Broker comparison: cheap investment platforms UK

@Linda – a dash generally means refer to the header row for that broker, e.g. taking the first example in the Flat Fee table, Interactive Investor, their regular dealing fee is £1 – this applies whether you do it in an ISA, standard trading account, or SIPP.
As an aside, although Interactive Investor charge an annual fee of £90 for an ISA (and/or trading account) you get this much back in trading credit, which means you could make 90 regular scheduled trades, or 9 adhoc trades, per year for no additional cost.

Hi there

My ISA is a pretty good fit for iWeb or Halifax.

However, when I asked them whether they held iShares Physical Gold ETC (SGLN) OCF, they said yes, but only in USD, not in GBP.
Is it common for brokers not to hold local stocks? Is there a good alternative to iWeb/Halifax in this range?

Thanks
Max

Hi Max,

I’ve generally found with iWeb/Halifax/Lloyds (they are all the same company) that if you email customer services the security name, ticker number, exchange and ISIN they will be more than happy to ask Dealing Control to add the stock as tradable on their systems for you.

Apparently, they don’t automatically add new pooled investment products (unless it’s a really big launch) as there is some compliance work for them to do before they can allow dealing with private investors. I’ve found that it takes about one week from emailing them before a new product is tradable; they are pretty on the ball.

Hi Jeffrey

Thank you. My concern is that in addition to gold price risk, wouldn’t I also be taking on currency risk if I buy the USD version?

All the best

Max

Jeffrey, many thanks.

I came here a few weeks ago looking for somewhere to transfer my interactive investor (ex td direct) portfolio. I don’t like ii due to their past behaviour & fees tariff, and I’m already well over my comfort level with my iweb holdings. The broker tool suggested IG group as cheapest after iweb, and although IG don’t do funds, I plan to keep funds in current iweb account and so initiated ii transfer to IG. I’ve come back here today and notice now that IG has completely disappeared off the broker tool calculator and also the table. Is there some reason for this? Just concerned that there’s something I haven’t picked up on with IG and I’ve already initiated transfer to them.

@ Jane M like The Investor says IG were never on the table. Maybe they recommended in the comments?

Anyway they are bringing in quarterly fees from 1st April 2018. Please see details below from the email I got:

We’re writing to inform you that we’re replacing our share dealing inactivity fee with a quarterly £24 custody fee.

You could be subject to the fee if you hold shares or ETFs in a share dealing account or ISA at the end of each quarter. However, it is dependent on your trading activity – so you will be exempt from the charge if you:
• Deal three or more times across any of your IG accounts during the quarter
• Hold assets worth £15,000 or more across your IG Smart Portfolio accounts at the end of the quarter
• Hold no open positions in your share dealing account or ISA at the end of the quarter
Any commission you pay on your share dealing, ISA or SIPP accounts during the quarter will also be deducted from the fee. For example, if you placed a single trade in your ISA during the quarter at £8 commission, you would pay a custody fee of £16.

But don’t forget that you only need to place three trades of any value across any of your IG accounts during the quarter, in order to be exempt entirely from the fee.

I think Fidelity have changed the cost of buying ETFs/shares within their ISA or dealing account to a flat £10 (was previously 0.1% of the sale/purchase amount). It remains 0.1% of the sale/purchase amount for ETF sales/purchases in a SIPP

https://www.fidelity.co.uk/investing/fees

It looks like cheap options for investing in to a ETF leaning SIPP are going away 🙁

Wrt Cavendish/Fidelity: Does anyone know how dealing fees work with respect to tax refunds in a SIPP? If I deposit £400/mo in to a SIPP do I pay £1.50 on the £400 buy and then another £1.50 on the £100 buy after the tax relief comes in, or will it be a whopping £10 on the later buy?

Also, why does the AJ Bell SIPP get a “good for” comment of “ETF portfolios below £15K” when Fidelity/Cavendish clearly win here? Better selection?

A Fidelity customer service representative told me on the phone yesterday that ETFs cannot be held in their SIPP. The broker comparison table suggests that you can hold ETFs in the Fidelity SIPP, so either the table is wrong or I was given incorrect information.

Can someone who is a Fidelity SIPP account holder please check whether ETFs are available inside the SIPP and post a reply comment so we can be sure the broker comparison table is correct?

