Sorry, my mistake saying income tax.
Wealth Management - How to Invest €6M - Where to Get Advice
- Thread starter Always Learning
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I hadn't understood that to be the case.
So if I'm unemployed or on the lowest income tax band at the time I sell then my ETF growth is taxable at that same rate?
Unless you hold ETFs which are subject to general tax principles in which case your income would be tax free and your gains subject to capital gains tax at 33%
ETFs go via deemed disposal, and the offshore fund rules. That includes their dividends too.
There is much confusion about if US ETFs still get CGT treatment after the update last too. I suspect we'll find out more later in the year or possibly next year as Revenue wouldn't single them out without some kind of plan.
Sorry, I was referring to US ETFs.
E*Trade won't even let me buy them as an EU citizen.
From the start of this year, there is no longer any assurance from Revenue that US ETFs are subject to general taxation principles.
Anybody that tells you otherwise is spoofing.
So how are they taxed now?
Your guess is as good as mine.
Some ETFs are subject to gross roll up and deemed distributions some are subject to general tax principles. All that changed in September of last year is that revenue removed it’s guidance that all non EU ETFs are general tax principles.
We are simply now back to the position which applied previously which is that each fund has to be assessed to determine the correct tax treatment. You simply can’t make generalisations.
Global Wealth Tax Guide 2022 v1.0
Tax Guide Incorporating Budget 2022 and Revenue E-Brief 164/21 ETFs
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Always Learning
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So what's the situation with the S&P500, are there ETF's in that which you could get away with not paying 41% on?Some ETFs are subject to gross roll up and deemed distributions some are subject to general tax principles. All that changed in September of last year is that revenue removed it’s guidance that all non EU ETFs are general tax principles.
We are simply now back to the position which applied previously which is that each fund has to be assessed to determine the correct tax treatment. You simply can’t make generalisations.
Global Wealth Tax Guide 2022 v1.0
Tax Guide Incorporating Budget 2022 and Revenue E-Brief 164/21 ETFsjoom.ag
Edited to Say: Okay, I've read that link you posted which pretty much sums it up. It's up to the individual, you could chance your arm on it and probably be fine... but you might not be! That's great leadership from the government. Leave us to decide then potentially screw us for our interpretation of it down the line.
Actually could someone clarify, is the S&P500 one large ETF or is it a group of companies from which certain company stocks are chosen to form a ETF?
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The S&P 500 is an index of the 500 largest companies in the USA created by Standard & Poors (S&p) so it’s not the “Stockmarket” it’s not even the US Stockmarket - there are about 5000 companies listed on the New York Stock exchange.
An exchange traded fund or ETF is just a product designed to track the movements of an index.
Your portfolio should be comprised of global index funds covering all markets both developed and emerging and real estate - cover all your bases so that you never miss out on the return!
An exchange traded fund or ETF is just a product designed to track the movements of an index.
Your portfolio should be comprised of global index funds covering all markets both developed and emerging and real estate - cover all your bases so that you never miss out on the return!
S&P 500 is a market index.
S&P 500 - Wikipedia
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Top S&P 500 ETF
iShares Core S&P 500, Vanguard S&P 500, and SPDR Portfolio S&P 500 are tied for lowest fees, while SPDR S&P 500 is the most liquid.
Always Learning
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I have, apologies if the questions seemed stupid but I'm a complete beginner and I'm probably using the wrong terminology in places. It would be more stupid not to ask at all!
I realise the S&P500 is the top 500 US companies and that an ETF tracks the performance. If I decide to invest in the S&P500 and give my fund manager or whatever the term is 1M to do so. Does that money get invested across all those 500 companies, or does he pick and chose say 100 companies within the S&P to invest in?
I realise I should be asking a professional these questions and I will when I sit down with one, but it's good to have a basic understanding developed before that also. I'm listening to some good podcasts to educate myself on the topic also and getting some really helpful posts from readers here.
What is considered a diversified portfolio, just say I put in a few million, would a diversified portfolio see me ending up with interests in 50 companies, 250? 1000?
Probably the latter or even fewer than 100. But it depends on how a specific individual decides to try to roll their own index tracking basket of shares.
Again, it depends. But there's probably a law of diminishing returns that limits the number of companies in the index tracking basket of shares.
You should probably look in more detail at existing S&P index tracking ETFs and how they do it. Note that the basket of shares will probably need to be adjusted periodically to track the index composition.
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Our clients typically hold 4 equity ETFs which give you around 10,000 companies in every country in the world.
Plus a few bond ETFS (we haven’t even got onto the fixed interest funds you need yet)
You mean each ETF, on average, holds shares in 2,500 companies? Isn't that a bit excessive and likely to lead to a lot of trading costs and other overheads when rebalancing the mix?
Correct on the ETF route.
From a documentation side of things since you should be dollar cost averaging in rather than lump summing in, it is a pain as you have to sell it from a tax pov every 8 years.
