Rajput1962 wrote:I noted for the first time that my VWRL divi in my III non-ISA trading account was credited to my account in $US. I tried to reinvest it (a couple of weeks ago) only to see a message that there were insufficient funds in £GBPs. I did the online conversion to £GBP and then carried on as normal.
BUT, i have been wondering ever since whether i should have bought the VWRL version priced in $US and therefore have avoided the few £s i lost in the conversion from $US to £GBP?
Are buyers/sellers penalised both on the way in and out with VWRL -GBP? I am making the assumption that what i'm buying is actually a US fund but offered to us in £GBP (as well as a few other currencies), and therefore there is a currency conversion going on where we can lose abit because that's the market maker's margin.
If any of the above is true, then in the future it would make sense to buy the $US version of VWRL and only pay one lot of currency conversion when selling and converting to £GBP - assuming III continue to pay the divi in £US.
A factor to consider is that the US is increasingly aggressive in regard to capturing 'tax avoidance/evasion'. With the US being around half of global stock weighting that induces a non trivial risk and their standard policy is to assume the worst case (best case for them) when there is 'doubt'.
Uncle Sam (their taxman) doesn't like funds or offshoring type 'avoidance' practices and have added 'look-through' type rules/regulations on the pathway to closing such 'loop-holes' down. Over time that looks set to only become even more intense. i.e. if the ultimate beneficiary is deemed to be a individual then even if held via a fund the look-through might consider that tax/avoidance benefits seemingly by holding the fund might not actually be the case.
I can foresee a future where the likes of ETF's/funds are much more aggressively pursued by the US. As a for-instance possible case they might pursue Irish based ETF's such as VWRL for estate tax purposes, where if not declared to the IRS within 9 months penalties are also added. US estate tax for non-US investors kicks in at $60,000 and the tax rate scales up to 40% amounts. Joint account 'loop-holes' also have legislation to reduce/eliminate 'avoidance'. If it is deemed that a Irish based ETF was just another offshore method to 'avoid' taxation and that the shares the fund held should have look-through rules applied, then disclosure failures could lead to a nasty US tax liability falling due, along with considerable fines/penalties for individuals having failed to disclose/declare. And the amount becomes subject to the entire estate value amount, not just the US stock/shares values. Whilst the UK/US estate tax treaty enables UK residents to enjoy the same exemption allowances, something like $11 million estate value with no tax falling due, it does have to be declared and have the tax treaty arrangement specified within the 9 month period, failing that the situation reverts to the 'worst case' default.
Basically, sooner or later I can see a situation where investors flight out of the likes of Irish based funds/ETF's and back into single stock holdings, bought directly from the US rather than through a 'offshore' holding such as Irish ETF's. Holding ETF's within ISA will at least mean that there isn't a enforced UK capital gain tax liability in having to sell ETF's to buy stocks. As you can't hold foreign currencies in a ISA then good practice is to hold funds that either pay dividends in Pounds or that accumulate. More ideally buying funds that trade in/out of Pounds directly also reduces quite high FX costs (often around 1.5% type amounts each way, 3% round trip).
Yet another factor is that buying/holding US funds directly is also a targeted activity, again considered undesirable. As such I can foresee a future where investors once again revert to a diverse range of individual stock holdings as the preferred choice over that of holding funds.
It's not trivial amounts that is up for grabs as having been 'tax avoided' and the size of the potential capture is such that I suspect even a 20 year investment horizon might see changes having been aggressively implemented. Not only just in the US, but with others such as the EU following that lead. Nor will there likely be any compensation claim as the onus upon declaration is on each individual such that you wouldn't be able to make a compensation claim against the ETF provider.
Also be aware that going the way the US would prefer, holding individual shares directly and applying UK/US tax treaty, is still a overtly dodgy pathway, the notes attached to the relatively simple paperwork extends to something like 90 pages. And when not having the correct details recorded/procedures followed can void the exemption and have you fall back into the 'standard' $60,000 lower limit. As yet another example if you file the wrong version of the form, not the one associated to the particular date, it can be rejected. It's also a lengthy process, at least 9 months, more often considerably longer.
Potentially not very simple/passive. My guess is that in another couple of decades investors will once again have reverted back to the old-ways of buying 8 to 16 type individual stocks, bought and held as-is, along the lines of HYP (Pyad style) but more usually without the focus upon dividend yield as a selection criteria. 8 mega caps diversified across business activities each with global business presence/exposure type selections.