Thanks!

To Stefan, I hold about a dozen EFTs in my Fidelity SIPP. There are quite a lot to choose from so yes you were given wrong info.

@ Mr Optimistic/Stefan – you can, but two disadvantages, we found: a) it’s forward-pricing only, so you can deal ‘live’ – just put in an order for a 12am purchase/sale the next day; b) the range is limited and they were really only willing to accept existing portfolio holdings, so it was quite limiting. Service was good, but not having access to live pricing for shares was ridiculous, so we left them.

@Susan. Thanks. I have heard the Fidelity offering described as more of a platform than a SIPP so that may explain it. I noted the fact that they charge the platform fee on cash too.

I’ve just tried the comparison tool and just wanted to say how easy it was to use (and quite a revelation). Thanks very much!

Is it just me or are these platforms just changing for the worse?

Fidelity look set to cause a conundrum for me. Having both ISA’s and my SIPP with them I made the move to mostly ETF’s and IT to reduce platform charges and make use of the £45 fee cap. However about 6 months ago I started putting some of my regular SIPP savings into cash in anticipation of a market top, only now to find as stated above, that they levy the full 0.35% charge on cash held in accounts.

I also don’t like the fact that they are moving to fixed £1.50 dealing costs on regular contributions. I currently split my monthly contribution 8 ways, taking advantage of ability to diversify across sectors, using the percentage allocation option currently available. Total cost 0.1% on transactions. When they change over the SIPP to the new model (currently running on ISA and trading accounts) I will then face a £12 dealing charge per month. A jump from 50p to £12 is somewhat staggering on a £500 contribution and would be even worse for lower monthly savings amounts. I guess I’ll ride this out until they change it and decide what to do then.

Other ISA’s in TD Direct have now gone to ii and again I feel this is a change for the worse. I resent having to pay charges on the basis that ‘I may’ need to use them. I hold mainly shares in this account so I think I’ll probably be joining many and changing to iWeb. My worry here is that their website and platform looks sorely in need of an update and it seems when platforms do this they also rejig their charging structure.

On a slightly separate note I was looking to put some additional regular savings into funds. I was looking at Close Brothers? They seem cheap at 0.25% but perhaps a bit less slick (i.e. it took them 3-4 days for me to open an account and it looks like you have to post monthly savings instructions setup). Does anyone have any experience? Or perhaps Charles Stanley offer a similar alternative.

I’m looking to consolidate 4 DC employer pensions into a single SIPP. I find it confusing, and I work as a fund manager, so good luck to any one who doesn’t work in the investment industry! It is unnecessarily complicated for the benefit of the providers rather than the pensions customers. I’d be grateful for a bit of help please…

I have a total pot of £60k and am in my early 30s, so not looking to drawdown any time soon, but would be looking to transfer in additional cash once every quarter. A la Warren Buffett, I just want to be fully invested in a Global Equity tracker and forget about it for 30 years, but also have the option to take on a bit more risk with smaller companies or/and emerging markets via investment trusts. I also already have a Charles Stanley Direct Stocks & Shares ISA and like their platform.

I’ve calculated a CSD SIPP would cost me c.£150: a platform fee of 0.25% for funds and shares (£150, which is annoyingly only capped for shares, although funds dealing is £0); and a £100 admin charge which would be waived due to platform assets being greater than £30k (so £0). This tallies with the Daily Telegraph’s SIPP table, which shows CSD SIPP being one of the cheapest for a £50k portfolio (£148).

However, the Monevator comparison tool gives a cost of £691: £0 platform; £686 fund; and £5 exit. Can anyone help reconcile these figures?

The comparison tool recommends ii (£213 pa), but I’m put off by peoples’ poor reviews. I know a ‘flat fee broker’ would be best in the long run but none of the Monevator ones appeal. If I invested in ETFs rather than funds, at least I’d eventually benefit from CSD or HL’s cap on platform fees for shares?

Also, does anyone have any info on the different practices wrt SCRIP/DRIP dividends if I were to hold non-accumulating shares?

Finally, having just checked out Vanguard’s website, I don’t know whether to just wait for them to introduce a SIPP? (“we’re working on bringing you one in 2018”)
Thanks

Can I have a little moan? When looking at the comparison table, I have to keep scrolling up to the top to read the column headings. I suppose I could write them down but it would be really good if the headings were repeated every so often so that they are readily available. On my laptop, there are about 2-3 platforms on each screen.

