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Investment funds

  • 04-09-2019 2:34pm
    #1
    Registered Users Posts: 5,440 ✭✭✭ daheff


    So, I possibly know what people are going to tell me
    DeGiro ETFS
    , but i thought I'd ask anyways.


    I was talking with a bank the other day about investment funds that I could drip feed in childrens allowances. They told me that the funds they have charge a 1% govt levy on all subscriptions. Now I've no desire to pay 1% in upfront fees and then additional mgmt charges on top of that (1.4% i think was mentioned).


    So can people please recommend the best investment funds to have for regular transactions?


Comments

  • Registered Users Posts: 3,054 ✭✭✭ Static M.e.


    Right, I'm a long way from an expert but here is my 2cents since no one else is jumping in.

    Get setup on Degiro and transfer the children’s allowance directly in every month. Then I would use the Degiro free efts list and just buy one of two shares (~€75 each) every month of the exact same eft constantly for the next 10 years.

    Although I'm not sure if it is on the current free eft list, as it is quite new, I would look out for the Accumulating* version of the Vanguard FTSE All-World UCITS ETF, whose ticker is VWCE - which is the Euro version of the fund. There is also VWRP - which is same one in British Pounds and VWRA which is again the same on in US Dollars.

    This fund has a Distributing* version too which has a ticker of VWRD (USD) or VWRL (GBP, EURO and CHF). The only reason I mention it and the tickers is that you come across them a lot when you read up on the ETF so it is helpful to know that they are all talking about the same EFT, more or less.

    * An Accumulating keep the dividends constantly reinvested in the fund. The Distributing version gives out Dividends. In general, Distributing seems to be better but in Ireland you get screwed on taxes to the Acc version works better in the long run.

    As a side note, as the funds come in my many different currencies you may be wondering which one is best. From what I've read, it doesn’t really matter which one you pick but investing in your own currency, Euro, seems to be the best overall strategy for beginners.


  • Registered Users Posts: 320 ✭✭ mike_cork


    Right, I'm a long way from an expert but here is my 2cents since no one else is jumping in.

    Get setup on Degiro and transfer the children’s allowance directly in every month. Then I would use the Degiro free efts list and just buy one of two shares (~€75 each) every month of the exact same eft constantly for the next 10 years.

    Although I'm not sure if it is on the current free eft list, as it is quite new, I would look out for the Accumulating* version of the Vanguard FTSE All-World UCITS ETF, whose ticker is VWCE - which is the Euro version of the fund. There is also VWRP - which is same one in British Pounds and VWRA which is again the same on in US Dollars.

    This fund has a Distributing* version too which has a ticker of VWRD (USD) or VWRL (GBP, EURO and CHF). The only reason I mention it and the tickers is that you come across them a lot when you read up on the ETF so it is helpful to know that they are all talking about the same EFT, more or less.

    * An Accumulating keep the dividends constantly reinvested in the fund. The Distributing version gives out Dividends. In general, Distributing seems to be better but in Ireland you get screwed on taxes to the Acc version works better in the long run.

    As a side note, as the funds come in my many different currencies you may be wondering which one is best. From what I've read, it doesn’t really matter which one you pick but investing in your own currency, Euro, seems to be the best overall strategy for beginners.
    I was just reading the Degiro notes on their commission free ETFs...and it does say you need to invest 1K per to avail of commission free ETFs?
    https://www.degiro.ie/data/pdf/ie/commission-free-etfs-list.pdf


  • Registered Users Posts: 3,054 ✭✭✭ Static M.e.


    Hi Mike,

    Thank you, I'll look into more. I was taking the following...

    "Every calendar month, the first trade executed in an ETF of the "Free ETF Selection" is free of charge regardless of size and direction as long as it does not lead to a short position"

    ...to mean that the first trade was free, even it was less than 1000, and thereafter each subsequent trade, that month, needed to be above 1000 euro and going in the same direction (buy\sell).


  • Registered Users Posts: 320 ✭✭ mike_cork


    Hi Mike,

    Thank you, I'll look into more. I was taking the following...

    "Every calendar month, the first trade executed in an ETF of the "Free ETF Selection" is free of charge regardless of size and direction as long as it does not lead to a short position"

    ...to mean that the first trade was free, even it was less than 1000, and thereafter each subsequent trade, that month, needed to be above 1000 euro and going in the same direction (buy\sell).

