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How are profits from ETF's taxed? as capital gains?

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I bought some ETF's recently and noticed I did not have to pay stamp duty ON them as you normally do with other stocks and shares. Does this mean that ETF's are also taxed differently? Are the gains exempt for the first 9K or so, as per capital gains tax?

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I bought some ETF's recently and noticed I did not have to pay stamp duty ON them as you normally do with other stocks and shares. Does this mean that ETF's are also taxed differently? Are the gains exempt for the first 9K or so, as per capital gains tax?

ETFs where the fund is based offshore do not require stamp duty to be paid when an investor buys shares in the ETF (e.g. the major ETF providers are based in Ireland and Jersey for this reason).

 

However, if the investments inside the fund require stamp duty to be paid, then the fund managers must pay it when they expand the fund. E.g. a FTSE tracker ETF that is creating new ETF shares by buying the underlying companies, must pay the stamp duty on their individual share purchases. This is one of the costs that gets contributes to the market spread and ETF management fee.

 

Capital gains (e.g. a rise in the value of the shares) are eligible for CGT, and therefore you get a 9K approx per annum tax allowance. Thereafter gains must be declared and taxed at 18%. Dividend payments from the shares must be declared as income and taxed at the relevant rate. (The exception is for investments held in an ISA or SIPP - no declaration is required as no tax is payable).

 

Most ETFs tend to distribute dividends from their underlying holdings as dividend payments. This is slightly different to unit trusts which are available as 'accumulation units' where the dividends get reinvested making the individual units more valuable. This means that the accumulation unit trusts have a preferential tax treatment (if you've exhausted or want to avoid using your ISA/SIPP allowance). As if the units accumulate dividends, then they get taxed as capital gains at a lower rate than dividends which are paid as income.

 

 

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