Which UK Property PAIF

bowlhead99

chockydavid1983 wrote: »

Thanks Bowlhead. The OCF was what I was looking for ideally but I'm struggling to find it for the property investment trusts whereas I can easily find it for the PAIFs :-/.

They all publish their annual accounts so you can just take a look at the profit and loss account (income statement) and see what they spent on running the company compared to the size of their balance sheet. The management fee will be percentage based (in SL's case, 0.75% for the first £x million of assets and a lower rate thereafter) and other major costs (eg administration or secretarial) may be percentage based or fixed fee based (usually there are footnotes in the financial statements detailing material fee agreements).

chockydavid1983

Hi all

Thanks to everyone who responded to my initial post. I'm finally at the point where I'm looking to invest! After re-reading all the comments and doing some more of my own research, I think I'm going to invest in the L&G UK Property Trust Feeder with HL.

I think the feeder is best for me since I will be investing outside of an ISA (allowance already used) and this is my only non ISA investment so I don't think I will exceed the dividend allowance (I am a higher rate tax payer). Does that logic sound right?

It looks like HL is the cheapest place to buy in terms of platform fee + OCF than Fidelity but I’m a bit confused that there’s 2 different ACC classes of this fund at different OCF’s:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-feeder-accumulation-inclusive
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-feeder-class-i-accumulation
Also, I’m a bit surprised that it’s more expensive to go direct to L&G:
https://www.legalandgeneral.com/investments/funds/full-fund-range/property/uk-property-fund.html
Are there any other charges to be aware of other than platform fee and OCF?

Thanks,
Chris.

bowlhead99

chockydavid1983 wrote: »

I think the feeder is best for me since I will be investing outside of an ISA (allowance already used) and this is my only non ISA investment so I don't think I will exceed the dividend allowance (I am a higher rate tax payer). Does that logic sound right?

As long as you are a high rate taxpayer but won't pay tax on dividend income, it would make sense to hold through the feeder. The feeder will pay corporation tax on its property income and give you a nice clean dividend. If you hold the PAIF direct, you would be paying your personal income tax on the property income it distributes to you at your marginal rate of income tax; that's going to be higher than you would lose to tax within the feeder.

If you were doing it through a tax wrapper, there would be no point using the feeder because it would expose you to a layer of tax that ISA or SIPP investors would avoid by using the PAIF. And if you were only a basic rate taxpayer investing beyond your dividend tax allowance there would be no point using the feeder because the corporation tax and dividend tax combined would exceed basic rate tax on the property income direct. So not everyone benefits from using a feeder vehicle, some would lose out, and only do it because it's all their platform actually offers. In your case however, it seems fine.

It looks like HL is the cheapest place to buy in terms of platform fee + OCF than Fidelity

Both are at the high end of the range of percentage-based platform fees. So if you're looking for a percentage fee structure a money-saving-expert would look harder; while if the holding would be large, there are some cheap fixed fee providers that don't charge more the larger your holding.

but I’m a bit confused that there’s 2 different ACC classes of this fund at different OCF’s:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-feeder-accumulation-inclusive
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-feeder-class-i-accumulation

Many open ended funds (OEICs, unit trusts, PAIFs) have multiple share classes with different fee levels for different investors with different minimum investments.

Traditionally there is a 'full retail price' version which is billed as 'inclusive' because it has high management fees allowing the manager to afford to pay commission to the distribution channel (platform / investment adviser). However, platforms now have to rebate all that commission back to the customer and charge customers explicitly for their platform services - which is why you see HL offering the inclusive version (retail class R) with an 'ongoing saving' to get it down to a price that's comparable with a normal 'clean priced' version.

You can avoid the shenanigans of a high priced fund with a rebate by just getting a lower priced one - either a clean retail version or the institutional version which has always had a lower price without bundled commissions. The institutional versions have higher minimum investments but the DIY platforms can access them because collectively across their customers they will meet the requirements.

Speaking generally, some platforms have 'super clean' classes with greater discounts than standard. The general rule is to use the cheapest class of fund that you can access via your chosen provider.

