that they are taxed at 33% even now?


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## fistophobia (29 Jan 2021)

Sorry... it is not, what it is.
Suggestions about writing to TDs are not helpful.
We are discussing ways to invest in investment trusts.
To help each other out.
There are always other options.


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## RedOnion (29 Jan 2021)

fistophobia said:


> There are always other options.


Any suggestions, rather than talking in riddles?


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## AJAM (1 Feb 2021)

Coming back to the subject line....
I notice on Degiro I can still buy some investment Trusts e.g.
FGT, CTY, MYI and JGGI.
But I can't buy BNKR, MRC, FCIT, SMT, JEO, ATR, BGSC.
I did initially think Brexit, but shouldn't Brexit apply to all of them?


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## Younginvestor93 (1 Feb 2021)

AJAM said:


> Coming back to the subject line....
> I notice on Degiro I can still buy some investment Trusts e.g.
> FGT, CTY, MYI and JGGI.
> But I can't buy BNKR, MRC, FCIT, SMT, JEO, ATR, BGSC.
> I did initially think Brexit, but shouldn't Brexit apply to all of them?


This is what I observed also. I emailed them but no response yet. It appears to be Brexit related according to Reddit but yes, surely that would apply to all of them. Strange!


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## shades25 (3 Feb 2021)

I got this response from Degiro in relation to SMT:

With regards to <SMT> we had to remove this product from the Trader due to an ongoing issue with regards to the type of Financial Transaction Tax that is applied to this product. We are working with the issuer now to have this issue resolved and hopefully can offer this product on the platform again soon. This is one of our priorities as we are aware many clients are interested in this security.


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## Marc (4 Feb 2021)

Marc said:


> I’d like to just check something if I may.
> 
> question: are U.K. investment trusts always subject to income tax and CGT?
> 
> ...



So, only two likes to the original post suggesting that some of you suspected a trap, and you’d be correct.

I picked out this thread because, as is often the case on AAM, it contained several confident and definitive statements about how U.K. investment trusts are taxed in Ireland.

As many of you will know, I’ve spent the last 12 years extensively researching this subject and the tax aspects of this post are based on analysis by one of the leading authorities on the taxation of investments in Ireland and once again I’m the bearer of bad tidings for those of you who think this is easy.


My primary concern is that many posts are framed on the basis that all investment trusts are CGT items and not funds from an Irish tax perspective. I would not be black-and-white on this, I think it is possible for investment trusts in the UK to be considered offshore funds, at least in theory.

The key component that would need to be present for an investment trust to be considered a fund (and I concede it is extremely unlikely for an investment to fall into these categories, but have seen it) are:


· They commit in their articles of association to operating an active discount management policy whereby they try to ensure that the company trades within a stated percentage of NAV.

If this stated percentage is in or around 5% that causes an issue.

Personal Assets Trust for example had this enshrined in their articles of association and therefore in the opinion of leading tax consultants in Ireland, is more likely to be a fund than CGT.

The original tax analysis was conducted when the U.K. was still in the EU and that had implications for marketing which I will cover below

Once you get into Guernsey etc. then you are into different tests, and the only test you need to meet to be a fund is if you could expect to realise the value of your investment at some point during the next 7 years (that being an amount that is reasonably approximate to the NAV of the company's underlying assets). If you meet this test then it is considered a fund and liable to top rate income tax for Irish taxpayers. I would expect that most if not all investment trusts domiciled in Jersey/Guernsey etc. are considered funds on that basis; unless they habitually trade at really significant discounts or premiums to NAV (to such an extent that it would be unlikely they would ever trade close to NAV in the next 7 years) then you have an offshore fund.

The next consideration is if you are Irish and married to a UK domiciled spouse or Civil Partner - like my wife for example.

*UK Inheritance Tax*
Investment companies domiciled in the UK are subject to UK Inheritance tax at a rate of 40% for portfolios in excess of the nil rate band currently £325,000 (tax year 2020-2021).
Under the terms of the double taxation treaty between the UK and Ireland, tax is based on the following principles; where the property is not situated (in this instance Ireland) gives a credit and the jurisdiction where the property is situated taxes.
It should be noted that any UK Inheritance Tax payable is not deductible as a liability in calculating the amount of CAT payable - it can only be used as a credit against CAT in Ireland only when the same property is taxed in both countries.

