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III VWRL divi paid in $ - better to convert to £ or not?

Index tracking funds and ETFs
Rajput1962
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III VWRL divi paid in $ - better to convert to £ or not?

#449911

Postby Rajput1962 » October 13th, 2021, 6:51 pm

I noted for the first time that my VWRL divi in my III non-ISA trading account was credited to my account in $US. I tried to reinvest it (a couple of weeks ago) only to see a message that there were insufficient funds in £GBPs. I did the online conversion to £GBP and then carried on as normal.

BUT, i have been wondering ever since whether i should have bought the VWRL version priced in $US and therefore have avoided the few £s i lost in the conversion from $US to £GBP?

Are buyers/sellers penalised both on the way in and out with VWRL -GBP? I am making the assumption that what i'm buying is actually a US fund but offered to us in £GBP (as well as a few other currencies), and therefore there is a currency conversion going on where we can lose abit because that's the market maker's margin.

If any of the above is true, then in the future it would make sense to buy the $US version of VWRL and only pay one lot of currency conversion when selling and converting to £GBP - assuming III continue to pay the divi in £US. :?

Alaric
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Re: III VWRL divi paid in $ - better to convert to £ or not?

#449915

Postby Alaric » October 13th, 2021, 7:10 pm

Rajput1962 wrote:Are buyers/sellers penalised both on the way in and out with VWRL -GBP? I am making the assumption that what i'm buying is actually a US fund but offered to us in £GBP (as well as a few other currencies), and therefore there is a currency conversion going on where we can lose abit because that's the market maker's margin.


It's actually an Irish fund like most ETFs quoted in London. Buying and selling prices are quoted in sterling, but dividends are expressed in US dollars. If it's held in an ISA, Brokers automatically convert these to sterling, I'd imagine they can do the same outside of an ISA if you don't want dollars as cash.

It's tracking a sterling expressed index, but pass on how the index construction deals with exchange rate issues.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#449918

Postby scrumpyjack » October 13th, 2021, 7:18 pm

When you buy VWRL on the LSE there is no currency conversion, it is quoted in GBP and you buy in GBP. Most of the time there will be sellers as well who similarly are trading in GBP.

There will be a cost to the dividend conversion and firms like HL make a very large profit on those conversions. You could go for VWRP instead, which is the same but is accumulating so there is no currency conversion, the dividends are in effect automatically reinvested.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#449935

Postby monabri » October 13th, 2021, 8:00 pm

scrumpyjack wrote:When you buy VWRL on the LSE there is no currency conversion, it is quoted in GBP and you buy in GBP. Most of the time there will be sellers as well who similarly are trading in GBP.

There will be a cost to the dividend conversion and firms like HL make a very large profit on those conversions. You could go for VWRP instead, which is the same but is accumulating so there is no currency conversion, the dividends are in effect automatically reinvested.


I think that's a good tip!

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#449949

Postby swill453 » October 13th, 2021, 8:34 pm

monabri wrote:
scrumpyjack wrote:There will be a cost to the dividend conversion and firms like HL make a very large profit on those conversions. You could go for VWRP instead, which is the same but is accumulating so there is no currency conversion, the dividends are in effect automatically reinvested.

I think that's a good tip!

But whatever you do, don't buy the accumulation version in a non-tax-sheltered account. Having to account for the dividends for income tax as they accumulate, potentially in a foreign currency to boot, would be a bit of a nightmare.

Scott.

EthicsGradient
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Re: III VWRL divi paid in $ - better to convert to £ or not?

#449986

Postby EthicsGradient » October 13th, 2021, 11:01 pm

swill453 wrote:
monabri wrote:
scrumpyjack wrote:There will be a cost to the dividend conversion and firms like HL make a very large profit on those conversions. You could go for VWRP instead, which is the same but is accumulating so there is no currency conversion, the dividends are in effect automatically reinvested.

I think that's a good tip!

But whatever you do, don't buy the accumulation version in a non-tax-sheltered account. Having to account for the dividends for income tax as they accumulate, potentially in a foreign currency to boot, would be a bit of a nightmare.

Scott.