Also, I’m a bit surprised that it’s more expensive to go direct to L&G:
https://www.legalandgeneral.com/investments/funds/full-fund-range/property/uk-property-fund.html

Although I mentioned that platforms need to rebate any commissions that were built into the management fees to give you an effective clean price so you can easily see any explicit platform fees that the platform wants to bill you - which is the consequence of a regulatory review 5+ years ago - this is not the case if you go directly to the manager.

Unlike big retail platforms, fund managers don't really want lots of small individual customers asking to have a little account and the ability to subscribe into and redeem out of the funds at will. It is costly to accommodate customers like that. Managers are allowed to charge whatever their prospectus says to individuals who don't want to buy through an intermediary, and won't give you an institutional version if you don't have (e.g.) a £1 million minimum investment - may instead you a full fat retail version with all the trimmings.

Are there any other charges to be aware of other than platform fee and OCF?

If you're happy you want the fund and whether you want the PAIF or unit trust version of it, the points of difference in accessing the same fund via different venues will be, as you suggest:

a) the OCF of the cheapest class available to you, and

b) the price of access to the venue (e.g. 0.45% a year platform fee, 0.25% a year platform fee, £10 a year fixed fee plus £x per purchase, £100 a year fixed fee plus £y per purchase, etc.)

Other aspects of the running cost of a fund (costs it incurs building and holding and disposing of its portfolio, to the extent not already captured in the OCF) will not really depend on where you go to buy it.

neildt

bowlhead99 wrote: »

If you were doing it through a tax wrapper, there would be no point using the feeder because it would expose you to a layer of tax that ISA or SIPP investors would avoid by using the PAIF.

I'm looking to add property to my portfolio in the coming months, but this would be in my S&S ISA. Therefore, am I better at going with a fund like LEGAL & GENERAL UK PROPERTY TRUST PAIF CLASS I - ACCUMULATION (PAIF GBP)

chockydavid1983

bowlhead99 wrote: »

Both are at the high end of the range of percentage-based platform fees. So if you're looking for a percentage fee structure a money-saving-expert would look harder; while if the holding would be large, there are some cheap fixed fee providers that don't charge more the larger your holding.

Thanks Bowlhead, I couldn't find other platforms that had this fund from a simple Google search so I will go to multiple platforms' sites individually to search and likely find a better deal as you say :-).

I will do some comparisons but a percentage based platform will likely be best for my initial level of investment in property. However, this may change over time as my overall portfolio size increase and hence the amount I hold in property.

neildt, yes I'm pretty sure if in a S&S ISA, the PAIF will be best for you but will allow others to confirm. I found a PDF somewhere on the Aviva site with a helpful summary table on PAIF vs feeder:
https://www.avivainvestors.com/en-gb/capabilities/real-assets/real-estate/uk-property-fund/
Click on the link under "Tax Efficient"

Thanks,
Chris.

bowlhead99

neildt wrote: »

I'm looking to add property to my portfolio in the coming months, but this would be in my S&S ISA. Therefore, am I better at going with a fund like LEGAL & GENERAL UK PROPERTY TRUST PAIF CLASS I - ACCUMULATION (PAIF GBP)

A PAIF is able to stream the different types of profits they make into three distinct types of distributions: (property income distributions, interest distributions, dividend distributions). If you invest into a PAIF through a tax wrapper like an ISA, you will be able to get these distributions free of tax (or if tax is withheld during the distribution process, ISA provider claims it back).

However, if you invest into a unit trust 'feeder' which in turn invests in the PAIF, the feeder pays tax on its income and by the time the feeder distributes to you, the dividend you receive might only be (e.g.) 80 instead of 100. As an ISA investor there is no way to 'claim back' the tax that was lost inside the feeder because it is not a withholding tax on your income, it's tax that's been levied on the feeder's income.

So, if you are investing through ISA or SIPP, best to avoid the 'feeder' arrangement and then you'll boost your dividends by not paying unnecessary tax. A PAIF is more efficient in your case.

You mention the L&G PAIF - it's not for me to say that the L&G PAIF is better than anyone else's PAIF or REIT, just to say that PAIFs are generally better than feeder vehicles to PAIFs, if you are a non tax payer.

Reluctantpensioner

Make sure you've noted the c. 5% bid/offer spread on the L&G: it means this cannot be a short term investment (which given the liquidity issue it can't be anyway). Your first 1-2 years will be getting back to par.