How to buy UK investment trusts?

[Paul F]

Hi,

I've read a lot of posts on here and a recurring piece of advice is to consider UK investment trusts over ETFs, because investment trusts have better and simpler tax treatment.

I am keen to buy into investment trusts but I haven't been able to figure out who offers them to Irish investors. Can anybody point me towards some good-value online brokers?

Thanks

 

[dub_nerd]

Any online account that lets you buy on the London Stock Exchange will do. That's pretty much all of them. There are other threads on here about which online broker might be suitable depending on your intended use -- they will vary in transaction charges (percentages and minimums), annual charges, inactivity charges, custody fees, exchange rates (for Sterling trades), and so on. (I use Saxobank, opened through sam.ie, but the minimum transaction charge is higher than other accounts if you are buying small amounts).

Here are some Telegraph articles on UK Investment Trusts that I found useful, however I have only taken the plunge with one of them (not allowed to discuss individual stocks on here). Post-Brexit it performed quite well, but the exchange rate wiped out all the gains, which is something to bear in mind. I'm in it for the dividends though:

Article one, [broken link removed], three.

Here are ticker symbols for the trusts mentioned in the first article (click for Yahoo Finance):

CGT, LWI, LWDB, FGT, TMPL, MRC, FCS, CTY, JMF, SMT, BTEM, BNKR.

That's just for your convenience, not a recommendation. I have no expertise in investing whatever and am not remotely qualified to give advice. My only suggestion is do your own homework online, and treat all advice with caution and/or skepticism.

 

[Karina]

Any online account that lets you buy on the London Stock Exchange will do. That's pretty much all of them.
-----

I'm newly back in Ireland and the husband and I have no pension accounts here worth the mention. (Aussie Superannuation but that's another story.) Looking into Self-Directed PRSAs and quite keen on the Standard Life product BUT they specifically exclude Unit Trusts, OEICs, SICAVs, ETFs, and "any investments which have an underlying management charge". I've put the question to them directly about whether their broker, Stocktrade, allowed purchase of shares in "UK Investment Trusts trading as PLCs on the LSX" and got the same list of exclusions.

Possibly I'm thick in not accepting this response, but can someone please give me a straight yes or no answer as to whether something like RIT Capital Partners, Scottish Mortgage or City of London shares (as typical examples) would be allowable or disallowed under those terms?

 

[monagt]

Any online account that lets you buy on the London Stock Exchange will do. That's pretty much all of them. There are other threads on here about which online broker might be suitable depending on your intended use -- they will vary in transaction charges (percentages and minimums), annual charges, inactivity charges, custody fees, exchange rates (for Sterling trades), and so on. (I use Saxobank, opened through sam.ie, but the minimum transaction charge is higher than other accounts if you are buying small amounts).

Is there an advantage/disadvantage in opening a Saxobank account through sam.ie rather than going direct?

Thx, M

 

[Karina]

sam.ie do seem a bit good as a general trading account... Could the main "adv" be Irish regulation and euro over USD? Can't find if there are any specific tax advantages...

 

[Rory T Gillen]

Most of the above investment trusts you quote can most likely be bought into a Standard Life self-invest PRSA (using stocktrade). If someone in SL has said otherwise, it's possible they have made an error or Standard Life itself may have prohibited some such investment trusts due to a simple lack of knowledge.

But I'd have to ask you: why would you look to a life company for a self-directed PRSA when you can go direct to a stockbroker for a self-directed PRSA? The stock exchange platform is the oldest, is far more flexible, and, in my view, more cost effective and more transparent than life company platforms, and you can access the stock exchange platforms direct rather than indirectly via an Irish-based life company.

 

[Duke of Marmalade]

Most of the above investment trusts you quote can most likely be bought into a Standard Life self-invest PRSA (using stocktrade). If someone in SL has said otherwise, it's possible they have made an error or Standard Life itself may have prohibited some such investment trusts due to a simple lack of knowledge.

But I'd have to ask you: why would you look to a life company for a self-directed PRSA when you can go direct to a stockbroker for a self-directed PRSA? The stock exchange platform is the oldest, is far more flexible, and, in my view, more cost effective and more transparent than life company platforms, and you can access the stock exchange platforms direct rather than indirectly via an Irish-based life company.

OP refers in particular to the tax advantages of ITs; I'm not sure that is particularly relevant for PRSAs, but I stand to be ejected.

 

[dub_nerd]

Is there an advantage/disadvantage in opening a Saxobank account through sam.ie rather than going direct?

Thx, M

I honestly don't know. I applied via SAM but every subsequent interaction was with SaxoBank. I liked the cut of Paul Sommerville's jib any time I ever saw him on the telly, but my only interaction with him was when I accidentally lodged my first deposit to Saxo's Sterling instead of Euro account. Got onto Paul but he just liaised with a Saxo person and copied me. I presume he got some sort of commission for getting an account opened through him, which I don't begrudge. But basically, as I said, have had no interaction with SAM at all in three years other than the initial account application, so I can't see how it makes much difference.

 

[monagt]

I honestly don't know. I applied via SAM but every subsequent interaction was with SaxoBank. I liked the cut of Paul Sommerville's jib any time I ever saw him on the telly, but my only interaction with him was when I accidentally lodged my first deposit to Saxo's Sterling instead of Euro account. Got onto Paul but he just liaised with a Saxo person and copied me. I presume he got some sort of commission for getting an account opened through him, which I don't begrudge. But basically, as I said, have had no interaction with SAM at all in three years other than the initial account application, so I can't see how it makes much difference.

Thx Dub.
I had hoped it was more a "hands on" approach.
I thought that he might have given you a year in his subscription service as a bonus or something.
SaxoBank then do the buys & sells?