No worse than having to account for both dividends and excess reportable income in a distributing Vanguard ETF. Some distributing Vanguard ETFs still have non-zero ERI, which Vanguard publishes, and you should pay income tax on. And often in a foreign currency. Accounting for a large ERI is no more hassle than for a small one.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450000

Postby Alaric » October 14th, 2021, 1:04 am

EthicsGradient wrote:No worse than having to account for both dividends and excess reportable income in a distributing Vanguard ETF.


Brokers etc. have a statutory duty to report potentially taxable dividends, so It's only a matter of agreeing and quoting from the document you receive every year. No such requirement exists with excess reportable income. Taxpayers are left to their own devices to even establish that ERI is an issue and what it is.

Vanguard are amongst the better ones at making the information relatively simple to establish.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450048

Postby 1nvest » October 14th, 2021, 10:34 am

Rajput1962 wrote:I noted for the first time that my VWRL divi in my III non-ISA trading account was credited to my account in $US. I tried to reinvest it (a couple of weeks ago) only to see a message that there were insufficient funds in £GBPs. I did the online conversion to £GBP and then carried on as normal.

BUT, i have been wondering ever since whether i should have bought the VWRL version priced in $US and therefore have avoided the few £s i lost in the conversion from $US to £GBP?

Are buyers/sellers penalised both on the way in and out with VWRL -GBP? I am making the assumption that what i'm buying is actually a US fund but offered to us in £GBP (as well as a few other currencies), and therefore there is a currency conversion going on where we can lose abit because that's the market maker's margin.

If any of the above is true, then in the future it would make sense to buy the $US version of VWRL and only pay one lot of currency conversion when selling and converting to £GBP - assuming III continue to pay the divi in £US. :?

A factor to consider is that the US is increasingly aggressive in regard to capturing 'tax avoidance/evasion'. With the US being around half of global stock weighting that induces a non trivial risk and their standard policy is to assume the worst case (best case for them) when there is 'doubt'.

Uncle Sam (their taxman) doesn't like funds or offshoring type 'avoidance' practices and have added 'look-through' type rules/regulations on the pathway to closing such 'loop-holes' down. Over time that looks set to only become even more intense. i.e. if the ultimate beneficiary is deemed to be a individual then even if held via a fund the look-through might consider that tax/avoidance benefits seemingly by holding the fund might not actually be the case.

I can foresee a future where the likes of ETF's/funds are much more aggressively pursued by the US. As a for-instance possible case they might pursue Irish based ETF's such as VWRL for estate tax purposes, where if not declared to the IRS within 9 months penalties are also added. US estate tax for non-US investors kicks in at $60,000 and the tax rate scales up to 40% amounts. Joint account 'loop-holes' also have legislation to reduce/eliminate 'avoidance'. If it is deemed that a Irish based ETF was just another offshore method to 'avoid' taxation and that the shares the fund held should have look-through rules applied, then disclosure failures could lead to a nasty US tax liability falling due, along with considerable fines/penalties for individuals having failed to disclose/declare. And the amount becomes subject to the entire estate value amount, not just the US stock/shares values. Whilst the UK/US estate tax treaty enables UK residents to enjoy the same exemption allowances, something like $11 million estate value with no tax falling due, it does have to be declared and have the tax treaty arrangement specified within the 9 month period, failing that the situation reverts to the 'worst case' default.

Basically, sooner or later I can see a situation where investors flight out of the likes of Irish based funds/ETF's and back into single stock holdings, bought directly from the US rather than through a 'offshore' holding such as Irish ETF's. Holding ETF's within ISA will at least mean that there isn't a enforced UK capital gain tax liability in having to sell ETF's to buy stocks. As you can't hold foreign currencies in a ISA then good practice is to hold funds that either pay dividends in Pounds or that accumulate. More ideally buying funds that trade in/out of Pounds directly also reduces quite high FX costs (often around 1.5% type amounts each way, 3% round trip).

Yet another factor is that buying/holding US funds directly is also a targeted activity, again considered undesirable. As such I can foresee a future where investors once again revert to a diverse range of individual stock holdings as the preferred choice over that of holding funds.