I’ve recently been blessed with a £150k lump sum to invest and I’m looking into optimising my allocations and choice of broker (previously I’ve filled up my last four ISAs with low cost index funds in BestInvest without doing too much allocation work, just a mix of vanguard trackers for a few markets)

I’ve got two main questions and would be grateful for any advice:

1) ETFs vs Index Funds: I’ve read here and elsewhere that as I have more than £25k, an ETF might be a better choice than an index fund. How come? Am I missing something about costs here? I know that ETFs have a one-off flat fee to invest in most platforms (£5-10), but are they cheaper in some % way? Don’t both ETFs and Index Funds have an annual OCF? Or are they not the same in this respect?

2) Interactive Brokers: I hear this broker company mentioned and recommended to me a lot by others who have sensible ideas about passive investing, but in this article it was relegated to ‘share dealing broker’. Yet it appears possible to buy a very wide range of both Funds and ETFs on their website. Is there a reason you don’t recommend/mention this broker more? Am I missing something here as well?

Thanks!

Hi New Investor,

ETFs are not intrinsically cheaper than index funds at any given level. At the £150K level, a flat fee broker will be cheapest and they largely treat index funds and ETFs the same way price-wise. ETFs and index funds both have an OCF.

Interactive Broker – is in the sharedealing part of the table because that’s their business, they are fundamentally a trading platform. I don’t believe you can buy index funds through them (but please point me in the right direction if you’ve found differently) but ETFs are available including a menu of commission-free US domiciled ETFs. Note, US domiciled ETFs are a whole new kettle of worms – there have been reports they can expose non-US citizens to US estate taxes.

@NewInvestor – Am I right in thinking Interactive Brokers don’t offer Stocks and Shares ISAs?

@Jeff Beranek
IB offers SIPP indirectly, via third party SIPP administrators.
https://www.interactivebrokers.co.uk/en/index.php?f=1212

@New Investor
The only issue with regards to US estate tax is that even if you don’t owe tax you (or your executor) still needs to file a tax return. That however is a small negative that is outweighted by the cost advantages of US domiciled ETFs (on all aspects, ie commissions, bid-offer spread, and ongoing fees).
Can you please link to your comment regarding the tax efficiency?

Also, if your W8-BEN form is up to date then you’ll pay 15% withholding tax on any dividends on US shares held in a US brokerage, or 30% if it’s not up to date. You might also need to file a 1040NR tax return to the IRS. You might be able to use UK foreign tax credits to reduce you tax liability, but it doesn’t seem worth all the hassle to get marginally cheaper funds and trading costs compared to the best UK platforms, where you can take advantage of the ISA and SIPP.

With regard to having to file the 1040-NR if you hold US shares, to be honest, I don’t know. I cannot provide tax advice and UK investment platforms do not provide tax advice either. So you are left on your own to decide what to do. I’ve seen tax specialists online recommending people to file the 1040NR (and also potentially Schedule B for dividends & Schedule D for capital gains). As I say, I’m no tax expert, but you might actually be able to get some of that 15% tax withholding back, but I doubt it would be worth the hassle of the insanely complicated tax forms. At the moment, I don’t see the need to hold US funds or shares in anything other than my SIPP where (most seem to agree) they are safe. As you say, I doubt most UK investors that hold a few Apple shares have any idea of the potential pitfalls. Note also that your platform will also be charging fees on currency transfers in both directions, each with a small spread taken out. I personally don’t see the point when I can buy a full replication S&P 500 tracker in the UK for 0.07% as well as a whole host of US “factor” funds for less than 0.3%

So, as I said above, you still have to pay a 15% withholding tax on any dividends if your W8-BEN is up to date. You may be able to reclaim some of this by filing a tax form in the US, but that depends on your specific tax situation.

I’m afraid I don’t know if you get any allowances on dividend or interest income as a “non-resident alien” (like my British wife!). As a US citizen I get allowances, but it gets very complicated because I have different types of income in both countries and need to take advantage of a UK/USA tax treaty to try and avoid paying tax twice on the same income. So currently I can avoid paying the withholding tax. It’s called withholding tax because they withhold the money from you unless you can prove that you can be taxed less (or more!).

