what to include in costs?

[Breelander]

Staffordian makes a good point - if one does not includes all charges, then one is fooling onseself. And looking at the cost as a percentage of income withdrawn can be quite a shock, too!

I've always included stamp duty in the costs I report <Doris mode> though this year that's a big fat 'zero' </Doris mode>

[Arborbridge]

<Doris mode> though this year that's a big fat 'zero' </Doris mode>

Wot, no buys at all, Bree?

How can you resist the sweets on offer - or are you short of pocket money this year.
I found some down the back of a sofa when re-organising the furniture, metaphorically.

[Breelander]

<Doris mode> though this year that's a big fat 'zero' </Doris mode>

Wot, no buys at all, Bree?

For my HYP, no - despite the best efforts of Brexit and Trump to tempt me into tinkering.

How can you resist the sweets on offer - or are you short of pocket money this year.

Since 2012 I have run (completely independently of the HYP) a small Value Trading portfolio. That's where I scratch that particular itch

[Lootman]

And in principle, I would consider Income Tax on dividends and CGT on capital gains (and foreign equivalents where relevant) to be costs as well

I used to do that but stopped, for two reasons:

1) It's almost impossible to out-perform the market if you do that because the market's performance is quoted as if taxes don't exist. Outside of an ISA it is very difficult to come out ahead if you compare after-tax returns with a before-tax benchmark. Even within a SIPP you have to allow for the fact that you are only deferring taxes rather than avoiding them, but with the added complication of how you handle any tax benefits you received whilst contributing. Allowing for all that makes things messy.

2) Tax rates and treatments vary over time. Good examples are going from tax withholding to tax credits to the new dividend tax rates. And the reduction of CGT rates coupled with abolishing indexation for capital gains. So one cannot get an accurate and consistent guide to how one is doing historically if one uses after-tax numbers.

I have a large gain in my smallcaps portfolio and decide to mitigate that by tinkering to realise losses in my HYP. (Yes, I know the old saying about not letting the tax tail wag the investment dog - but as people are probably all too aware, often the investment decision about whether to sell a HYP share that is standing on a loss is finely balanced, and tax considerations can tip the balance one way or the other. I.e. when the investment dog is undecided whether to wag or not, it can give the tail the casting vote!)

Agreed. Even if one subscribes to a no-tinkering policy, it is surely allowable to "bed and ISA" a HYP holding in order to either take a tax loss if you need one or utilise your annual CGT-free allowance. The net effect of so doing is zero, aside from a couple of commissions, the bid-offer spread and stamp duty, if applicable.

Sometimes I do a straight swap - sell taxable losers and re-purchase them in my ISA. And sell some winners in my ISA and re-purchase them in my taxable account. So it's really not tinkering at all because I end up exactly where I started off, minus some frictional costs but plus some tax savings.

[grimer]

but do people include stamp duty too?

I certainly do -

I thought you didn't include stamp duty in your calculations?

http://lemonfool.co.uk/viewtopic.php?f=15&t=379#p3716

[Arborbridge]

I thought you didn't include stamp duty in your calculations?

Grimer,
You've quoted Genulphus out of context. I believe that case and the issue I have raised are different.

The first question was about minimum top up levels. Mine was about reporting the percentage of total charges to determine the cost of running a HYP as compared with other methods.

Arb.

[grimer]

My apologies. That wasn't my intention.

[Arborbridge]

Grimer: no problem

[Gengulphus]

but do people include stamp duty too?

I certainly do -

I thought you didn't include stamp duty in your calculations?
http://lemonfool.co.uk/viewtopic.php?f=15&t=379#p3716

Yes and no. Stamp duty is a cost there, but it's a cost that will be the same regardless of how I split up the money I'm going to invest, and so it doesn't affect the decision how to split it up. E.g. if I'm going to invest £6k over a period of time, I might make six purchases of £1k each, five of £1.2k each, four of £1.5k each, three of £2k each, two of £3k each or one of £6k. And the stamp duty paid will be six lots of £5, five lots of £6, four lots of £7.50, three lots of £10, two lots of £15, or one lot of £30 respectively, which in every case totals £30 of stamp duty to pay. Basically, paying £30 of stamp duty is unavoidable (*): in a HYP, you're going to pay 0.5% of the amount you invest regardless of your choice of minimum purchase size.