It's not trivial amounts that is up for grabs as having been 'tax avoided' and the size of the potential capture is such that I suspect even a 20 year investment horizon might see changes having been aggressively implemented. Not only just in the US, but with others such as the EU following that lead. Nor will there likely be any compensation claim as the onus upon declaration is on each individual such that you wouldn't be able to make a compensation claim against the ETF provider.

Also be aware that going the way the US would prefer, holding individual shares directly and applying UK/US tax treaty, is still a overtly dodgy pathway, the notes attached to the relatively simple paperwork extends to something like 90 pages. And when not having the correct details recorded/procedures followed can void the exemption and have you fall back into the 'standard' $60,000 lower limit. As yet another example if you file the wrong version of the form, not the one associated to the particular date, it can be rejected. It's also a lengthy process, at least 9 months, more often considerably longer.

Potentially not very simple/passive. My guess is that in another couple of decades investors will once again have reverted back to the old-ways of buying 8 to 16 type individual stocks, bought and held as-is, along the lines of HYP (Pyad style) but more usually without the focus upon dividend yield as a selection criteria. 8 mega caps diversified across business activities each with global business presence/exposure type selections.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450098

Postby EthicsGradient » October 14th, 2021, 12:49 pm

Alaric wrote:
EthicsGradient wrote:No worse than having to account for both dividends and excess reportable income in a distributing Vanguard ETF.


Brokers etc. have a statutory duty to report potentially taxable dividends, so It's only a matter of agreeing and quoting from the document you receive every year. No such requirement exists with excess reportable income. Taxpayers are left to their own devices to even establish that ERI is an issue and what it is.

Yes, but the point to remember is that distributing ETFs can still have excess reportable income that you have to find out about (or at least check it's zero for a year), so there's no effort saved by using the distributing version. For instance, Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF had ERI for the year that was almost as much as the distribution in one quarter: https://www.vanguardinvestor.co.uk/cont ... e-2020.pdf . Vanguard DAX UCITS ETF had ERI that was about one third of the total distributed over the year.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450105

Postby EthicsGradient » October 14th, 2021, 1:13 pm

Rajput1962 wrote:I noted for the first time that my VWRL divi in my III non-ISA trading account was credited to my account in $US. I tried to reinvest it (a couple of weeks ago) only to see a message that there were insufficient funds in £GBPs. I did the online conversion to £GBP and then carried on as normal.

BUT, i have been wondering ever since whether i should have bought the VWRL version priced in $US and therefore have avoided the few £s i lost in the conversion from $US to £GBP?

Are buyers/sellers penalised both on the way in and out with VWRL -GBP? I am making the assumption that what i'm buying is actually a US fund but offered to us in £GBP (as well as a few other currencies), and therefore there is a currency conversion going on where we can lose abit because that's the market maker's margin.

If any of the above is true, then in the future it would make sense to buy the $US version of VWRL and only pay one lot of currency conversion when selling and converting to £GBP - assuming III continue to pay the divi in £US. :?

I did wonder about doing a similar thing myself, with dividends from VEVE (and others), since I have a regular investment set up for VEVE, so I was effectively converting the dividend into pounds, losing a little in currency exchange, and then re-investing it. However, I decided the hassle wasn't worth it, and the gain marginal - II won't do regular investment other than in pounds, and you'd probably need to have the credits for a free purchase to do better than the currency loss. And you'd then have an ETF you have to sell in US dollars - so you'd lose on the currency exchange then. Only the extra dividend you get from the reinvestment comes truly out ahead, since it stayed in dollars - if you're invested for a long time, that could build up, I suppose.

Using the accumulating version, as suggested above, would avoid this; though I have had it pointed out to me that, since the distributing version is more popular, the buy-sell spread for it is lower - 0.07%, rather than 0.16%. I think that would come out as £9 lost on a purchase and sale of £10,000 for the accumulating version, or £2.13 for currency conversion for a year's dividend from the distributing version (with a 1.5% currency charge). So it takes a few years for the accumulating version to be worth it.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450125

Postby TedSwippet » October 14th, 2021, 2:36 pm

1nvest wrote:I can foresee a future where the likes of ETF's/funds are much more aggressively pursued by the US. As a for-instance possible case they might pursue Irish based ETF's such as VWRL for estate tax purposes, ...