 

[dub_nerd]

Thx Dub.
I had hoped it was more a "hands on" approach.
I thought that he might have given you a year in his subscription service as a bonus or something.
SaxoBank then do the buys & sells?

Actually, it's only now that you ask that I see the [broken link removed] talks about free advisory services for accounts above certain values. If that was the case he owes me a ton of free stuff. But I have no idea how that gels with what actually happened. I applied for an account on the sam.ie website, I got a mail back from saxomarkets.co.uk saying "Thank you for your application for an online trading account with Saxo Capital Markets UK Limited via your Introducing Broker Sommerville Advisory Markets", and looking for ID documents. After that point all my interaction was with Saxo, and I never heard from SAM again. It never occurred to me to wonder if I was supposed to be thrown in at the deep end like that. I've certainly been taught a few expensive lessons!

That said, I don't see how SAM could be earning commission on my trades or anything like that, so I'm at a loss as to what the relationship would/could have been. On reading Saxo's materials for Introducing Brokers, it says "Clients sign a Right of Inspection (ROI) authorising the IB to view the client’s trading account" ... but I never did anything like that.

Maybe I just slipped through the cracks and am supposed to be doing something completely different!

EDIT: yes, in answer to your last question. I use the SaxoTraderGO web platform for trades. I like it a lot, I have to say. I think you can sign up for a trial/demo version, though I never did that.

 

[Karina]

But I'd have to ask you: why would you look to a life company for a self-directed PRSA when you can go direct to a stockbroker for a self-directed PRSA? The stock exchange platform is the oldest, is far more flexible, and, in my view, more cost effective and more transparent than life company platforms, and you can access the stock exchange platforms direct rather than indirectly via an Irish-based life company.

Hi Rory,

Your point about the stock exchange platform is entirely why I want to go Self-Directed! I'd ignore the whole PRSA option altogether if we didn't need a product to wrap long term hold high dividend yield shares into without getting whacked with the higher tax rate. (Our Oz pension funds are in multiple index trackers such as Vanguard so access to ETFs aren't a requirement for me.)

The best stockbroker product I can find is the one Davy offer (transparent fees AND not excessive), although customer accounts are pooled. Standard Life are dearer, but they currently come under the UK FSCS (although Brexit might stuff that) and it's arguable if this pays for peace of mind regrading 'security of funds' should the company come under default.

If other stockbrokers offer alternatives, they hide it well. The list from the Irish Pensions Authority on what else is available under self-directed PRSAs is slim. Merrion's offer, for example, runs through Zurich. Other options I found are only available for a much higher initial value (>€100k investment) than my little starting pot, but PLEASE feel free to point me elsewhere because I also want to get trading more frivolously and it'd be handy to stick to one trading platform.

 

[Rory T Gillen]

Hi Rory,

but PLEASE feel free to point me elsewhere because I also want to get trading more frivolously and it'd be handy to stick to one trading platform.

I don't know all the offerings in the marketplace but, yes, Davy has an online PRSA offering, and costs are reasonable (0.9% per annum I think with no dealing charges). If you do use Davy Select, you can avail of Davy's Free 6-Month Trial to our own website/newsletter offering (GillenMarkets) - just ask someone in Davy Select at the appropriate time.

 

[Paul F]

Would a self-directed PRSA be a way to shelter dividends from investment trusts from income tax?

If so, would this sheltering apply regardless of how much you invested in the PRSA per year, or would it be limited to 20% of gross salary (for a person aged 30 to 39)?

 

[Rory T Gillen]

Would a self-directed PRSA be a way to shelter dividends from investment trusts from income tax?

If so, would this sheltering apply regardless of how much you invested in the PRSA per year, or would it be limited to 20% of gross salary (for a person aged 30 to 39)?

All pension accounts allow you to save tax free until you retire the pension into an ARF structure. Personal Retirement Savings Accounts (PRSAs) are such a vehicle. The amount you can contribute whilst getting tax relief on those contributions varies depending on your age (and one or two other issues). You can, however, put additional monies into your PRSA even though you may not get tax relief and avail of the non-tax of dividends and gains within such accounts. If you do take out a PRSA just ask your provider what you can and cannot do.

 

[Paul F]

Hi Rory,

Thanks for the reply. When you say:

You can, however, put additional monies into your PRSA even though you may not get tax relief and avail of the non-tax of dividends and gains within such accounts.

do you mean that you can avail of the non-tax of all dividends and gains, even if the contributions have gone above tax relief limits? (The wording is a little unclear.)

Also, does this tax sheltering mean that ETFs within a self-directed PRSA are not subject to the 8-year "deemed disposal" rule?

 

[Rory T Gillen]

Yes, but there are other complications and I'm not a tax adviser. For example, age and the pension threshold limit regulations (i.e. the maximum assets you can build up in a pension vehicle) are issues that need consideration and vary from one person to another.

If you take out a PRSA with a stockbroker they can provide the relevant tax advice or, money permitting, you can get tax advice on it from most accountants. As an intermediary, we (GillenMarkets) primarily use the Davy Select Intermediary Platform, which also affords us all the tax advice we need on individual client tax issues.

On EU-domiciled ETFs - which are subject to the ridiculous 8-year deemed disposal rule - yes; there is no tax on gains within a PRSA. So, you can hold ETFs or any other fund or stock in a PRSA without suffering tax on either dividend income or gains.

 

[Gordon Gekko]

You can "overcontribute" to a pension scheme. The relief just carries forward and you claim it in a subsequent year.

I'm half-thinking of doing it with a view to availing of the gross-roll-up nature of pension investment.