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Bessa
Bessa Posts: 4 Newbie
edited 23 January 2020 at 5:09PM in Savings & investments
Dear all,
I am looking to save for retirement.
If a fund or ETF is domiciled in Ireland or Luxembourg, does this mean you need to pay the tax in those countries even if you're a UK resident?

If you are buying ownership of a fund(company )in Luxembourg and so if you make gains from that fund/company, then you should pay the Luxembourg capital gains tax? Is this correct?

Comments

  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    Bessa wrote: »
    Dear all,
    I am looking to save for retirement.
    If a fund or ETF is domiciled in Ireland or Luxembourg, does this mean you need to pay the tax in those countries even if you're a UK resident?

    If you are buying ownership of a fund(company )in Luxembourg and so if you make gains from that fund/company, then you should pay the Luxembourg capital gains tax? Is this correct?

    The fund or ETF will pay their appropriate taxes in the country in which they operate, and depending on what investments they buy, may potentially suffer taxes from other countries relevant to the gains they make or the income they receive.

    You as an individual UK owner of shares in the fund will just pay tax in the UK on the income or gains you make from your ownership of those fund shares. Luxembourg or Ireland won't charge you Luxembourgish or Irish capital gains taxes if you are not a Lux or Ireland resident.

    If you do it inside an ISA or pension you won't pay UK taxes. If you are doing it 'unwrapped' (not in an ISA or pension wrapper) then to avoid unwelcome surprises you should check that the non-UK fund in which you are investing has 'UK reporting' status under HMRC's offshore funds regime.
  • NedS
    NedS Posts: 4,819 Forumite
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    One of the reasons many ETFs traded on the London Stock Exchange are domiciled in Ireland is that Ireland has tax treaties with many countries. For example, Ireland has a double tax treaty with the US, so if you buy an ETF of the S&P500 that is domiciled in Ireland, the ETF will only pay 15% withholding tax on dividends from US companies rather than the full 30% withholding tax that ETFs domiciled in a country that doesn't have a tax treaty would pay. Thus, the Irish domiciled ETF gets to retain more of it's dividend income through paying less tax on those dividends and thus has more dividend income to distribute to it's investors / the owners of the ETF. Luxembourg, on the other hand, does not have such a tax treaty so the same S&P500 ETF domiciled in Luxembourg would have 30% tax on dividends from US companies giving a lower revenue stream to return to owners of the ETF.
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  • Aminatidi
    Aminatidi Posts: 588 Forumite
    Sixth Anniversary 500 Posts Name Dropper
    Look into "Excess Reportable Income" if investing outside of a wrapper.

    With many ETFs this was enough of a complication to put me right off.
  • Thanks, thankfully it is a sipp I have, are there any UK domiciled ETFs?
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    Bessa wrote: »
    Thanks, thankfully it is a sipp I have, are there any UK domiciled ETFs?
    No, apart from some incredibly niche products that you wouldn't want or need. Both Ireland and Lux have a very well developed and regulated funds industry with relatively low costs of administration and compliance (compared to places that do not have much of an ETFs industry).

    So most ETFs you would want are more likely to be from those places. Of course, 'investing for retirement' doesn't need to involve ETFs at all.
  • Thank you for replying
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