I'm probably more paranoid and pessimistic than most about the US's appalling tax rules, but even I cannot see this being a feasible reality.

The US estate tax reaches any 'US situs' assets you might hold at death, and the definition of 'US situs' is particularly squirrelly -- for example, it includes stock in US corporations no matter where any certificates are located, excludes a cash holding in a US bank but includes physical cash in a US situated safety deposit box, excludes some (but not all) US treasury bonds, includes a cash holding in a US brokerage account, and so on.

However, the US estate tax does not include stock held by a non-US person in a non-US corporation. The US simply has no power to look through or disregard non-US corporate structures. If it tries, non-US funds will simply put more layers of ownership around their US asset holdings to continue to block it. And that's not even considering the potential for capital flight if the US suddenly decides to massively expand its already rapacious estate tax for nonresident aliens.

All of which is, I'm afraid, not really relevant at all to the OP's original question (sorry).

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450145

Postby 1nvest » October 14th, 2021, 3:37 pm

TedSwippet wrote:However, the US estate tax does not include stock held by a non-US person in a non-US corporation. The US simply has no power to look through or disregard non-US corporate structures. If it tries, non-US funds will simply put more layers of ownership around their US asset holdings to continue to block it.

Not currently, but a concern that it may do in future given the ever increasing stretch and regulation with potential significant financial incentives, and a possible thing for investors in VWRL or other similar funds with US stock holdings to keep in mind. A factor is that if you have to sell x years down the road after decent capital gains had been made/accumulated, then that could be a large tax event (capital gains tax) to side step around other taxation/risks. Fine doing that inside a ISA (again assuming no changes in the rules).

We've seen before that its a case of comply or else US practices that conceptually relatively easily could be extended to include the likes of Irish domiciled funds/ETF's having to declare/report end point beneficiary individuals, or else reap the wrath.

We live in a increasingly confiscatory world, when others know where and how much your wealth is it potentially is no longer your wealth but rather just a loan, open to be called at any time. Such practices are sold on the basis of being anti-avoidance, crack downs on illegalities. Same/similar for surveillance, at some point you're no longer free but living in a open prison where all your movements/activities etc. are monitored/recorded. And where more often you arrive at a large change having occurred in a very gradual unnoticeable until too late type manner.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450400

Postby Hariseldon58 » October 15th, 2021, 4:34 pm

I had an issue with ii , transferred in Vanguard Dev World in £ on LSE ( VEVE )and saw a dividend appear in $, to my surprise, it turns out they had transferred in and mistakenly put it as a $ version, they eventually put it back to VEVE when prompted…

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450407

Postby EthicsGradient » October 15th, 2021, 4:46 pm

Hariseldon58 wrote:I had an issue with ii , transferred in Vanguard Dev World in £ on LSE ( VEVE )and saw a dividend appear in $, to my surprise, it turns out they had transferred in and mistakenly put it as a $ version, they eventually put it back to VEVE when prompted…

VEVE pays its dividends in dollars, just like VWRL. The point of this thread is that many ETFs that are bought and sold on the LSE in pounds pay their dividends in dollars, or, in some cases, euros. If inside an ISA, this would be automatically converted to pounds, since you can't hold foreign currency cash inside an ISA. But in a general account, some platforms, like ii, will leave it in dollars. It's then up to you decide whether to convert it to pounds - which incurs a charge of 1.5% - buy something sold in dollars with it, or leave it sitting there, for later.
Last edited by EthicsGradient on October 15th, 2021, 4:53 pm, edited 1 time in total.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450409

Postby scrumpyjack » October 15th, 2021, 4:47 pm

TedSwippet wrote:
1nvest wrote:I can foresee a future where the likes of ETF's/funds are much more aggressively pursued by the US. As a for-instance possible case they might pursue Irish based ETF's such as VWRL for estate tax purposes, ...

I'm probably more paranoid and pessimistic than most about the US's appalling tax rules, but even I cannot see this being a feasible reality.

