The tax treatment of ETFs in the hands of investors will vary with individual circumstances and may change over time so professional taxation advice should always be taken. However, some general points can be made.
- ETFs are generally domiciled in established fund jurisdictions overseas such as Dublin and pay little or no local tax. The UK tax authorities will consider their dividend distributions to UK residents to be foreign dividends that are subject to dividend tax rates.
- Most London-listed ETFs have ‘reporting’ status, meaning that for taxable investors gains made on ETFs are generally liable to Capital Gains Tax, currently 18%. Gains on those funds that do not have reporting status will be taxed as income. Therefore, all other things being equal, ETFs with reporting status are much to be preferred by the UK taxed investor since they are generally more tax efficient.
Many ETFs qualify for inclusion within ISAs, PEPs and SIPPS.