Following on from comments a month of so back regarding US trading account.
Im looking to keep ISA wrapper but looking for cheapest way to trade US shares. I probably aim to do 50/50 between UK and US. Exchange rate charges are obscene by most companies, for example TD direct/ HL etc charge 1.5% each way!! Believe Saxo is 1%? Really this is day light extortion and should be wiped out from the industry, they should just have their dealing rate and deal at spot exchange rates!

From lots of research it seems 2 main cheapest options that are light years ahead of others:

– IG sharedealing account: – 0.3% forex + 2 cents a share: 10K worth of $20 stock = £30(forex chrg)+$10

– HSBC: appears to be no forex charge but $30 flat rate charge. Not as cheap for frequent trader/ UK shares as IG

In brief HSBC appears a lot cheaper but have no idea what they’re like and not the cheapest for UK. On the other hand im deeply untrusting with IG as a business, and they seem good for say £10k of stock but if you’re buying £20/£30k then the fee would skyrocket.

Do people have experience with HSBC direct invest plus? Degiro also looking to implement an ISA option but no timeframe and ive heard questions over their execution/ spread etc.

thanks Jeff,

Very useful, its just annoying how much more expensive/ ripped off we are to trade US shares, especially when its the currency exchange margin which seems to be an underhanded way to get extra commission . My preference would be for an interactive brokers account but they stopped doing ISA’s a while ago i think, as did a number of other US brokers. Assume its just too much faff for them to be worth their while to provide it for UK.

As you say, the costs aren’t the best around, but not too bad, and the advantage of the ISA wrapper dwarfs any advantage from using a US broker with USD and super cheap fees outside an ISA.

Re Clubfinance Frequent Trader in specie (reregistration) transfer costs:

According to the ‘Charges Schedule’ that you can downloaded from

https://www.clubfinance.co.uk/share-dealing/

“Transferring investments to another Nominee, or to your own name (‘certification’) £15.00 per stock”

So the charge here is £15 per investment (re-registration is covered by the transferring to another Nominee)

Sounds like the phone info is wrong.

Regarding the proposed upcoming AJ Bell IPO… Is it just me, or does the idea of owning shares in the company responsible for holding your pension or ISA just scream “Increased Counterparty Risk”! It’s an interesting way form them to encourage customer loyalty, but I think I would prefer to keep the two things separate. Just because I might own shares in a cigarette company does not mean I smoke.

Please also think about the provider’s stability when selecting a platform. I was with Beaufort Securities who is now in administration.

Sorry for the late response, I forget to check this page regularly and had not got email notifications.

@ The Accumulator
No worries, I will check that comment once in a while 🙂

@ theta, Jeff Beranek

My inclination towards IB as a platform and towards US-domiciled ETFs are two separate things.

Firstly, IB. As I understand it, if I only invest in UK/Ireland-domiciled ETFs and Funds, then I have no additional US/UK tax/reporting requirements compared to investing in the same funds using a UK-based brokerage. Ie, where the brokerage is located doesn’t make a difference if I’m investing in the same funds. Is this right? This is what I’d assumed so far. I agree that ISAs are useful, but I’m talking about the scenario where you’ve filled up your ISAs _and_ have a significant amount left over to invest in a taxable account. The fees of IB are just very low if you have an account value of >= $100k and this is a clear benefit to me.

Secondly, US-domiciled ETFs. I agree that things get complicated. Here is a link to my comment where I repeated what @ivanopinion had commented earlier in that thread: http://monevator.com/etfs-vs-index-funds-differences/#comment-875632 . Yes there is withholding tax on US-domiciled ETFs, but withholding tax appears to exist anyway – the difference is just that if you invest through an Ireland-domiciled ETF then the ETF pays the withholding tax on your behalf and so you don’t get to use it as a credit against further tax in the UK. So there is a small benefit to US-domiciled ETFs, which has to be offset against the cost of: FX exchange, Estate tax filing, and form filling.

The next point is that both US- and Ireland-domiciled ETFs are superior to UK-domiciled OEIC Index Funds, as the OEIC apparently pays both the withholding tax and a further tax to the UK.

Again, not sure if I’ve understood this correctly. Please correct any errors I’ve made!