From a taxation pov it is poor as tax is 41pc every 8 years instead of 33pc for individual stocks.
From a cgt pov it is poor as lets say in 8 years time, it is actually worth less than it is today, then you cant offset the loss against other gains.
it is by far the safest,most streamlined and the easiest one to just invest and forget but you do pay a hefty price for this luxury.
For the mini etf, yes thats what i meant as well. I know its not ideal and having the s&p is better however you live in ireland and you have to live with what our government have given us. One point to note is that you pay cgt on the profits you make from selling. When you pick 50 stocks, there is no guarantee these stocks will be worth more in x years time. If you make a loss on one or some of your stocks, you offset that loss again the stocks you made a gain on.
EG. lets say you buy 10 stocks. each stock is 10k.
You hold all 10 stocks for 30 years.
5 of the stocks are now worth 20k.
1 stock worth 30k
1 stock worth 0
1 stock worth 10k.
2 stocks worth 5k.
You sell all of them in one year and im not accounting for transaction fees, currency fluctuations and cgt relief.
Total gross amount 150k
You will pay cgt @33pc on the 50k profit(150-100). In this example you would net 33.5 and have a total of 133.5k incl original capital.
So the reason i suspect people dont do this as individual stock picks are more risky than the s&p500. If you hold the s&p500 for 30 years. your odds are that it will be worth more than it is today. When you pick individual stocks, its completely based on what stocks you pick. EG, Apple, far out performed the s&p500 however if you look at IBM or vodafone, its a different story. The s&p500 is more convenient and you need to put in less overall work to just throw your money into the s&p500 vs individual stock picks. If you pick your stocks, you more than likely need to review it periodically at a minimum to assess the fundamentals of a company and if you like them for the future. Both have their pros and cons, so its up to you to make a call on it. You could always split it where you do some in s&p500 and some individual as well.
I suppose for me, i like the fact that i have control on when i pay taxes.
I enjoy personal finance myself and if i mess up, ownership is on me so I have always managed everything myself so i cant comment on wealth managers etc myself. I did try and one or two financial consultants or advisers(the term might be incorrect here) and i found all of them were the same where they were trying to sell me a product with clear bias along with putting me into one of the investment firms which have high costs, high exit fees and high taxes so i never went any further with them. Im sure Marc or Steven or a few others in the group might be more familiar with this process on what you are trying to achieve in this front.
From a documentation side of things since you should be dollar cost averaging in rather than lump summing in, it is a pain as you have to sell it from a tax pov every 8 years.
From a taxation pov it is poor as tax is 41pc every 8 years instead of 33pc for individual stocks.
From a cgt pov it is poor as lets say in 8 years time, it is actually worth less than it is today, then you cant offset the loss against other gains.
it is by far the safest,most streamlined and the easiest one to just invest and forget but you do pay a hefty price for this luxury.
For the mini etf, yes thats what i meant as well. I know its not ideal and having the s&p is better however you live in ireland and you have to live with what our government have given us. One point to note is that you pay cgt on the profits you make from selling. When you pick 50 stocks, there is no guarantee these stocks will be worth more in x years time. If you make a loss on one or some of your stocks, you offset that loss again the stocks you made a gain on.
EG. lets say you buy 10 stocks. each stock is 10k.
You hold all 10 stocks for 30 years.
5 of the stocks are now worth 20k.
1 stock worth 30k
1 stock worth 0
1 stock worth 10k.
2 stocks worth 5k.
You sell all of them in one year and im not accounting for transaction fees, currency fluctuations and cgt relief.
Total gross amount 150k
You will pay cgt @33pc on the 50k profit(150-100). In this example you would net 33.5 and have a total of 133.5k incl original capital.
So the reason i suspect people dont do this as individual stock picks are more risky than the s&p500. If you hold the s&p500 for 30 years. your odds are that it will be worth more than it is today. When you pick individual stocks, its completely based on what stocks you pick. EG, Apple, far out performed the s&p500 however if you look at IBM or vodafone, its a different story. The s&p500 is more convenient and you need to put in less overall work to just throw your money into the s&p500 vs individual stock picks. If you pick your stocks, you more than likely need to review it periodically at a minimum to assess the fundamentals of a company and if you like them for the future. Both have their pros and cons, so its up to you to make a call on it. You could always split it where you do some in s&p500 and some individual as well.
I suppose for me, i like the fact that i have control on when i pay taxes.
I enjoy personal finance myself and if i mess up, ownership is on me so I have always managed everything myself so i cant comment on wealth managers etc myself. I did try and one or two financial consultants or advisers(the term might be incorrect here) and i found all of them were the same where they were trying to sell me a product with clear bias along with putting me into one of the investment firms which have high costs, high exit fees and high taxes so i never went any further with them. Im sure Marc or Steven or a few others in the group might be more familiar with this process on what you are trying to achieve in this front.