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ETFs - taxes and currencies
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SavingStudent1
Posts: 204 Forumite

Hi,
I am planning to start investing soon. I was wondering if there is useful information out there for a UK investor in terms of tax implications?
Also, what kind of measures do you guys take when trying to keep track of this - namely, Excel spreadsheets, statements provided by the broker, and how do you use these tools e.g. do you track the investments you bought/sold on Excel etc.?
More generally, I had a quick question:
1. Do I have to pay tax whether I use distributing or accumulating dividend ETFs? If I use accumulating ETFs, how do I track the amount of dividend payments that has been re-invested into the stock?
2. Is there any issue with investing in an ETF denominated in a different currency? For example, the VUAG is in GBP and the VUAA is in USD. They have 1Y returns of 17.6% and 18.97% respectively, so just based on the VUAA giving higher returns, I may want to invest in it instead. Any tax implications that I need to think off?
Also, how do you usually find answers to the above questions - is there some place to find these on HMRC or somewhere?
Thank you
I am planning to start investing soon. I was wondering if there is useful information out there for a UK investor in terms of tax implications?
Also, what kind of measures do you guys take when trying to keep track of this - namely, Excel spreadsheets, statements provided by the broker, and how do you use these tools e.g. do you track the investments you bought/sold on Excel etc.?
More generally, I had a quick question:
1. Do I have to pay tax whether I use distributing or accumulating dividend ETFs? If I use accumulating ETFs, how do I track the amount of dividend payments that has been re-invested into the stock?
2. Is there any issue with investing in an ETF denominated in a different currency? For example, the VUAG is in GBP and the VUAA is in USD. They have 1Y returns of 17.6% and 18.97% respectively, so just based on the VUAA giving higher returns, I may want to invest in it instead. Any tax implications that I need to think off?
Also, how do you usually find answers to the above questions - is there some place to find these on HMRC or somewhere?
Thank you
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Comments
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Use an ISA or a SIPP and you can forget about tax
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ColdIron said:Use an ISA or a SIPP and you can forget about tax0
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I use a fca advisor to look after my stuff. no good me trying to understand it all.1
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clive0510 said:I use a fca advisor to look after my stuff. no good me trying to understand it all.0
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If you need to invest outside an ISA or SIPP then do keep detailed records. There are spreadsheet templates on the internet that you can download to help you.ETFs are offshore funds, so you will have to confirm they are UK reporting and will have to check for Excess Reportable Income. All of the income will be ERI if the ETF is accumulating, but distributing ETFs can have ERI too. The fund house that runs the ETF should provide these details somewhere on its website and you can find a guide here: https://monevator.com/excess-reportable-income/For ETFs trading in different currencies, you will get the same performance, which will obviously appear different in different currencies depending on whether one currency has strengthened or weakened against another, so you need to rebase to GBP to compare like for like. If you buy the one that trades in GBP then you will not incur any forex costs, and instead the fund will do this for you (often at a better rate than you can get). If you buy the USD or other currency version, then each time you trade you will pay to convert your GBP into USD or vice versa. Unless you set up a foreign currency cash account. It is usually best to use a GBP traded listing if it is available. Whichever trading currency you pick, the base currency of the ETF will be the same. That is the currency used within the ETF.For the tax implications, ETFs with a base currency of USD (for example) will declare income in USD, and those trading in USD will generate capital gains in USD. You will need to look up approved exchange rates at the relevant time on the gov.uk website when calculating your income and capital gains.Also, be aware of things like allowable costs and "bed and breakfasting" when working out capital gains.0
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Note that VUAG and VUAA are the same fund (IE00BFMXXD54) that has USD as underlying currency. You can purchase it in GBP, USD or EUR but ultimately it's the same thing. By buying using GBP you simply avoid any direct FX fees.2