*Spouse or civil partner exemption: spouse or civil partner domiciled outside UK*

Where, immediately before the transfer;
the transferor is domiciled in the United Kingdom, or is treated as domiciled in the UK under IHTA84/S267, but the transferor’s spouse or civil partner is neither domiciled nor treated as domiciled in the United Kingdom the exemption for transfers between spouses and civil partners is *restricted*. Where the transfer is on or after 6 April 2013, the exemption is limited to the nil-rate band that applies at the date of the transfer.
Where the transfer was on or after 9 March 1982 and before 6 April 2013, the exemption was limited to £55,000.
This restriction to the amount of the exemption does not apply if;
both the transferor and their spouse or civil partner are domiciled outside the UK, or
the transferor is domiciled outside the UK but the spouse or civil partner is domiciled in the UK

*This means that if both spouses are not UK Domiciled i.e. Irish Nationals the full spouse exemption applies.*


The final issue to consider which I have repeatedly try to flag in the run up to Brexit is our good EU regulation friend PRIIPs.

In order to distribute a U.K. investment trust to a retail investor there must be a PRIIPs KID document no document and the fund cannot be sold across the EU,

The Brexit trade “deal” excluded financial services so until that section is negotiated its impossible to say if U.K. investment trusts will survive to the end of this year for Irish investors.

The U.K. regulator, the FCA, had already made it clear that it is looking to extend the exemption from PRIIPs for U.K. UCITS by 5 years but Investment trusts continue to labour under the highly misleading disclosure regime (FCA official view)
If the association of investment companies manages to negotiate an exemption from PRIIPs then its game over for Irish investors.

happy to provide an alternative for those looking to take advice on this

www.globalwealth.ie


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## RedOnion (4 Feb 2021)

Marc said:


> happy to provide an alternative for those looking to take advice on this


I'm going to be honest here Marc.  I'd have my doubts about asking you for any advice after your analysis of PRSA's, which you failed to come back on once you were questioned: https://www.askaboutmoney.com/threa...-any-tax-relief-possible.221628/#post-1698462

This was the basis of one of the most complex pieces of advice I've ever seen recommending an 18 year old start a PRSA, on the basis that's get tax relief even without income.  I believe this is the thread where you were 'shouted down' in regards to UK Investment Trusts, and Brexit.
In my humble opinion (I haven't spent 12 years studying this) is that is all based on completely false analysis of the tax treatment: https://askaboutmoney.com/threads/18-year-old-best-investment.221632/


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## Marc (4 Feb 2021)

Two small points 

I’m not obliged to respond to every question/personal attack
I was writing that post with a fever that I later discovered was Covid and put me in intensive care


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## RedOnion (4 Feb 2021)

Marc said:


> I was writing that post with a fever that I later discovered was Covid and put me in intensive care


I'm sorry to hear that, and I hope you've made a full recovery.


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## Sarenco (4 Feb 2021)

Marc said:


> I think it is possible for investment trusts in the UK to be considered EU funds, at least in theory.


How could an investment trust domiciled in the UK be considered an EU fund when the UK is no longer a member of the EU?

I don't buy the argument that the operation of a discount control mechanism means that an investment trust could be deemed to be a fund.  But even if it does, it's a moot point.

The tax treatment of investments in funds domiciled in the US, EEA and other OECD countries (including the UK) follows precisely the treatment that would apply to share investments generally i.e. income and capital gains tax treatment as appropriate.


Marc said:


> If the association of investment companies manages to negotiate an exemption from PRIIPs then its game over for Irish investors.


That's a possibility in the future but how does this impact Irish investors today?


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## Sarenco (5 Feb 2021)

As things stand today, a KID must be provided to retail investors in an investment trust.

The UK implemented the EU's PRIIPS Regulation back in 2018 and it was subsequently "onshored" so that it continues to apply as a matter of UK law post-Brexit.

So nothing has changed from a regulatory point of view.

Last July, the UK Treasury indicated that it intended to bring forward amendments to the onshored PRIIPs Regulation to improve the functioning of the PRIIPs regime in the UK
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/905542/Policy_Statement_-_PRIIPs__July_2020__HMT_Template.pdf

However, there is no proposal to remove the requirement that a KID must be provided to retail investors in an investment trust.


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## joe sod (5 Feb 2021)

Sarenco said:


> That's a possibility in the future but how does this impact Irish investors today?



I don't understand this point , that if the associaton of investment companies negotiates an exemption from PRIIPs?, is this the associatian of investment companies in Ireland, UK or Europe? Why is this a game changer since the requirement for PRIIPs is only a fairly recent development I think? In any case would UK investment trusts not just resort to the same status as US ETFs and US closed end funds unable to be purchased by EU brokerages but still able to be traded by UK brokerage accounts. Thank you all the same for providing all this information @Sarenco


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## Sarenco (5 Feb 2021)

@joe sod 

The Association of Investment Companies (AIC) is the representative body for investment trusts in the UK.

PRIIPs is a creature of EU law.  As the UK is no longer an EU member state, it is not obliged to apply the PRIIPs Regulation.  However, the UK decided to "onshore" the PRIIPs Regulation so that it continues to apply as a matter of UK law post-Brexit.