Contrast that with commission: at say £10 a trade, those various purchase options cost £60, £50, £40, £30, £20 and £10 respectively. With the expected annual income from the £6k invested being something of the order of £300, the difference between the cheapest and most expensive of those is about two months' worth of income. Not really major, but not totally insignificant either, and so it might affect one's decisions about purchase sizes in a HYP.

By the way, I do realise that many readers will have understood that from the exchange between grimer and Arb - this longer explanation is just for the benefit of any who haven't!

(*) For main-market UK shares - one can avoid it by being more 'adventurous'! But again, that is a different issue than the minimum purchase size...

Gengulphus

[MDS1951]

I do the same as Grimer and Raptor ie include stamp duty and commission in the purchase price when buying and take them out of the proceeds when selling. I don't record these costs separately.

MDS1951

[Lootman]

I do the same as Grimer and Raptor ie include stamp duty and commission in the purchase price when buying and take them out of the proceeds when selling. I don't record these costs separately.

For tax purposes that is what everyone has to do anyway.

I thought the point here is that some people prefer to also compute their returns in a second and different way as part of keeping track of their performance and for comparison purposes.

[Gengulphus]

I don't record these costs separately.

I do - partly just to satisfy my curiosity, but mainly as a typo-detection system. Basically, if you just input the number of shares and the total price paid (for a buy) or the net proceeds (for a sale) into a spreadsheet, the spreadsheet will 'believe' any figures you give it. If you also input the price per share and the total of the costs (commission, stamp duty if the trade is a buy, PTM levy if the trade is over £10k), then the spreadsheet can determine whether:

total price paid = (number of shares) * (price per share) + (total costs)

for a buy and:

net proceeds = (number of shares) * (price per share) - (total costs)

for a sale, and immediately alert you to the fact that there's a problem - which can be fixed much more quickly if you're alerted to it at once and don't have to go back later, dig out the contract note again, etc.

Basically, it ends up costing a small amount of extra work on each trade entered - and every now and then it saves a lot of work trying to work out why one's records aren't consistent with one's broker account. Whether that's a net cost or saving I don't know - probably depends how typo-prone one is! - but my impression is that at least for me, there probably isn't much in it. But it does give increased confidence that the final figures are correct, which is especially useful if they're going to be used for a tax return, and it does have the side-benefit that I can easily satisfy my curiosity about things such as how cost-effective my HYP investing is.

Gengulphus

[monabri]

I would think you should include all costs and itemise everything in a spreadsheet just in case the beloved taxman wants a shufty! The returns on an investment should be balanced against its cost I would suggest.

[Gengulphus]

I would think you should include all costs and itemise everything in a spreadsheet just in case the beloved taxman wants a shufty! The returns on an investment should be balanced against its cost I would suggest.

I would keep all contract notes, etc, as supplied by the broker(s) for that purpose. A spreadsheet cannot really include every last detail from the contract notes, so don't try! Just include the details you want to refer to yourself, a few extra details to allow the spreadsheet to do consistency checks to catch typos (optional, but I strongly recommend it), and something to make it easy to look up the original contract notes. For that last, I include whether it's a paper contract note (by now, only for quite old ones!) or an electronic one to tell me whether to look for it in my filing cabinet or on my computer, plus which broker account it is and the broker's contract reference.

I.e. as far as the taxman is concerned, my aim for the spreadsheet is that it should be a summary and an index, rather than everything he might ask for. I do in fact itemise costs on my spreadsheet, but that's to satisfy my own curiosity about how they break down between stamp duty, commission and PTM levy - if I weren't curious about that, I would happily just record their total on the spreadsheet.

Gengulphus