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SavingStudent1 said:ColdIron said:Use an ISA or a SIPP and you can forget about taxIf you want to access the funds in the near future you should be using cash. How would you feel if the value of your funds were down 40% when you wanted them? Could you wait, potentially years, for them to recover?Have you got a Lifetime ISA (LISA)?0
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masonic said:If you need to invest outside an ISA or SIPP then do keep detailed records. There are spreadsheet templates on the internet that you can download to help you.ETFs are offshore funds, so you will have to confirm they are UK reporting and will have to check for Excess Reportable Income. All of the income will be ERI if the ETF is accumulating, but distributing ETFs can have ERI too. The fund house that runs the ETF should provide these details somewhere on its website and you can find a guide here: https://monevator.com/excess-reportable-income/For ETFs trading in different currencies, you will get the same performance, which will obviously appear different in different currencies depending on whether one currency has strengthened or weakened against another, so you need to rebase to GBP to compare like for like. If you buy the one that trades in GBP then you will not incur any forex costs, and instead the fund will do this for you (often at a better rate than you can get). If you buy the USD or other currency version, then each time you trade you will pay to convert your GBP into USD or vice versa. Unless you set up a foreign currency cash account. It is usually best to use a GBP traded listing if it is available. Whichever trading currency you pick, the base currency of the ETF will be the same. That is the currency used within the ETF.For the tax implications, ETFs with a base currency of USD (for example) will declare income in USD, and those trading in USD will generate capital gains in USD. You will need to look up approved exchange rates at the relevant time on the gov.uk website when calculating your income and capital gains.Also, be aware of things like allowable costs and "bed and breakfasting" when working out capital gains.
Regarding the base currency of USD. I haven't actually invested yet - going to start soon, so I'll probably answer a lot of these myself when I do so.
As @gravel_2 mentioned, VUAG and VUAA are both in base currency USD. However, if I buy it VUAG, I'll be buying it in GBP. Example to illustrate potential taxes:
Suppose I buy £25000 of VUAG today and it goes up by 18% over the next year. It is now worth £29500 and I sell it immediately, making a profit of £4500. I know in practice, there might be fees etc. - but ignoring these. I've bought in GBP, so no FX fees.
I now owe £1500 of CGT to pay. Is that correct? Despite the base currency being USD, since I bought in GBP - I avoid any issue of the base currency/traded currency being different?
However, I assume if I'm trying to calculate dividend income - this issue will arise. Suppose it earned £1000 in dividends that was reinvested in the stocks, then I owe '£500' in dividends tax. However, as the base currency is USD, the figure won't be in GBP - it might be say $1300 USD which is equivalent to £1000 GBP, which makes me know I owe £500 eligible for dividends tax.
Also, what do you mean by allowance costs and bad and breakfasting?0 -
ColdIron said:SavingStudent1 said:ColdIron said:Use an ISA or a SIPP and you can forget about taxIf you want to access the funds in the near future you should be using cash. How would you feel if the value of your funds were down 40% when you wanted them? Could you wait, potentially years, for them to recover?Have you got a Lifetime ISA (LISA)?
I have got a LISA separately which I put £4k into each year. I am planning to use my ISA allowance for let's say £8k in fixed cash ISAs, and the remaining 8k in S&S ISAs potentially - which I start investing.
The truth is, I will probably not even have 20k in savings, if even that, after taking into account expenses. I'm just pre-empting the future times when I will and know exactly how to approach things in terms of investing outside of an ISA, when I do.0 -
SavingStudent1 said:Suppose I buy £25000 of VUAG today and it goes up by 18% over the next year. It is now worth £29500 and I sell it immediately, making a profit of £4500. I know in practice, there might be fees etc. - but ignoring these. I've bought in GBP, so no FX fees.
I now owe £1500 of CGT to pay. Is that correct? Despite the base currency being USD, since I bought in GBP - I avoid any issue of the base currency/traded currency being different?
However, I assume if I'm trying to calculate dividend income - this issue will arise. Suppose it earned £1000 in dividends that was reinvested in the stocks, then I owe '£500' in dividends tax. However, as the base currency is USD, the figure won't be in GBP - it might be say $1300 USD which is equivalent to £1000 GBP, which makes me know I owe £500 eligible for dividends tax.
Also, what do you mean by allowance costs and bad and breakfasting?
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