    My apologies I think you might be right :o. I only saw "The following trades
    made in that same instrument during the same calendar month will also be free as long as the order value is greater than 1000 EUR (or USD)" but i can now see the bit about the first trade being free


  • Registered Users Posts: 5,440 ✭✭✭ daheff


    thanks.


    are these funds taxed @ higher rate on profits or is it @cgt rates (33%)


    Also does anybody else know how this works if you are doing it for kids, seeing as the kids can't "technically" own shares with DeGiro (or any other broker - capacity to enter financial transaction etc)?


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  • Registered Users Posts: 320 ✭✭ mike_cork


    daheff wrote: »
    thanks.


    are these funds taxed @ higher rate on profits or is it @cgt rates (33%)


    Also does anybody else know how this works if you are doing it for kids, seeing as the kids can't "technically" own shares with DeGiro (or any other broker - capacity to enter financial transaction etc)?

    My understanding is: Dividends are taxed as income while gains are taxed at CGT


  • Registered Users Posts: 537 topper_harley2


    Above tax advice is incorrect. Please read the publicly available documentation before offering potentially misleading advice. VWCE, VWRP and VWRA are all Ireland domiciled UCITS funds and hence subject to exit tax at 41 percent AND gross roll up/deemed disposal after 8 years and not CGT at all. Investing your children's allowance monthly in this fund for 10 years will give you a tax headache bigger than you can imagine. Don't invest in ETFs until you know their tax implications.


  • Registered Users Posts: 3,054 ✭✭✭ Static M.e.


    Investing your children's allowance monthly in this fund for 10 years will give you a tax headache bigger than you can imagine. Don't invest in ETFs until you know their tax implications.

    Hi topper_harley2,

    Thank you for jumping in. Can you tell me if the following is correct and if not where I am going astray. My understanding was that if the fund was accumulating and you were purchasing shares with a value of 1200 a month for 10 years, then at the end of the 8th Year you would pay your deemed disposal of the value of that fund to you, and then in 8 years again (and so on) if you hold the funds.

    Deemed disposal (8 year period) provisions In the case of ETFs in paragraphs 2 and 3 that come within the investment funds tax provisions, it should also be noted that a taxable event is deemed to take place on the ending of the 8 year period beginning with the date of investment in the ETF, and on every subsequent 8 year period. This is known as the “Deemed Disposal" and it applies to all investments that come within the special tax regime for investment funds, including ETFs. The effect of this provision is that the investor is obliged to account for tax on the same basis as would apply if the investment had been disposed of by the investor on that deemed disposal date. Whenever an actual disposal of an investment subsequently occurs, a tax credit is given for the tax paid on the deemed disposal event.

    Unless..what they mean in is every single time you invest in the fund then you start an 8 year clock ticking on that purchase..which would mean that you could have 12 deemed disposal clocks ticking every year for 10 years (+)...

    Can you claify what the nightmare would be? I would love to get an understanding of how it works in practice. I haven't read anything that points out how it works in practice.


  • Registered Users Posts: 5,440 ✭✭✭ daheff


    Above tax advice is incorrect. Please read the publicly available documentation before offering potentially misleading advice. VWCE, VWRP and VWRA are all Ireland domiciled UCITS funds and hence subject to exit tax at 41 percent AND gross roll up/deemed disposal after 8 years and not CGT at all. Investing your children's allowance monthly in this fund for 10 years will give you a tax headache bigger than you can imagine. Don't invest in ETFs until you know their tax implications.

    thanks. I understand ETF tax implications & deemed disposal headaches etc.

    What I don't understand is if the tax burden then falls on me or on the child, and if the child, does the child get a similar taxable allowance as I do (or any)?


  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows



    Unless..what they mean in is every single time you invest in the fund then you start an 8 year clock ticking on that purchase..which would mean that you could have 12 deemed disposal clocks ticking every year for 10 years (+)...

    That's exactly it. Every payment is a separate investment with a separate 8 year clock


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  • Registered Users Posts: 537 topper_harley2


    Yes exactly as @brokenarrows says. You end up with 12*8=96 separate tax clocks, one for every monthly buy in the 8 years. Good luck with that!