The US estate tax reaches any 'US situs' assets you might hold at death, and the definition of 'US situs' is particularly squirrelly -- for example, it includes stock in US corporations no matter where any certificates are located, excludes a cash holding in a US bank but includes physical cash in a US situated safety deposit box, excludes some (but not all) US treasury bonds, includes a cash holding in a US brokerage account, and so on.

However, the US estate tax does not include stock held by a non-US person in a non-US corporation. The US simply has no power to look through or disregard non-US corporate structures. If it tries, non-US funds will simply put more layers of ownership around their US asset holdings to continue to block it. And that's not even considering the potential for capital flight if the US suddenly decides to massively expand its already rapacious estate tax for nonresident aliens.

All of which is, I'm afraid, not really relevant at all to the OP's original question (sorry).


I agree. I think the most the US might do is require Vanguard to notify them of any US citizen holding a Dublin ETF, in which case Vanguard might effectively force US citizens not to hold Dublin ETFs. Many financial services firms in Europe will no longer deal with US citizens because of the reporting hassles. This is not going to affect non US citizens.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#450952

Postby Hariseldon58 » October 18th, 2021, 10:52 am

EthicsGradient wrote:
Hariseldon58 wrote:I had an issue with ii , transferred in Vanguard Dev World in £ on LSE ( VEVE )and saw a dividend appear in $, to my surprise, it turns out they had transferred in and mistakenly put it as a $ version, they eventually put it back to VEVE when prompted…

VEVE pays its dividends in dollars, just like VWRL. The point of this thread is that many ETFs that are bought and sold on the LSE in pounds pay their dividends in dollars, or, in some cases, euros. If inside an ISA, this would be automatically converted to pounds, since you can't hold foreign currency cash inside an ISA. But in a general account, some platforms, like ii, will leave it in dollars. It's then up to you decide whether to convert it to pounds - which incurs a charge of 1.5% - buy something sold in dollars with it, or leave it sitting there, for later.


With respect there is a VEVE which £ denominated LSE listed ( the underlying currency is $ ) and also a $ denominated LSE version. In my case an error was made on transfer into ii, the error was acknowledged and subsequently swapped back to VEVE ( there are a lot of versions of this ETF, they have accumulation/distributing versions with listings in different markets and each of these may have listings on that exchange in a different currency. You might well choose the dollar version if you want to use the dollar income for dollar purchases.

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Re: III VWRL divi paid in $ - better to convert to £ or not?

#451065

Postby EthicsGradient » October 18th, 2021, 5:52 pm

Hariseldon58 wrote:
EthicsGradient wrote:
Hariseldon58 wrote:I had an issue with ii , transferred in Vanguard Dev World in £ on LSE ( VEVE )and saw a dividend appear in $, to my surprise, it turns out they had transferred in and mistakenly put it as a $ version, they eventually put it back to VEVE when prompted…

VEVE pays its dividends in dollars, just like VWRL. The point of this thread is that many ETFs that are bought and sold on the LSE in pounds pay their dividends in dollars, or, in some cases, euros. If inside an ISA, this would be automatically converted to pounds, since you can't hold foreign currency cash inside an ISA. But in a general account, some platforms, like ii, will leave it in dollars. It's then up to you decide whether to convert it to pounds - which incurs a charge of 1.5% - buy something sold in dollars with it, or leave it sitting there, for later.


With respect there is a VEVE which £ denominated LSE listed ( the underlying currency is $ ) and also a $ denominated LSE version. In my case an error was made on transfer into ii, the error was acknowledged and subsequently swapped back to VEVE ( there are a lot of versions of this ETF, they have accumulation/distributing versions with listings in different markets and each of these may have listings on that exchange in a different currency. You might well choose the dollar version if you want to use the dollar income for dollar purchases.

Since, as you say, the underlying currency is US dollars in both cases, then you'll still get your dividends in dollars, whichever you hold. VEVE is a distributing version, which is bought and sold in pounds; the version that is bought and sold in US dollars is VDEV. I have VEVE in an ii general account, and get the dividends in dollars.


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