Autumn Statement 2013: ETFs to be tax-exempt
Chancellor George Osborne has announced in the Autumn Statement that stamp duty reserve tax (SDRT) will no longer apply to shares bought by exchange traded funds (ETFs) domiciled in the UK.
The removal of the tax is hoped to encourage more ETFs to domicile in the UK rather than offshore.
Currently an ETF based in the UK pays stamp duty of 0.5 per cent on purchases within the ETF. That charge does not apply to funds that are based in, say, Luxembourg or Dublin.
From April 2014 that charge will no longer apply.
Adam Laird, head of passive investments at Hargreaves Lansdown, thinks it is a very positive move for the UK.
‘The London Stock Exchange is the largest exchange in Europe for trading ETFs but there are very few that are actually based in the UK because they would have incurred stamp duty,’ he explains.
‘When this rule is brought in more will be based here and that is positive for investors because it gives them more options, and many people are more comfortable with holding a product that is based in the UK and therefore regulated by UK law and covered by the Financial Services Compensation Scheme,’ he adds.
Hector McNeil, chief executive at Boost ETP, says the move sounds ‘a bit cosmetic’.
‘It will make it cheaper for investors to buy and hold, but I don’t think it will encourage fund companies to relocate to the UK because it doesn’t affect them,’ he explains.
‘Dublin and Luxembourg are very friendly environments to set up a fund,’ he adds.
Boost ETP products are domiciled in Dublin ‘because they are geared up for doing that business and from a tax perspective it’s a good place to do business’.
However, McNeil says that overall ‘it is a good move for the product’. From an investors point of view, ‘it should make it cheaper, because 50 basis points is a lot, and should allow it track better’.
• This article was taken from our sister site Money Observer.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
An Exchange traded fund is a security that tracks an index or commodity but is traded in the same way as a share on an exchange. ETFs allow investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust. Investors buying an ETF are basically investing in the performance of an underlying bundle of securities, usually those representing a particular index or sector. They have no front or back-end fees but, because they trade as shares, each ETF purchase will be charged a brokerage commission.