Lootman wrote:Some of these royalty trusts are structured as limited partnerships. You might not know that just looking at a listing or even buying one, as they look just like normal stocks. But then once a year you get a K-1 tax document, and that is a bear to interpret, at least in a taxable account. And their strange tax structure could mean that they cannot be bought in an ISA or SIPP (I have not tried so do not know for sure).
Royalty trusts are by their nature depleting assets. You just hope that the cash dividends over the life of the resource will more than compensate for the fact that eventually the share price will be zero! You could view them as annuities although, in the short-term, they can rise in price significantly if the underlying resource price inflates.
Oops. I forgot to mention the tax pitfall regarding limited partnerships. Dividends are treated as earned income from a partnership and you have to submit an American tax return on these earnings. Avoid at all costs. This also applies to ISAs as America's IRS ignores these when it comes to LLPs..
My Brookfield Asset Management shares (Canadian but I have the NYSE listed shares) are in an ISA. Periodically Brookfield used to spinoff companies as LLPs and I would have to sell them at the first opportunity to avoid the tax return. I know someone who got caught with dividends from an American LLP (and a closed end fund where unlike our investment trusts you get taxed on realised gains retained within the fund) - he ended up paying quite a bit for an accountant to sort out an American tax return for that year.