In theory, the UK could repeal the onshored PRIIPs Regulation so that UK investment trusts would no longer be required to produce a KID.  If investment trusts stopped providing a KID, they could no longer be offered to Irish retail investors.

However, there is no indication whatsoever that the UK intends to repeal the onshored PRIIPs Regulation.


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## Younginvestor93 (5 Feb 2021)

In layman's terms? What's the story with the IT's then. Are they a valid investment vehicle or it is up in the air until after we get clarification?


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## Steven Barrett (5 Feb 2021)

Younginvestor93 said:


> In layman's terms? What's the story with the IT's then. Are they a valid investment vehicle or it is up in the air until after we get clarification?



The easiest way to know is to log onto your online broker and see if they are there. DeGiro offers a few but not many, but then, they don't offer a lot of bog standard funds either. 

There is nothing illegal about owning investment trusts or US domiciled etfs. there is an obligation on the provider/ advisor to provide you with this document. If we don't, we will be fined if audited by the central bank. Nothing will happen to the customer for owning them, they are perfectly legitimate investment vehicles. 


Steven
www.bluewaterfp.ie


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## galway_blow_in (5 May 2021)

i see that city of london investment trust is available to buy with saxo but only as a CFD ?

its available as a fund too but presumably that is different than just buying it like you would a stock ?

if trusts like this which you could previously purchase like an equity are now listed as funds ( FND ) , would these incur new kinds of charges - fees ?


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## spacecolm (5 May 2021)

Background: I'm maxing out my PRSA, have a tracker mortgage at +0.8% that I don't intend paying off early, have lump sum to invest and €10k annually to invest.

I'm trying to grapple with investing in an investment trust or EFT also.

I've put together figures and I am only a beginner investor so please point out anything I have gotten wrong.

They are based on following assumptions:

Initial investment of €100,000
Average annual return of 10%
Annual dividend payment of 2%
IT total annual fees of 1.56% (based on figure posted earlier in this discussion)
IT dividends are taxed at 51% (then reinvested); ETFs are reinvested without being taxed
I don't have any annual fees for EFT....should I?
EFT requires capital gains taxation of 41% after year 8 (which I have taken from fund because I won't have that amount of money lying around)
IT does not require any capital gains tax payment after year 8....only when sold

I've run that scenario for 16 years.

The figures after year 8 show how much CGT would have to be paid on IT at this point but don't reduce the fund by this amount for subsequent years:


ITETFInvested100,000​100,000​Year 2109,264​112,000​Year 3119,386​125,440​Year 4130,446​140,493​Year 5142,531​157,352​Year 6155,735​176,234​Year 7170,162​197,382​Year 8185,926​221,068​tax28,356​49,638​total if sold157,570​171,430​Year 9203,150​192,002​Year 10221,970​215,042​Year 11242,533​240,847​Year 12265,001​269,749​Year 13289,551​302,119​Year 14316,375​338,373​Year 15345,684​378,978​Year 16377,708​424,455​tax91,644​83,389​rebate of 49,638 from 8 years previoustotal if sold286,065​341,066​

The EFT comfortably out-performs the IT at both year 8 and year 16 - bear in mind I removed 49,638 from the EFT to pay the CGT after year 8 but it still outperforms IT.

The 1.56% management fee destroys the performance of the IT.

Even at 1% management fee, IT can't compete under realistic assumptions.

Even if you think inflation is going to roar, EFT beats IT if there is an average annual return of 20%

The only way that IT beats EFT in this model if is average annual return is around 25% which I think is unrealistic (and I'm expecting a lot of inflation post covid).

Spreadsheet is attached

Is there something I'm missing?


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## jpd (5 May 2021)

Average annual return of 10% + 2% dividend seems quite optimistic to me but who knows?

There is a tax of 41% on the ETF dividends that does not seem to be taken into account


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## spacecolm (5 May 2021)

jpd said:


> Average annual return of 10% + 2% dividend seems quite optimistic to me but who knows?
> 
> There is a tax of 41% on the ETF dividends that does not seem to be taken into account


Thanks for the reply.

I didn't tax the EFT dividends because AFAIK an accumulated EFT doesn't have to pay tax on dividends - they are reinvested and the total fund is caught for 41% tax at year 8.

If I half average annual return and dividends, ETF are still clear winner


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## RedOnion (5 May 2021)

spacecolm said:


> The 1.56% management fee destroys the performance of the IT.
> 
> Even at 1% management fee, IT can't compete under realistic assumptions.
> 
> Even if you think inflation is going to roar, EFT beats IT if there is an average annual return of 20%


If you change your assumptions, you get a different answer.  So check the assumptions.

