ETF in a GIA

MoneyMan01

I recently spoke about being in the situation of maxing ISA and PB's out, so now I am looking at putting money into an ETF, within a GIA, and just paying the tax on any interest above the allowance.

So with that in mind, is an accumulative ETF the best option? My understanding that if I were to select an ETF that pays dividends, they would be taxed at anything above £500 interest, whereas an accumulative one wouldn't be subject to that, meaning it would just be a case of staying within the £3,000 CGT, is that correct?

I believe that even though it is accumulative, they still tax the returns that are being reinvested, is that right?

If the last statement is true, does it not matter what option I select.

For reference, I am considering these 2:

HSBC MSCI World

iShares MSCI All Country World Index SSAC - This is the one that is Accumalitve, I believe?

Can someone advise which one of the above would be best from a tax perspective, or rather, best returns after tax?

Or, is the accumulative vs. dividend just an option I select on how I want the money to work when selecting the ETF, or are they acc v dividend, if that makes sense?

Or, does it not matter whether it pays dividends or is accumulative, and all that matters is what I select?

If anyone could answer all my many questions it would be very much appreciated!

wmb194

MoneyMan01 said:

I recently spoke about being in the situation of maxing ISA and PB's out, so now I am looking at putting money into an ETF, within a GIA, and just paying the tax on any interest above the allowance.

So with that in mind, is an accumulative ETF the best option? My understanding that if I were to select an ETF that pays dividends, they would be taxed at anything above £500 interest, whereas an accumulative one wouldn't be subject to that, meaning it would just be a case of staying within the £3,000 CGT, is that correct?

I believe that even though it is accumulative, they still tax the returns that are being reinvested, is that right?

If the last statement is true, does it not matter what option I select.

For reference, I am considering these 2:

HSBC MSCI World

iShares MSCI All Country World Index SSAC - This is the one that is Accumalitve, I believe?

Can someone advise which one of the above would be best from a tax perspective, or rather, best returns after tax?

Or, is the accumulative vs. dividend just an option I select on how I want the money to work when selecting the ETF, or are they acc v dividend, if that makes sense?

Or, does it not matter whether it pays dividends or is accumulative, and all that matters is what I select?

If anyone could answer all my many questions it would be very much appreciated!

No, accumulating ETFs still pay dividends, it’s just that they’re not paid out but reinvested. Receiving a dividend in a GIA is easier to understand and account for. With offshore ETFs (basically all of them) you also need to beware excess reportable income (ERI).

 You also seem to be conflating interest and dividends. They’re different and have separate allowances.

gravel_2

Distributing is easier to track and pay tax on. You are still liable for tax on income that is reinvested by an accumulation fund. Look up "notional distribution".

InvesterJones

If you wanted dividends reinvested and your platform charges for reinvestment of dividends it might be cheaper to use the accumulation one for that reason. But tax arises on dividends regardless of whether they're paid out - paying out (income funds) make this more visible, plus if you don't want to reinvest, you don't have to, while accumulation funds will usually need some kind of report to help you with the tax owed.

MoneyMan01

Begs the question of why oh why do they want to make things so convoluted. They want to take a cut, but then don't have a simple process their side to just bill the individual at year end.

So in short, it doesn't matter which ETF (Div v Acc) is used. Going with one over the other isn't going to lower the tax bill?

ColdIron

No, you are the beneficiary either way

If it was that easy we'd all be doing it

Albermarle

Begs the question of why oh why do they want to make things so convoluted. They want to take a cut, but then don't have a simple process their side to just bill the individual at year end.

This is why S&S ISA's are so great. Not only do you not have to pay any tax, but you do not even have to think about it . Same with a DC pension.

Investing via a GIA, brings more headaches for sure if you are not on top of all the detail.

kempiejon

The distributing accumulating wheeze to dodge tax doesn't wash, you are due a bill whichever version.
I avoid the complications of excess reportable income but holding accumulation units in sheltered accounts and distributing in those taxable accounts.

I maxed SIPP, ISAs, PBs and family bonds for tax free. To continue to soak up spare cash I went for a low yield global tracker so as to not be too bothered by dividends within the limit but if I breach the allowances or they fade out dividends attract a lower tax charge than cash interest.
Low yield gilts maturing within 1 - 3 years have trivial returns as interest and about 5% capital returns and are exempt from capital gains. There are worse problems to have than a tax bill on excess investment returns; a good way of avoiding income tax is philanthropy and shopping.

MoneyMan01

I looked at gilts and can see their benefits for not getting stung with tax, if you are making a lump sum decision. Drip feeding however is not as worthwhile, due to the purchasing fee's.

The reality is that after ISA's and PB's are maxed, you either go the gilts options with a lump sum, or pension contributions. Beyond that you pay tax on gains above the allowances in a GIA, or as far as I can see, the only other option beyond that is riskier investments, such as gold (definte "riskier I suppose), or more high risk investments beyond that.

EthicsGradient

Strictly, all unsheltered income ETFs should be checked for ERI too. Of 4 income ETFs I hold (all Vanguard), in the past 3 years I've had 5 reports with no ERI at all, and 7 with some ERI - though only one being a significant amount (about 0.3% of the capital value, or 8% of its income; others are more like 0.01% of capital). If it weren't for that one, I'd say HMRC might shrug their shoulders about it; but if you have a significant amount invested, they might not.

MoneyMan01

Good to know. I note the comment about the onus on us doing the leg work, but honestly, the information isn't actually made known. As in, generally most people won't know that there are all these things that have to be checked, reported on, such as ERI, notional distribution etc.

Most people will just get an ETF in a GIA, invest away without even realising that there is all of this extra info that we apparently need to be checking.