@ivanopinion
Correction on your last point: In a SIPP the US div tax withholding is 0% and there are no issues of US estate tax filing or form filling, so US domiciled ETFs are much better than IE domiciled.

Thinking some more about the tax on withdrawal from the SIPP:

Most of us are going to have a marginal rate during retirement equal to basic rate tax. Currently 20%, though you can take 25% tax free, so effective rate of 15% unless you exceed the LTA. So, the eventual tax on the dividend income from a US domiciled ETF, held in a SIPP, will be 15%, same as if you held it in an ISA. The US tax exemption is not a net benefit (compared with an ISA).

But if you are going to hold the ETF in a SIPP, best to choose the US domiciled one, otherwise you lose 15% as WHT and a further 15% (of the remaining 85%) on withdrawal, which is an effective rate of 27.75%.

@DianaW – not sure if this is relevant but …. on the old website I was trying to pay by using the Chrome browser but it always failed (something to do with pop-ups I think) so I switched to Edge (MS on Windows 10) and it worked fine.

Suggest you try a different browser

To clarify: that’s not exactly my allocation because the actual desired asset allocation trumps tax considerations and the space of each account is not flexible. But that’s the thought process on which account should a particular fund be.

@ivanopinion
The latter is wrong. This part specifically: “So, the eventual tax on the dividend income from a US domiciled ETF, held in a SIPP, will be 15%, same as if you held it in an ISA.”
We are comparing holding US domiciled ETF in a SIPP vs IE domiciled ETF in a SIPP or ISA (AFAIK you can’t have US domiciled ETF in an ISA – although it wouldn’t make a difference as the 0% withholding tax applies only to pensions). The US fund in a SIPP will have 0% div tax leak, the IE fund will have 15% div tax leak that is lost – you can’t reclaim it or use it as a credit.
The 15% effective tax rate that you mention (20% basic tax rate on 75% of pension assets) applies equally to both US and IE domiciled funds. After 20-30 years of contributions and 30-50bps of compounding annual outperformance the US domiciled fund will result in a significantly higher SIPP balance (compared to having been invested in an equivalent IE fund). The tax rate at the end on withdrawals is irrelevant for the comparison as it applies equally to both US and IE funds. The point here is not a comparison of the two different wrappers (SIPP/ISA) but the most tax efficient allocation of different funds in them. US domiciled funds give an extra advantage IF used inside a SIPP. I am assuming one does use a SIPP, and they do have an allocation in US assets. In that case they are better off buying US domiciled ETFs in their SIPP, and putting the non-US stuff in other accounts.

Snowman’s platform spreadsheet.

https://drive.google.com/file/d/1KqWqWRSNI23Jzs7VqzO5tyYgifOZd0Lr/view?usp=sharing

@theta

I agree, but let me be clear what I agree with (and what I don’t).

I fully understand and agree that a US domiciled ETF will suffer less tax in a SIPP than an Irish domiciled one in the same tax wrapper. But my posts 2071 and 2076 did not say otherwise. You had already convinced me on that.

The bit you say you disagree with was a comparison of the same investment – a US dom ETF – in a SIPP or an ISA. So all your mentions in post of 2077 of Irish dom ETFs are not relevant.

You may be right that a US dom ETF cannot be held in an ISA, in which case there’s no point discussing further, as one leg of the wrapper comparison is impossible. However, I thought that you could ISA any ETF that has UK reporting status? Do US dom ETFs not obtain UK reporting status? And would you put ETFs without UK reporting status into a SIPP?

IF it is possible to have a US dom ETF in an ISA, then I think you are right that putting them in a SIPP is potentially better, but only assuming you reinvest the divs in US dom ETFs. I assume this is what you meant by your reference to compounding. It seems to me that the difference arises if the returns compound at different rates in the ISA vs the SIPP.

I only realised you were right about this when I constructed a simple example with the intention of proving you wrong. It was as follows:

Assume div yield of 2% on the US dom ETF (which is roughly the US market yield). Assume year 1 dividend income from US dom ETF of 100.

If held in the ISA, after WHT this is 85. If reinvested in the same ETF, it grows at 2%x85%=1.7%. So after three years you have 100x.85×1.017×1.017×1.017 = 89.4. This can be drawn from the ISA tax free.

