# European Listed Investment Trusts



## Username2012 (24 Nov 2012)

For tax reasons (the minefield that is ETF tax in the Republic of Ireland) I prefer to invest in UK Investment Trusts/Companies. I am aware that there are similar entites listed in the USA and Australia, however is there such a thing as an investment company that is listed on one of the European Exchanges? Thanks.


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## Rory Gillen (14 Dec 2012)

My understanding is that there is no tax advantage in using investment companies (trusts) over ETFs or Unit-linked funds if you are resident in Ireland.


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## Monksfield (14 Dec 2012)

Investment trusts are taxed under CGT rather than Gross Roll Up (which applies to most ETFs). From that point of view they may be more tax efficient ,most obviously those with CGT losses forward on bank shares etc.


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## Rory Gillen (15 Dec 2012)

Monksfield said:


> Investment trusts are taxed under CGT rather than Gross Roll Up (which applies to most ETFs). From that point of view they may be more tax efficient ,most obviously those with CGT losses forward on bank shares etc.


 

Monksfield, I have grappled with this issue for some time. My understanding is that for Irish residents funds of any nature are classed as 'Collective Investment Vehicles' and taxed similarly i.e. same as unit-linked funds. That said, I have asked many tax advisors and accountants and the answers have varied, so I don't say the above with 100% confidence. If you are a qualified tax advisor, I'll bow to your greater wisdom.

*Rory*


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## Brendan Burgess (15 Dec 2012)

Hi Rory

Investment trusts i.e. companies quoted on the stock exchange are treated like any other shares.  The dividend income is taxed under income tax and the capital gains are taxed under CGT. 

I don't know why anyone has advised otherwise?  If I set my losses in AIB plc against my gains in CRH plc, Revenue do not ask me about the underlying assets of these companies.


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## Duke of Marmalade (16 Dec 2012)

On the continent these are called SICA*F*s (companies with *F*ixed capital).  I can't find any through Google but they should be listed on the Luxembourg SE for example.

On the tax, I agree with Brendan and others.  The Exit Tax regime replaced the old life assurance/unit trust system and was perceived as broadly favourable compared to direct taxation notably in having a lower exit tax than marginal income tax.  Because of EU level playing field rules it had to be extended to UCITS and ETFs etc.  However, Investment Trusts, whilst being collective investments in the colloquial sense, are not covered by the regime but are, as Brendan asserts, treated like any other share.

Like opener, I find these more attractive from a tax point of view, for whilst income is taxed at marginal rate CGT losses can be used to shelter gains.


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## Rory Gillen (16 Dec 2012)

Brendan Burgess said:


> Hi Rory
> 
> Investment trusts i.e. companies quoted on the stock exchange are treated like any other shares. The dividend income is taxed under income tax and the capital gains are taxed under CGT.
> 
> I don't know why anyone has advised otherwise? If I set my losses in AIB plc against my gains in CRH plc, Revenue do not ask me about the underlying assets of these companies.


 
Brendan,

This is an important issue, and there is much uncertainty surrounding it. Hence, a bit more debate might be required. Prior to leaving Merrion Capital in April 2009, I completed a note on ETFs and took tax advise from KPMG at that time before publishing the note to clients. I enclose a section of that advice related to the tax treatment of funds in general that might steer further discussion. KPMG's advice seems clear that investment companies are treated as other funds under Irish Revenue guidlines. That said, I have come across conflicting views within the profession.

KPMG views expressed in 2009 are as follows;



"An Irish Investment Undertaking generally includes the following;
An UCITS formed pursuant to the European Communities UCITS regulations, 1989
An authorised unit trust within the meaning of the Unit Trusts Act, 1990
An authorised investment company within the meaning of Part XIII of the Companies Act, 1990
An Irish investment Limited partnership within the meaning of the Investment Ltd Partnership Act, 1994
The majority of ETFs fall into the categories of (i) an Irish investment undertaking or (ii) a material interest in a regulated offshore fund similar in all aspects to an Irish Investment Undertaking. 

Annual or more frequent payments received by an Irish tax resident individual from an Irish investment undertaking should generally be subject to an exit tax at the standard rate plus 3%. Other payments and gains realised on disposal should generally by subject to an exit tax at the standard rate plus 6%.

