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Accumulator funds versus ETFs

Index tracking funds and ETFs
QCG1
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Accumulator funds versus ETFs

#10887

Postby QCG1 » December 1st, 2016, 3:58 pm

Hi Guys
This is my first post since moving over from fool.co.uk so be gentle!
It's more convenient for me to hold in ETFs in my ISAs share dealing account for various reasons - I don't want to open another fund account and there are other reasons too.
Is there much difference in buying FTSE100 or FTSE250 ETF's and manually re-investing the dividend every 1/4 half year when one tops us ones ISA compared to buying a FTSE all share accumulator fund? Is one method all most certainly going to massively outperform the other/be significantly more expensive than the other for a portfolio of about £100,000?
QCG

Alaric
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Re: Accumulator funds versus ETFs

#10896

Postby Alaric » December 1st, 2016, 4:13 pm

QCG1 wrote:Is there much difference in buying FTSE100 or FTSE250 ETF's and manually re-investing the dividend every 1/4 half year when one tops us ones ISA compared to buying a FTSE all share accumulator fund?


You might have to be more specific on what you mean by an "accumulator fund". If it's a fund structured as an OIECs, then it could be more expensive once you take the charges of the OIEC into account and possibly the platform fee levied by your Broker. On the other hand, manually reinvesting the dividend will incur additional dealing costs, but you suggest you might combine this with the investment of new subscriptions to your ISA.

Make sure you compare like with like. A fund tracking the FTSE All share is going to out perform or under perform those that track the FTSE 100 or FTSE 250.

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Re: Accumulator funds versus ETFs

#11037

Postby Chloe » December 1st, 2016, 8:59 pm

There is an accumulating iShares FTSE100 ETF (iShares FTSE 100 UCITS ETF (Acc), CUKX) that has a TER of 0.07% and has performance for the last 5 years close to that of the HSBC FTSE 100 index tracker (there's nothing too special about the HSBC one). The fund factsheet is at http://tinyurl.com/hsvqrt9.

I don't own either of the above, so cannot speak from practical experience.
CB

kempiejon
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Re: Accumulator funds versus ETFs

#11041

Postby kempiejon » December 1st, 2016, 9:15 pm

Like Chloe I am aware of but not an owner (yet) of CUKX as a ftse accumulator. My thinking being that I could hold it outside of my ISA to reduce the potential dividend tax. I currently hold the FTSE 100s ETFs ISF/VUKE and VMID for the 250.

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Re: Accumulator funds versus ETFs

#11095

Postby Alaric » December 2nd, 2016, 12:15 am

kempiejon wrote:My thinking being that I could hold it outside of my ISA to reduce the potential dividend tax.


Whether you hold a fund as Income units or Accumulation units makes no difference to any taxation of dividends. The new £ 5,000 annual amount applies regardless and you would get a statement showing how much was expected to be declared on the tax return.

Holding Accumulation units can be more complex to administer, since not only do you have a potential tax liability on income you haven't received as cash, you also have to keep track of the amounts reinvested as it can reduce Capital Gains Tax liabilities when you eventually sell.

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Re: Accumulator funds versus ETFs

#11120

Postby kempiejon » December 2nd, 2016, 7:59 am

Alaric wrote:
Whether you hold a fund as Income units or Accumulation units makes no difference to any taxation of dividends. The new £ 5,000 annual amount applies regardless and you would get a statement showing how much was expected to be declared on the tax return.

Holding Accumulation units can be more complex to administer, since not only do you have a potential tax liability on income you haven't received as cash, you also have to keep track of the amounts reinvested as it can reduce Capital Gains Tax liabilities when you eventually sell.



Thank you, I did not know that, and that's saved me the nuisance of having to find a 250 accumulation vehicle

timski
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Re: Accumulator funds versus ETFs

#399453

Postby timski » March 27th, 2021, 11:11 am

Hi guys, are there dividend tax considerations with accumulating etf if you hold it in an ISA? I thought they would be exempt?
Thanks,
Tim

tjh290633
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Re: Accumulator funds versus ETFs

#399454

Postby tjh290633 » March 27th, 2021, 11:15 am

timski wrote:Hi guys, are there dividend tax considerations with accumulating etf if you hold it in an ISA? I thought they would be exempt?
Thanks,
Tim

It depends where the ETF is domiciled. It is only UK tax that you avoid in an ISA. Other countries may levy withholding tax, which you cannot avoid, although you may be able to reduce it.