For a large IT that tracks an index, a 1% management fee would be closer to reality.
You need to include a .2% charge for the ETF.
I think a globally diverse portfolio currently has a dividend yield somewhere around 1.5%
And have a look at what happens when you roll your model out beyond 16 years.  The longer you're invested, the bigger the impact of those deemed disposals.

By the way, you've set it up that you've no return in year 1?


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## spacecolm (6 May 2021)

RedOnion said:


> If you change your assumptions, you get a different answer.  So check the assumptions.
> 
> For a large IT that tracks an index, a 1% management fee would be closer to reality.
> You need to include a .2% charge for the ETF.
> ...


Thanks - fixed it to include year 1 and annual charge for ETF!

I also went with your figures on IT annual charge and average yield.

ETF still beating IT at year 8 and 16 but IT beats ETF at year 24

I would likely be moving away from equities between year 16 and 24 due to getting close to retiring age so ETF still looking like a better option for me.

Then there's the question of what would I do with that money in 24 years anyway? If I just invest it in my PRSA now (even though I'm not getting income tax relief) it outperforms both the ETF and IT.

The additional assumptions in this model are annual management fee of 1% and there is no tax on dividends that are reinvested.

Finally the idea of creating my own fund came to mind. My PRSA invests in 5 Star 5 Global Fund with Zurich. This is fifty global equities across five different sectors. I was thinking of splitting the initial €100,000 into the top 50 stocks from the S&P 100.

The assumptions are an initial charge of approx €30 from DeGiro. No management fee. Pay 51% tax on dividends before reinvesting.

The risk is somewhat diversified but I'm guessing the return won't be as large as investing in a S&P ETF because I'm not investing in the likes of netflix that come from nowhere to become very valuable. However, the Zurich PRSA fund isn't picking that up either.

In my model, my own fund beats everything else. But if I wanted to transfer it to bonds at year 24, just investing in my PRSA (despite not receiving the income tax advantage) looks like the best option.


ITETFPRSAMy own fundInvested100,000​100,000​100,000​99,970​Annual Return1.1​Year 1109,635​111,277​110,385​110,702​Annual Dividend Payment0.015​Year 2120,198​123,826​121,848​122,586​IT Annual Management Fee0.01​Year 3131,779​137,790​134,502​135,745​ETF annual charge0.002​Year 4144,476​153,328​148,471​150,317​PRSA Annual Management Fee0.01​Year 5158,397​170,619​163,889​166,454​Year 6173,658​189,860​180,909​184,323​Year 7190,390​211,270​199,696​204,110​Year 8208,734​235,095​220,435​226,021​tax35,882​55,389​41,597​total if sold172,852​179,706​184,424​Year 9228,846​199,971​243,327​250,284​Year 10250,895​222,522​268,597​277,152​Year 11275,069​247,616​296,490​306,905​Year 12301,572​275,540​327,281​339,851​Year 13330,628​306,612​361,269​376,334​Year 14362,484​341,189​398,787​416,734​Year 15397,410​379,665​440,201​461,470​Year 16435,700​422,480​485,916​511,009​tax110,781​76,828​rebate of 49,638 from 8 years previous135,643​total if sold324,919​345,652​375,366​Year 17477,680​384,631​536,378​565,865​Year 18523,704​428,006​592,081​626,611​Year 19574,163​476,272​653,569​693,878​Year 20629,484​529,981​721,442​768,366​Year 21690,134​589,747​796,363​850,850​Year 22756,629​656,253​879,066​942,188​Year 23829,530​730,259​970,357​1,043,332​Year 24909,455​812,610​1,071,128​1,155,334​tax243,079​159,954​subtract tax already paid in year 8 and 16​320,400total if sold666,376​652,657​834,934​


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## RedOnion (6 May 2021)

spacecolm said:


> Then there's the question of what would I do with that money in 24 years anyway? If I just invest it in my PRSA now (even though I'm not getting income tax relief) it outperforms both the ETF and IT.


This is the key point. Use of a pension wrapper will always win out in Ireland.  But it sounds like you are young enough. Can you really lock away 100k until you're 50+?

You could put in the 100k now, and claim tax relief each year, assuming you're not maximising your AVCs each year.


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## galway_blow_in (6 May 2021)

anyone know whether for example city of london investment trust can still be bought by irish residents ?

Its not longer visible on saxo uk platform , it is however listed as a FND and funds incur different treatment as far as i know ?


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## irishguy (11 May 2021)

spacecolm said:


> Thanks - fixed it to include year 1 and annual charge for ETF!
> 
> I also went with your figures on IT annual charge and average yield.
> 
> ...


Have you accounted for the 0.5% stamp duty on the IT and also trading charges, shouldnt be that high but higher than the us etf.

Also accounting for ITs will be alot simpler if your doing regular investments and your also able to offset losses across multiple purchases/other funds.


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