In the event that a loss is realsied on disposal, the loss may not be used to shelter other gains realised by an investor."

My uncertainty lies around category no. 3 - I have assumed this refers to 'Investment Trusts'. Like ETFs, they surely fit the definition of an Irish Investment Undertaking or a material interest in an offshore regulated fund. If so, it seems clear they are taxed like other funds. If anyone knows differently, I would welcome the clarification.

*Rory Gillen*


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## Marc (16 Dec 2012)

The key here is the structure of the fund and redemption process.

An open ended fund which can only be traded at one venue ie the issuer as in the case of an Irish unit linked fund is subject to exit tax.

An exchange traded fund is typically a UCITs and therefore substantially the same as an Irish unit linked fund even if it can be traded on multiple exchanges.

A complication arises when the fund is domiciled outside the EEA and the tax treatment is different.

A further complication arises with certain open ended structures which are not funds but certificates or notes these are typically subject to capital gains tax.

However a UK listed Investment Trust is a closed ended fund does not redeem back to the manager but rather in the market, this is substantially different to an Irish unit linked fund and therefore exit tax does not apply and the relevant taxes are income tax and cgt.

Simples!


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## Duke of Marmalade (16 Dec 2012)

Rory has made a very significant point here. I looked up this Part XIII of the Companies Act 1990 and it seems there is no doubt that if an Investment Trust was constituted in Ireland it would be subject to the UCITS tax regime and not normal CGT/Income Tax. One could argue that the spirit of the tax system is to tax foreign (EU) based investment companies/trusts similarly i.e. subject to exit tax. Though I think the letter would say that these foreign instruments are not referred to by our Companies Act.

In any case, Rory is correct in that it appears a very grey area and of course entirely over to the individual to make the required returns.

Apologies, Rory, you were obviously much closer to this issue than I was.


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## Brendan Burgess (16 Dec 2012)

OK, I had not appreciated that point. 

From a practical point of view, do we have any Investment Trusts constituted in Ireland available to Irish resident investors? If we do, presumably they have checked with Revenue and are operating exit tax if that is what they have been told to do. 

I can't see how the operator of a UK investment trust i.e. a quoted company could operate Irish exit tax?  They have nothing to do with the buy and sell transaction.


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## Duke of Marmalade (16 Dec 2012)

Brendan Burgess said:


> OK, I had not appreciated that point.
> 
> From a practical point of view, do we have any Investment Trusts constituted in Ireland available to Irish resident investors? If we do, presumably they have checked with Revenue and are operating exit tax if that is what they have been told to do.
> 
> I can't see how the operator of a UK investment trust i.e. a quoted company could operate Irish exit tax? They have nothing to do with the buy and sell transaction.


_Boss_ I think that is true of a UK based ETF. My understanding is that the punter has to look after all the tax compliance with any foreign investment. It seems he is in a bit of a quandary, does he operate an exit tax regime or a cgt/income tax one. Personally, and I do own a UK based IT, I will assume normal cgt/income tax rules.


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## Rory Gillen (17 Dec 2012)

It may well be that it remains a grey area, just like the treatment of CFDs. The Irish Revenue does not appear to have provided clear and unambiguous guidelines in either area. Typical.

I am not aware of a domestic listed Investment Trust. I guess, on the balance of probabilities, that overseas ITs should bear CGT/Income tax. That is significant - a positive in terms of loss relief but a negative on the income side. I might see if I can get some 'Free Advice' from my contact, although it is  few years since I engaged. Will report back if I hear anything new.


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## Brendan Burgess (12 Jan 2013)

Rory has summarised and updated this discussion in this Key Post

Tax Treatment of ETFs and Investment Companies(Trusts)


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## David Morris (15 Jan 2013)

*UK Investment Trusts*

This has been a useful discussion. I aggree that the whole area really is a minefield with different interpretations from different accountants. The last post is the best overview I have seen so far re fund tax treatment for Irish Residents. 

Regarding UK domiciled investment trusts, I had assumed like Brendan they were subject to income tax and CGT similar to a share. But according to the last post UK Investment trust come under the Gross Roll up fund tax rules. If one's objective is to use existing losses against future CGT and this last post is correct then one would be better off to buy a "bad offshore" domiciled investment trust than a "good offshore" one listed th U.K.

Am I correct in saying this?

Thanks
David.


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