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Can investment fees be deducted from investment income somehow?

Practical Issues
valueinvestor123
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Can investment fees be deducted from investment income somehow?

#280581

Postby valueinvestor123 » January 28th, 2020, 12:50 pm

Say person A has investment income of 100k per year. He pays someone 1% of capital to manage / look after it (say 20k). Can this be tax deducted as an expense from investment income? (effectively making it 80k).
If not, is there a way to structure the investments so that it can be done?
Thanks in advance!

Alaric
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Re: Can investment fees be deducted from investment income somehow?

#280585

Postby Alaric » January 28th, 2020, 1:01 pm

valueinvestor123 wrote:If not, is there a way to structure the investments so that it can be done?


If you hold your taxable assets in the form of OEICs or even ITs, you are taxed on the net distribution. Make sure they aren't taking charges and expenses from capital though.

valueinvestor123
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Re: Can investment fees be deducted from investment income somehow?

#280713

Postby valueinvestor123 » January 28th, 2020, 9:20 pm

The investments are held in shares/bonds. Then the commission is paid to the person that is managing the investments. Can this not be deducted on the return from investment income?

Alaric
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Re: Can investment fees be deducted from investment income somehow?

#280714

Postby Alaric » January 28th, 2020, 9:30 pm

valueinvestor123 wrote: Then the commission is paid to the person that is managing the investments. Can this not be deducted on the return from investment income?


I believe the answer to be no, for an individual anyway. Companies can do it.

PinkDalek
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Re: Can investment fees be deducted from investment income somehow?

#280715

Postby PinkDalek » January 28th, 2020, 9:41 pm

valueinvestor123 wrote:The investments are held in shares/bonds. Then the commission is paid to the person that is managing the investments. Can this not be deducted on the return from investment income?


Sadly not.

Here’s a randomly found discussion as a source:

https://www.accountingweb.co.uk/any-answers/deductible-expenses-from-investment-income

valueinvestor123
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Re: Can investment fees be deducted from investment income somehow?

#280776

Postby valueinvestor123 » January 29th, 2020, 9:18 am

Thanks. And there is no way to structure it in a way that can be more tax efficient and somehow get the deduction for the management fee or admin costs associated with running the account? (By keeping it in shares rather than selling and buying funds).

yorkshirelad1
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Re: Can investment fees be deducted from investment income somehow?

#280800

Postby yorkshirelad1 » January 29th, 2020, 10:18 am

valueinvestor123 wrote:Say person A has investment income of 100k per year. He pays someone 1% of capital to manage / look after it (say 20k). Can this be tax deducted as an expense from investment income? (effectively making it 80k).
If not, is there a way to structure the investments so that it can be done?
Thanks in advance!


I feel the same way. Years ago, when brokers introduced management fees (as well as commission on deals), my accountant would agree with deducting the management fees, but subsequently and quite a long time ago, he advised against doing it.

Dealing costs have always been deductible (on CGT).
If you consider a model where brokers charge a mixture of management fees (e.g. as a % of value of stocks held) and dealing fees (only chargeable on a deal), you can generally find brokers offering a mix of those to suit your taste/needs, ranging from all commission and no management fee all the way to all management fee and no dealing fee.
I suppose you could opt for all dealing fees (and no management fee) which would be offset against CGT where applicable (assuming you could find a broker willing to offer that rate), but it might be an incentive for the broker to churn.

valueinvestor123
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Re: Can investment fees be deducted from investment income somehow?

#281511

Postby valueinvestor123 » January 31st, 2020, 9:37 pm

I think I read somewhere that businesses can deduct this. Which is weird. Why distinguish between businesses and individuals I wonder.
I guess when it comes to taxes, using logic is futile...


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