How to hold £7,200 in a 'Cash ISA'

RayWolfe

How about, we agree not to keep any cash in a S&S ISA? That would be easiest.

jamesd

We get an incentive to use Blackrock Merrill Lynch UK Absolute Alpha fund or the fund that this discussion is really supposed to be about. This Telegraph reoprt says that the Deutsche Bank sterling overnight interest rate ETF will qualify for a S&S ISA.

MrMicawber_2

Yes, and the DB ETF apparently gives 5.3%ish at the moment which as a temporary shelter after taking profits (well not at the moment but maybe one day), or rebalancing looks pretty reasonable to me. Temporary cash in S&S ISA's is usually pretty second rate compared to this and there is the tax charge on top. (H-L whose cash isn't bad has quite a severe tiering so this beats that - but need to watch the charges).

E.g. putting xk into the ETF in April and then drip feeding into funds from there might not be a bad idea.

Or for a cautious basic rate tax payer who didn't want any exposure to equities but has already their full allowance into a cash ISA and has more to spare it might be good. 5.3% equates to 6.625% (next years br rate) and for a higher rate tax payer it equates to 8.83%.

There is no tax charge but there will be a dealing charge and a management fee but I think this will be low.

GTG

jamesd wrote: »

This Telegraph reoprt says that the Deutsche Bank sterling overnight interest rate ETF will qualify for a S&S ISA.

Does it pass the 5% test though (as previously pointed out by Cheerfulcat).

From HMRC's web site:

The 5% test

From 17th November 2003 all units or shares acquired in relevant UCITS, Chapter 5 UCITS, securities schemes, warrant schemes and fund of fund schemes will be subject to the 5% test. Any units or shares that pass the 5% test qualify for the stocks and shares component of the ISA , and the PEP. Any that would have qualified for the stocks and shares component of the ISA but fail the test qualify instead for the cash component of the ISA.
The test applies to the capital return expected by the investor. The test is applied at the date of purchase of the units or shares into the ISA or PEP, and at no other time. If the investor is certain or near certain of receiving back 95% or more of their initial investment at any time during the 5 years after purchase (that is the investments are not exposed to a risk of loss of at least 5%) then the test is failed.

I'd need to see the ETF on a plan managers list of eligible investments before I believe it.

goog

An interestind idea - however, I think there is a flaw.

From the press release:
http://www.db.com/presse/en/content/press_releases_2008_3763.htm

"...The new ETFs on SONIA® and FED Funds Effective Rate® Index will be traded in Euro in Deutsche Boerse and Borsa Italiana offering investors the opportunity to additionally participate in the performance of the respective underlying currency. In case the British Pound or the US-Dollar increases against the Euro during the investment period, the price of the respective ETF soars up too and vice versa. This is the reason why these two ETFs might be seen as the first two currency-ETFs in Europe. ..."

It's not clear whether once the ETF is launched on the LSE it will be a Euro based fund or not. My guess is it will be, given that it will be the same fund which is already traded on other bourses. If it is, then holding the ETF will be like holding cash, but with a bet that the pound will fall against the euro. Not quite the same as a cash ISA....

GTG

Hargreaves Lansdown are offering 6% fixed for 3 months from 7th of April to 6th July for deposits into this years S&S ISA.

The monies are locked in until July and you must deposit by 12pm on Saturday 5th April. I believe HL are open until midnight on that day. Applications can also be made using a debit card online.

GTG

goog wrote: »

An interestind idea - however, I think there is a flaw.

From the press release:
http://www.db.com/presse/en/content/press_releases_2008_3763.htm

"...The new ETFs on SONIA® and FED Funds Effective Rate® Index will be traded in Euro in Deutsche Boerse and Borsa Italiana offering investors the opportunity to additionally participate in the performance of the respective underlying currency. In case the British Pound or the US-Dollar increases against the Euro during the investment period, the price of the respective ETF soars up too and vice versa. This is the reason why these two ETFs might be seen as the first two currency-ETFs in Europe. ..."

It's not clear whether once the ETF is launched on the LSE it will be a Euro based fund or not. My guess is it will be, given that it will be the same fund which is already traded on other bourses. If it is, then holding the ETF will be like holding cash, but with a bet that the pound will fall against the euro. Not quite the same as a cash ISA....

Below is a copy of a reply received from Deutsche Bank to an enquiry about SONIA:

Dear Mr Investor,

1) Yes, the base currency will be GBP
2) Basically our ETF Products are ISA eligible. I refer you to the tax section of the products securities' note, which will be downloadable from our website as soon as the product will be listed
3) The listing on LSE has been delayed. The latest news on that is that it ought to be listed in the course of April.

Hope this helps,

Mit freundlichen Grüßen / Regards,
db x-trackers Team

lon_don

The prospectus on DB X Trackers site says it is "Eligible for ISAs/SIPPs"

http://www.dbxtrackers.co.uk/pdf/EN/factsheet/factsheetLU0356592187_2008_04.pdf

Is it confirmed then that this ETF can be put into a S&S ISA ?

AlexGreen_2

Nobody knows yet. I spoke to DB and they said 'yes' but the fella was German and seemed to think it was for a cash based ISA which of course is a simple bank account and isn't designed to hold securities. Not his fault though as he isn't English so UK tax is not his strong point.

Ticker is XGBP and it started trading last Friday (18 Apr) at around £179 per share. GOOG - this one is the Sterling ETF there is another one traded in Euros (on the back of euro rates).

Everyone I've spoken to says 'don't know' or 'we're looking at it and running it through compliance'.

Would be nice to get a concrete answer once and for all.

PS. Whether or not for ISAs it's a great tool for SIPP investors.

noh

lon_don wrote: »

The prospectus on DB X Trackers site says it is "Eligible for ISAs/SIPPs"

http://www.dbxtrackers.co.uk/pdf/EN/factsheet/factsheetLU0356592187_2008_04.pdf

Is it confirmed then that this ETF can be put into a S&S ISA ?

Actually it says
"Eligible for SIPPs and the cash component of ISAs"
Which seems to indicate that no more than £3600 can be subscribed in any year.

Nigel