Tax - GIA and ISA - withholding , Excess Income.. Mega matrix

ChilliBob

Guys,
I'm trying to put together a mega matrix of investment options and the tax/niggles associated with them depending on where they sit. I've had a go, but I've got some blanks, and some bits I'm not sure on the accuracy of... I'm hoping the collective wisdom of this board can help fill in these blanks and verify what I understand.

Before I put the matrix up, one (of many) things which confuses me is Ireland and Luxembourg in relation to OEICs and ETFs and withholding tax and Excess income reporting. The more I read these three articles I think the more I get muddled up! 
https://monevator.com/excess-reportable-income/
https://monevator.com/withholding-tax-on-dividends/
https://monevator.com/how-to-choose-the-best-index-trackers-overlooked-stuff/comment-page-1/

It makes me think, for example you'd *not* pay withholding tax on OEICs in Ireland or Luxembourg, but that you *would* on ETFs.

Anyhow, enough words, here's the matrix

EthicsGradient

You say "excess rpt income for Equity ETFS is payable as a higher rate tax payer, not basic". I've never heard of that before (and indeed, as a basic rate payer, I've been including the ERI of Luxembourg-based accumulating ETFs I have in my income tax return). Where does the "higher" rate bit come from?

ChilliBob

See the money saving expert link in the original post. That's my source, it wasn't 100% clear to me either. I think its quite complex and depends on the ETF constituents for starters. Not sure what happens if it starts off as say 40% fi but it has freedom to move around and becomes 61%!
Admittidly that's unlikely 

eskbanker

EthicsGradient said:

You say "excess rpt income for Equity ETFS is payable as a higher rate tax payer, not basic". I've never heard of that before (and indeed, as a basic rate payer, I've been including the ERI of Luxembourg-based accumulating ETFs I have in my income tax return). Where does the "higher" rate bit come from?

OP was citing https://monevator.com/excess-reportable-income/ as a source without recognising that it was published in 2014 when this analysis was probably still accurate and relevant (it isn't now):

• Basic rate taxpayers will owe 20% tax on excess reportable income from bond funds. However, they won’t have anything to pay on equity funds because the effective basic rate tax on dividends is 0%, once the tax credit is taken into account.
• Higher rate taxpayers owe 40% tax on bond fund excess reportable income and a 25% effective tax rate on equity funds.
  

ChilliBob

Yeah, I was aware it was an old post but actually found it really hard to find accurate information on this which was recent, hence my highlighting here really. 

Obvs some of the stuff regarding cgt rates is wrong (in thix tax year, not when posted) on some of the entries

EthicsGradient

I think the current rules on income tax are:
add up real dividends received (whether from shares, ITs, OEICs or reporting ETFs, wherever domiciled)
add the accumulation belonging to accumulating OEICs, and the Excess Reportable Income of ETFs
That's your dividend income, for tax purposes. The first £2,000 is taxed at 0%. After that (and assuming you used your personal allowance on other income), it's all taxed at 7.5% for a basic rate payer, and 32.5% for a higher rate payer (and 38.1% for an additional rate payer), whatever the source.

As far as withholding tax goes, no, you don't pay it on Ireland or Luxembourg-domiciled ETFs. Whether the tax treatment they get from the US or elsewhere taxman is exactly the same as an OIEC in the same country, I'm not sure (but I'd guess it is). But you never see the figures for that, unless you can decipher it from company accounts (and I don't think any would show sufficient detail to allow you to tell).

ChilliBob

That suggests that Excess Reportable Income is applicable to any ETF then as opposed to ones not UK domiciled? - Which is different to my original understanding. 
I'm contacting a tax account next week to do my tax return for this year, so I'll hassle him on this matrix, but I wanted to be sure the investments I made outside a tax shelter didn't cause me grief down the line (I know about not letting the tax tail wag the investment dog and all that!).
It seems within a tax shelter (my current focus), unless you go for stuff domiciled outside the UK (or Ireland or Luxembourg) you'd not have to deal with withholding tax or excess reportable income - i.e. choosing any fund or etf suitable for an ISA is likely to mean your green lighted to not have to worry about a thing.

Alexland

I have never had the 'problem' of a large GIA as our investments were built up gradually over decades using suitable tax wrappers but if I did have a lump sum to gradually bed & isa/sipp then I would select a very simple investment probably a UK domiciled fund which distributes all it's income.

ChilliBob

Interesting - I was thinking of choosing a low cost global tracker as the core of my GIA to be honest - which would be UK domiciled, but I'd add more to it - likely wealth preservation funds. Why would you choose a fund which distributes all its income? Not sure I follow there

Alexland

ChilliBob said:

Interesting - I was thinking of choosing a low cost global tracker as the core of my GIA to be honest - which would be UK domiciled, but I'd add more to it - likely wealth preservation funds.

The more complicated you make your GIA the harder it will be to keep track of your tax liability. I'd be tempted to do anything complicated in your wrapped accounts where there is lower admin requirements.

ChilliBob said:

Why would you choose a fund which distributes all its income? Not sure I follow there

To keep the tax reporting of dividends and capital gains simple.

ChilliBob

100% about complications in the wrappers - this shenanigans with thematic ETFs or anything else a bit off piste is happening in the ISAs - I've got over 100k to use for that sort of stuff, I'm certainly not brave enough to lump it all into stuff like thematic ETFs! - just around the edges.

Is it that much more complicated if you choose an accumulating fund which simply reinvests the dividends?

For a large GIA, as this will evolve into (over 1m) I was intending for a basket of fairly mainstream funds not doing anything too mental or specific.

I'm intending the GIA to be built up over the next few months in blocks and then over the years squirreled away into ISAs in both mine and my partner's accounts.