TJH

timski
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Re: Accumulator funds versus ETFs

#399458

Postby timski » March 27th, 2021, 11:36 am

tjh290633 wrote:
timski wrote:Hi guys, are there dividend tax considerations with accumulating etf if you hold it in an ISA? I thought they would be exempt?
Thanks,
Tim

It depends where the ETF is domiciled. It is only UK tax that you avoid in an ISA. Other countries may levy withholding tax, which you cannot avoid, although you may be able to reduce it.

TJH


I've got vwrp and vmid accumulating efts both domiciled in Ireland.

Thanks,
Tim

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Re: Accumulator funds versus ETFs

#399493

Postby Alaric » March 27th, 2021, 12:57 pm

timski wrote: accumulating efts both domiciled in Ireland.


The Irish Government wrote tax rules for UK marketed but Dublin based ETFs to exclude them from Irish taxation. That doesn't exclude them from withholding taxes on the assets making up the ETF holdings. One minor advantage of Dublin based ETFs is the absence of UK stamp duty.

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Re: Accumulator funds versus ETFs

#399539

Postby 1nvest » March 27th, 2021, 3:11 pm

Not the case for UK stocks, but if you did opt to hold other foreign currency based ETF then dividends within a ISA would endure double currency conversions. Maybe dividends paid in US$ that are converted to £ as you can't hold foreign currencies inside a ISA, and then converted back to US$ to buy more shares with the dividends.

Also now that the UK is outside of the EU the rules could change at any time and if that turned out to be a costly change then you might have to move to another option. Not a issue so much inside a ISA but if held outside of ISA that could induce a large capital gains tax event. Given two similar choices/costs, one UK domiciled the other Ireland (EU) domiciled and I'd go with the UK based choice. France for instance in the past has increased dividend withholding tax rates to 70% and in the absence of the UK from the EU such 'tax financials' socialist policies are perhaps at greater risk of coming to fruition. Such taxation would not be reclaimable even though inside a ISA, nor could you offset it from other income taxes paid in the UK as you can with existing dividend withholding taxes when held outside of a ISA (in a taxable account). 4% dividend reduced by 70% withholding tax to 1.2% reduced by 0.2% fund management fees ... to leave you with 1% ... is down at levels of being exposed to risks without being compensated for doing so.

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Re: Accumulator funds versus ETFs

#399558

Postby TedSwippet » March 27th, 2021, 4:03 pm

1nvest wrote:France for instance in the past has increased dividend withholding tax rates to 70% ...

Citation, please.

France has a 75% rate for a handful of 'non-cooperative states', but there's no danger of that rate applying to the UK, not least because Article 11 of the UK/France tax treaty limits French tax on dividends paid to UK residents to 15%.

mc2fool
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Re: Accumulator funds versus ETFs

#399588

Postby mc2fool » March 27th, 2021, 5:53 pm

Alaric wrote:One minor advantage of Dublin based ETFs is the absence of UK stamp duty.

Advantage over what?

"Do I pay a transaction tax when I buy an ETF?
No. On most UK share purchases there is a transaction fee called Stamp Duty charged at 0.5%. However stamp duty is not payable on overseas domiciled ETFs that trade in London. ETFs from the main providers are all domiciled in Ireland, Luxembourg and France. Stamp duty on UK-domiciled ETFs was abolished in April 2014.
" https://www.justetf.com/uk/news/etf/how-to-buy-an-etf-frequently-asked-questions.html

Or, if you prefer, see https://www.legislation.gov.uk/uksi/2014/911/made ;)

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Re: Accumulator funds versus ETFs

#399608

Postby Alaric » March 27th, 2021, 7:10 pm

mc2fool wrote:Advantage over what?


Advantage over buying an Investment Trust for global exposure as discussed in a parallel thread.


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