  • Registered Users Posts: 537 topper_harley2


    daheff wrote: »
    Above tax advice is incorrect. Please read the publicly available documentation before offering potentially misleading advice. VWCE, VWRP and VWRA are all Ireland domiciled UCITS funds and hence subject to exit tax at 41 percent AND gross roll up/deemed disposal after 8 years and not CGT at all. Investing your children's allowance monthly in this fund for 10 years will give you a tax headache bigger than you can imagine. Don't invest in ETFs until you know their tax implications.

    thanks. I understand ETF tax implications & deemed disposal headaches etc.

    What I don't understand is if the tax burden then falls on me or on the child, and if the child, does the child get a similar taxable allowance as I do (or any)?
    AFAIK you can't open an investment account for a minor, so tax burden would be yours if you're buying them. Open to correction though.

    In also not sure what you mean by " tax allowance" in relation to this as UCIT funds are a post tax investment vehicle ubject to exit tax and not CGT. Hence the E1200 CGT annual allowance is not relevant here (if that's what you're alluding to)


  • Registered Users Posts: 3,054 ✭✭✭ Static M.e.


    Yes exactly as @brokenarrows says. You end up with 12*8=96 separate tax clocks, one for every monthly buy in the 8 years. Good luck with that!

    Thank you both. I need to reevaluate that option now, it just seems crazy for regular people to start investing with ETFs and yet investing in riskier single stocks is looked at more favorably.

    Surely, people trying to save money is a good thing when we are being told at the same time we have a massive pension deficit and to by a house we need to have said 10's of thousands before we can even approach a bank.


  • Registered Users Posts: 5,440 ✭✭✭ daheff


    AFAIK you can't open an investment account for a minor, so tax burden would be yours if you're buying them. Open to correction though.

    In also not sure what you mean by " tax allowance" in relation to this as UCIT funds are a post tax investment vehicle ubject to exit tax and not CGT. Hence the E1200 CGT annual allowance is not relevant here (if that's what you're alluding to)


    ok. thanks.

    I was alluding to your annuall PAYE/PRSI income allowances. As I understand it, these UCITS are taxed like income so I was wondering if kids annual tax allowances could be offset vs the taxable amount


  • Registered Users Posts: 5,440 ✭✭✭ daheff


    Yes exactly as @brokenarrows says. You end up with 12*8=96 separate tax clocks, one for every monthly buy in the 8 years. Good luck with that!


    This isnt a major issue though? Track investments on a spreadsheet and group together those that hit up in the same tax year. Then make one tax payment as needed.


  • Closed Accounts Posts: 54 ✭✭✭ MarioLuigi


    Something to consider: investing in your own name (as a minor can't own shares or investments) will lead to capital gains tax on the gain you made over x years and capital acquisitions tax on the then value of the investment when you transfers the investments to your children. Current tax free threshold is €320k per child however you may want to keep this to gift your house or other assets etc.

    If you were for example to set up a trust in your child's name and invest through this you can avail of the small gifts exemption to reduce capital acquisitions tax. There are a number of things to consider with this, the fact that in the case of a bare trust you will never be able to reclaim the investments in your own name or undo the trust etc, and that your child will be legally free to cash in everything once they turn 18 and blow it all. That being said you can transfer €3k per year per parent, so over 18 years potentially transferring €108,000 tax free (saving around €35,640 in tax), and the CGT will be payable by the trust at time of selling investments.

    Another idea would be to save the children's allowance for a year and invest through the trust in yearly tranches to save some future computation headaches.


  • Registered Users Posts: 537 topper_harley2


    To be clear, No they are not taxed like income, they are exit tax, two completely separate things.


  • Registered Users Posts: 537 topper_harley2


    Having a spreadsheet is doable but still far too much hassle IMO. You'd need to store purchase price, date of each ETF, assuming you're buying more than one. Then in year on the date of each buy anniversary you need to get the current price and calculate profit/loss of each buy.

    Another crucial point of that is that you can't offset buys that made losses against those that made gains. Ones that made a loss is treated as "no gain". Hence you could you end up paying tax despite actually made a net loss on all your buys!

    For example buy one makes loss of 100 while buy 2 makes a 100 profit. No tax due right? Wrong. -100 is treated as no gain and basically ignored and you still 41 is still due in tax on the 100 profit, madness!
    Buyer be very aware of UCIT funds.


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