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Question on ETFs

  • 07-02-2021 11:03am
    #1
    Registered Users Posts: 57 ✭✭ Cameron326


    Hi there,

    I’m just looking into investing on ETFs on Degiro. Just wondered if anyone could help clarify a couple of points.

    1) Is it right that exit tax on ETFs (or at least those available to buy through an online broker in Ireland) is 41%. Meanwhile US stocks are just taxed at 33%?

    2) I’ve seen some people say there is exit tax AND tax on income. By this “tax on income” are people just referent to tax on any dividends paid out in any given year? It doesn’t mean actual income tax does it? (Sorry if a stupid question!). IE if in ten years I closed my account and drew out 100k of which 50k was profit, I would just be taxed 41% of 50k right? Not 41% of 50k AND then taxed again on that money hitting my bank via income tax (IE, 100k - 20,500 CG tax).

    3) Unless I sell my ETFs after 8 years, I will have to start giving Revenue a big chunk of cash every year - IE in any gains I’ve made up to that point in time.

    Thanks in advance!


Comments

  • Registered Users Posts: 57 ✭✭ Cameron326


    Also I’m looking at two versions of the IShares Core S&P500 ETFs.
    Would I be right in thinking that the SXR8 (Frankfurt traded in Euros) is better than the CSPX (London’s traded in dollars).

    I know they’re identical ETFs, but I think Degiro has higher fees for London traded stocks, hence preference for SXR8. But would it be risky using Euro currency on US stock given currency fluctuations? Thanks!


  • Registered Users Posts: 1,113 ✭✭✭ redlead


    Cameron326 wrote: »
    Also I’m looking at two versions of the IShares Core S&P500 ETFs.
    Would I be right in thinking that the SXR8 (Frankfurt traded in Euros) is better than the CSPX (London’s traded in dollars).

    I know they’re identical ETFs, but I think Degiro has higher fees for London traded stocks, hence preference for SXR8. But would it be risky using Euro currency on US stock given currency fluctuations? Thanks!

    If you want to avoid currency risk then go for a hedged euro one. This means that the fund books forward ccy trades to effectively offset any fx gain or loss every month. The fees are a little higher but worth it for me. IE00B3ZW0K18 is an example of one on Degiro. This is also accumulating fund instead of a distributing one which means dividends get reinvested for you.

    In terms of the USD versus Eur unhedged one, I'm not really sure but imagine you could get stung with FX transaction feed everytime you trade the USD one. These would be included within the cost of the EUR one.

    Regarding tax, as I understand it if you have a 50k unrealised gain after 8 years, you must pay 41 percent of that 50k to revenue. Why this is the income tax rate and not CGT I don't know. It also means you can't use your 1300 annual CGT exemption and you also can't offset losses. The price you artificially realised at after 8 years becomes your new cost price then. I'd imagine this can get tricky to track over the long term and especially if you have monthly investments and want to dollar cost average which I do. I'm only learning this myself over over last couple of weeks so by no means an expert. Overall the Irish taxation policy is extremely anti ETF.


  • Registered Users Posts: 57 ✭✭ Cameron326


    @redlead
    Thanks a mill, especially for the info about hedged ETFs. I didn’t know anything about that.

    One last question not sure if you might know - do you know if Degiro withholds any tax due on dividend payouts on our behalf? I’ve heard conflicting things about this, some people saying you have to file dividend payouts yourself every year, but a couple of others saying it’s done automatically on your behalf (hence one reason why they ask for your PPSN on signing up).

    I’m going to avoid dividends going forwards but unfortunately I’ve got a €2(!) payout coming my way and I hope I don’t have to spend hours researching how to file just for that!


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