Tax Effective Regular Investing for DIY

topper_harley2

I asked this on AAM, cross posting here as I was in discussion with FURET about DIY investing recently. ....

Whilst this has been asked before (I have read so many boards and AAM threads at this stage....), I would again like to discuss investing smaller amounts on a regular basis. By small I mean circumstances 1 or 2 grand per month.

What are the requirements?

A wish list would be (not all concurrently, as some are mutuallying exclusive):
Low cost trading fees
Low TER of funds
Transparent fees, if relevant
Simple tax treatment, now and down the line
Sheltered from tax, now and down the line by accumulating fund as opposed to dividend payment
CGT as opposed to exit tax
Loss offsetting

What are the options?

From what I have read over last few weeks:
UCITS ETFs
EEA/OECD ETFs
US ETFs
Various funds from Quinn, Friends First etc.
Rabo funds
I am currently looking to see how I can develop a long term regular investing strategy. Each corner I turn, there is another issue. None of above seem to be fully satisfactory.

e.g. UCITS ETFs sound great until you realise the have to be reported to revenue every eight years, so if you invest once a month then you'll have have a taxable event every single month from year eight onwards, which is surely a pain. Not to mention if you invest in more than one.

Life funds are so opaque with charges, they would be rules out. Also even with seemingly small AMC of 1-2% over time this really really adds up.

Rabo funds seem decent but they charge .75% entry/exit plus the AMC plus any hidden charges and after that you have the issue of tax, same as UCITS ETF.

I just want to invest 1.5k per month, preferably DIY, so not in managed fund. Id like it so that it can accumulate tax free (aka gross roll up I believe) and be somehow tax efficient so I don't have a mess on my hands in eight years.

Can anyone help?! At this point Im veering towards buying (each month) three vanguard ETFs that are accumulating and worry about tax in eight years. Is this setting myself up for a serious headache down the line?

Thanks

alb

I'm not a financial professional but I've been researching this for the last year too, I've probably been reading the same threads as you here and on AAM. In the end I just decided to gradually buy a range of individual stocks over time, hopefully it's diverse enough. I'm using keytrade bank as my online brokerage account which has no on-going fees so I just pay a flat fee per trade, and gains will just be subject to CGT (and income tax for dividends)

Just recently I was considering that buying BRK-B might be a nice way to get exposure to a lot of companies while still being liable only for CGT tax treatment (no dividends!) and avoiding the 8 year hassle. I presume BRK-B is treated just like any other equity and not as a fund, can anyone confirm? Anyone have an opinion on this?

Frogdog

The eternal question around here/in Ireland. I'd be interested in finding out the best option also. It seems like there's plenty of demand for this in Ireland.

Prezatch

topper_harley2 wrote: »

e.g. UCITS ETFs sound great until you realise the have to be reported to revenue every eight years, so if you invest once a month then you'll have have a taxable event every single month from year eight onwards, which is surely a pain.

I don't understand the point about a taxable event every single month from year 8 onwards. At year eight there is a deemed disposal - you pay tax on any gain accumulated in those 8 years (assuming you have not made any disposals during the term). Then there is another deemed disposal another 8 years later (again assuming you don't physically dispose of anything in the 16 year term).

When you do eventually make an actual disposal, calculate your tax less whatever you've already paid over.

Yes you need to keep record of all purchases of ETF stock and calculate tax, perhaps using FIFO. But the same record keeping applies to simply buying equities also.

topper_harley2

Again this is part of the confusion. I was under the impression that the eight year rule applied to each actual purchase.

From Availability of Index tracking funds in Ireland?

It's also extremely complicated in terms of keeping tax records if you are investing small amounts regularly, as the OP proposes, because you will end up with multiple "slices" of the same underlying ETF, each of which has its own tax base, it's own 8-year term etc. Same is true of the insurance policy basket, but at least the insurer's systems are doing the calculating for you.

e.g. assuming monthly investing. So, if I bought an chunk of some ETF today, I would be liable for a deemed disposal on 20th May 2023, for that chunk. If I buy another chunk next month, I'd be liable for another deemed disposal on 20th June 2023 etc, for each chunk that I buy from now on.

This is my understanding anyway. Please somebody correct me if I'm wrong.

Prezatch

Ah yes I see your point. Probably best to actually dispose of everything after 8 years so.... or hope that the Revenue change some of the ridiculous rules & tax rates around ETFs between now and 2023

topper_harley2

alb wrote: »

I'm using keytrade bank as my online brokerage
account which has no on-going fees so I just pay a flat fee per trade, and gains will just be subject to CGT (and income tax for dividends)

How do you find Keytrade for fees, fund selection etc.? Im thinking of them or TDWaterhouse, as both has fixed flat fees for trades.

slyph

topper_harley2 wrote: »

How do you find Keytrade for fees, fund selection etc.? Im thinking of them or TDWaterhouse, as both has fixed flat fees for trades.

Sounds like you are close to decision..... what way are you thinking of going ?

I'm im a very similar position to yourself - still unsure of the best way forward

alb

topper_harley2 wrote: »

How do you find Keytrade for fees, fund selection etc.? Im thinking of them or TDWaterhouse, as both has fixed flat fees for trades.

The fees vary by exchange, you can see a list here. Couldn't quickly find a list of funds there but you'll probably find it somewhere

I've never used any other broker so I can't compare, but I've not yet had any problems with keytrade.

topper_harley2

I got the following reply from Revenue regarding the eight year rule, it might clear up a few things for people:

I refer to your queries below.


1. If you acquire an interest in an Irish domiciled ETF you do not need to notify Revenue. However, for any year in which you acquire an interest in an EU domiciled ETF then you must notify Revenue of same (via (h) – (j) of line 319 (Offshore Funds) of Form 11).

If you acquire new units each month, you will have a deemed disposal in respect of each acquisition in 8 years time, unless, of course, you sell the units before you’ve held them for 8 years. If you receive a payment (e.g. an annual distribution) from either an Irish or EU domiciled ETF, you must return the details of same on Form 11.

You do not need to complete a Form 11 on each occasion that you receive a payment or have a deemed disposal, rather you will total all payments and/or all gains for the year of assessment and enter the relevant details at (a) – (f) of line 319 of Form 11 and submit the return and payment in the October following the year of assessment. See page 1 of Form 11 for further details in relation to filing/payment dates.

If, say, you commence purchasing ETFs on a monthly basis in June 2015, by the end of 2015 you will have 7 different ETFs. If you hold these investments for 8 years, you will return the total of the deemed disposals of the 7 ETFs on the various dates in 2023 in you tax return in 2024. And so on for subsequent purchases.


2. Because US ETFs are not regarded as having structures and regulation that are similar in all material respects to Irish ETFs, they are taxed as share investments generally. Income payments i.e. annual distributions/dividends will be subject to income tax at the standard or higher rate as appropriate, and gains on disposals will be subject to capital gains tax. The deemed disposal provisions apply to gross roll-up funds only. However, PRSI and USC will apply.

I hope the above helps clarify the issue.

slyph

Hmmm, based on that, I think I will probably go with a bulk buy of different ETFs for various indexes and bonds and top them up each month. I will probably use Interactive Brokers for this.

Thanks for posting the revenue response.