Non-UK domiciled funds outside tax wrapper

GeoffTF

ColdIron said:

Does excess reportable income apply to non UK domiciled OEICS?

Of course. Vanguard has a good tax reporting guide for their own funds:

https://www.vanguardinvestor.co.uk/investing-explained/general-account-tax-information

aroominyork

And VWRL is domiciled in Ireland! Presumably if you buy and sell between distribution dates, excess reportable income is not an issue - is that correct?

ColdIron

A brief google reveals:

• You’ll need to report ERI if you hold an investment in a Reporting Fund on the last day of the fund’s reporting period.

I.e. it is separate from the ex dividend and payment dates

https://fund-docs.vanguard.com/uk-reporting-fund-faq.pdf

The reporting period for VWRL appears to be 1st of July to 30th June

As ever DYOR. Fidelity Index World has more appeal to me in a GIA, it's just a vehicle of convenience

aroominyork

Thanks for the ERI info - bloomin' complicated, isn't it? I'll be glad when I've got everything tax-wrapped in a few years' time.

I held Fidelity Index World for a good few years and got my EM exposure solely through an active fund. Then I decided it made sense to have some indexing in EMs (about one-third indexed), hence the switch to the HSBC fund. For the 30 days CGT switch I definitely prefer VWRL: although the charges will be a fraction higher, it is pretty much a duplicate of the HSBC fund and I will spend less time out of the market (about which I am slightly paranoid given how forces seem to conspire). Thanks again for suggesting this option - so much better than faffing around with the Fundsmith.

aroominyork

I've just clocked that VWRL pays its quarterly dividends in USD. What rate do I use for tax declarations? Also, are there any global (inc. EM) ETFs that distribute in GBP? Thanks. 

EthicsGradient

aroominyork said:

I've just clocked that VWRL pays its quarterly dividends in USD. What rate do I use for tax declarations? Also, are there any global (inc. EM) ETFs that distribute in GBP? Thanks. 

HMRC publishing rates just before each month starts - HMRC currency exchange monthly rates - GOV.UK (trade-tariff.service.gov.uk) 
There are also Bank of England rates for each working day - I think you'd be OK using either, but you should probably stick to using one for consistency. Exchange rates | Bank of England | Database

I'm not aware of global ETFs that distribute in pounds (but don't take that as meaning there are none).

GeoffTF

aroominyork said:

I've just clocked that VWRL pays its quarterly dividends in USD. What rate do I use for tax declarations? Also, are there any global (inc. EM) ETFs that distribute in GBP? Thanks. 

If your broker converts the dividends into GBP without your intervention, you just pay tax on the GBP value, which is what will appear on your Consolidated Tax Certificate. HSDL, i.e. iWeb/Halifax/Bank of Scotland/Lloyds does not charge commission on the conversion. HMRC publishes conversion rates for 31st December, which is the date on which the Excess Reportable Income is deemed to have been paid for VWRL.

aroominyork

Thanks for the above posts. Re. HMRC forex rates, does that mean I have to swallow ii's 1.5% spread (they do not convert automatically in a trading account) and I will be taxed on a higher amount than I receive?

If I understand correctly, ERI is reported and taxed as income. It also, because it has not been distributed, raises the fund's price. If you sell a fund where the price has risen more than the change in NAV due to the addition of ERI, would that not potentially lead to an increased CGT bill, and hence mean you are taxed twice on ERI - once as income and once as capital gain?

masonic

aroominyork said:

Thanks for the above posts. Re. HMRC forex rates, does that mean I have to swallow ii's 1.5% spread (they do not convert automatically in a trading account) and I will be taxed on a higher amount than I receive?

If I understated correctly, ERI is reported and taxed as income. It also, because it has not been distributed, raises the fund's price. If you sell a fund where the price has risen more than the change in NAV due to the addition of ERI, would that not potentially lead to an increased CGT bill, and hence mean you are taxed twice on ERI - once as income and once as capital gain?

Correct for the first question. It is your choice whether or not to convert to GBP at some later time and fees associated with doing so (or any movement in the FX rate) are not tax deductible. The same goes if you chose to use the USD to reinvest - you wouldn't be able to deduct any trading costs from the income (but of course there are allowable costs that could impact the base cost for CGT purposes).

For the second question, you need to account for ERI in your CGT calculations. That means going back through the entire holding period, calculating it and deducting it from your gain. This is why it is simpler to hold distributing UK domiciled OEICs unwrapped, as they must distribute all of their income, making the calculations very simple, and also addressing your first problem, as most of these distribute in GBP. Presumably this was part of the reason why you opted for the HSBC fund in the first place.

aroominyork

It looks like OEICs win by a TKO, and I'll have to manage as best I can a little extra time out of the market and finding a close enough match for the HSBC fund.