Accumulating vs dividend-paying ETF

SashaC

EdSwippet said:

SashaC said:

I've recently signed up for Interactive Brokers, and am trying to figure out a sensible default for the majority of my income. I basically want a cheap ETF that tracks the global economy, and one of the best options I've found is VT, a dividend-paying ETF for the Vanguard Total World Stock ETF, with an 'expense ratio' of 0.06%.

As a resident of Singapore, you want to entirely avoid VT and any US domiciled funds and ETFs. With those, you will overpay US dividend withholding tax, and may risk losing 40% of your holding above just $60k to US estate tax if the worst happens.

Non-US domiciled alternatives are VWRP (accumulating) or VWRL (distributing). At 0.22%, these have a higher TER than VT, but you will more than recover that with the much lower US dividend tax drag (0-15% of your approx 2% annual dividends, compared to the full 30% with VT), and absolutely no US estate tax entanglements.

Vanguard used to be the cost-cutting leader, but it has become complacent, and other fund providers have overtaken (or should that be undertaken?) them. For example, ACWI, all-world, not US domiciled, and comparable with VWRP, but with a TER at 0.12% close to half the cost of VWRP and VWRL.

Thanks to all respondents! This thread has made me realise I probably need to change out some of my existing investments to avoid future tax.

Based on the quoted comment, and one above, it seems like ACWI is just clearly the best fund for a simple global diversification ETF strategy. Is there any case for picking other similar funds over it, or is it the no-brainer it appears to be at least for now?

Johnnyboy11

If you do plan to return to the UK within 5 years of leaving, then be aware of Temporary Non-residents Rules and CGT. This is a complicated area, and specialist professional advice might be advisable. If you do return and hold overseas investment funds outwith an ISA or SIPP tax wrapper, for example the mentioned Vanguard funds that are domiciled in Ireland, then you'll need to fill in a UK tax return each year to declare foreign income. As previously mentioned above, holding Income Units will make your tax reporting a lot simpler.

https://www.gov.uk/government/publications/temporary-non-residents-and-capital-gains-tax-hs278-self-assessment-helpsheet/hs278-temporary-non-residents-and-capital-gains-tax-2023

EdSwippet

Johnnyboy11 said:

... As previously mentioned above, holding Income Units will make your tax reporting a lot simpler.

All true, just with the observation that because Singapore does not tax capital gains, the OP could (should) simply switch from accumulating to distributing before moving to the UK and becoming a UK tax resident.

Johnnyboy11

Again, this is a complicated area, particularly if the asset was held before leaving the UK and subsequently sold whilst overseas. Disposals made in the overseas part of a Split-Year need particular care if the Temporary Non-residents Rules apply.