If held in the SIPP and it reclaims the WHT on the initial div and the compounding, then after three years you have 100×1.02×1.02×1.02 = 106.1. If you then withdraw this, you pay 15% tax (assuming BRT and no LTA), so you have 90.2. That is slightly higher than the 89.4 from the ISA, purely because of the higher rate of compounding. If you compounded for more years or at a higher yield, the difference would be bigger.

(If, instead, you reinvested the initial dividend in an investment that is taxed the same in an ISA or SIPP, the compounding would be the same and the WHT benefit on the initial 100 dividend would be wiped out by the 15% tax on withdrawal from the SIPP.)

@ivanopinion

A few notes:

– You can put non-reporting funds in a SIPP. You can put them anyway, but more importantly, there’s no tax disadvantage in putting them there. The problem with non-reporting is that any gains/dividends are taxed as income. This is not an issue within a SIPP.

– The 15% tax rate you mention (20% tax rate on pension withdrawals after 25% tax free lump sum) is confusing because it’s the same number as the dividend tax withholding rate. But they refer to different things that are not comparable. You have to compare like for like. Your argument is that an investment within an ISA is better than within a SIPP because the latter is taxed on withdrawal. Well, yes, it is taxed, but that’s irrelevant, unless you are trying to decide which of the two wrappers to use. I have assumed that you use both. By the way, saving tax/NI at >40% and paying 15% at withdrawals is arguably better deal than no tax on entry or exit. But ISA vs SIPP is an entirely different discussion, and I can accept that one prefers an ISA over a SIPP and skip the latter if they don’t max out the former. If you do end up having a pension/SIPP, then SIPP withdrawal tax rate is a constant and applies to the whole balance. You still want to maximize that pre-tax balance.

– It’s not the compounding only, it’s the original amount of the div tax leak that is a net benefit if you use a US ETF in a SIPP (or in a taxable account if you are not a basic rate taxpayer).
I’ll give a detailed example below. Perhaps too detailed as I know you understand it but it’s for the benefit of others too.

Say you invest for only one year $5000 in US equity funds, paying $100/year in divs:

In a SIPP:
US ETF receives $100 of divs, pays $100 to you.
IE ETF receives $85 of divs ($15 are withheld before the fund receives them), pays $85 to you.
You have $15 more with the US ETF. $5100 vs $5085 if no price change.

In an ISA (if you could trade US ETFs):
US ETF receives $100 of divs, withholds $15 (because the 0% withholding rate applies only to pensions), pays $85 to you.
IE ETF receives $85 of divs ($15 are withheld before the fund receives them), pays $85 to you.
No benefit.

In a taxable account:
US ETF receives $100 of divs, withholds $15 (because the 0% withholding rate applies only to pensions), pays $85 to you. You then submit your UK tax self assessment, you pay 32.5% on $100 of dividends, minus the credit for the withheld tax: $100*0.325-$15=$17.5 UK dividend tax. You end up with $85-$17.5=$67.5
IE ETF receives $85 of divs ($15 are withheld before the fund receives them), pays $85 to you.
You then submit you UK tax self assessment, you pay 32.5% on $85 of dividends (no tax credit to claim): $85*0.325=$27.625 UK dividend tax. You end up with $85-$27.625=$57.375
End result: US ETF is better by $10.125

Of course if you have ISA space, you max that out first before you use a taxable account. If you have maxed it out though, and you use taxable space for additional investments, then you are better off using roughly the general priority I wrote above (post 2074).

Sorry, there appear to be a number of cross discussions here, but it’s all good stuff, if kept civil.

There are only a small handful of US domiciled ETFs that are considered ‘reporting’ by HMRC. HMRC produce a monster spreadsheet of funds that is regularly updated. I’ve done my best to remove all but the US passive low cost funds and all that is left is some good Vangaurd funds, some ETFS ETCs and some VanEck funds. I would personally avoid any non-reporting funds, regardless of domicile, but luckily most of the major Irish and Lux fund appear to be reporting. I suspect most UK platforms would/could drop them if they weren’t. I think if they are reporting and held outside a SIPP or ISA you will need to check the fund provider each year for any excess reportable income to declare to HMRC. These tend to be funds that hold US assests. So I think it’s easier to avoid holding these in a taxable account.

@theta
In reply to 2083, I’m sorry I still don’t follow.
You said: “Your argument is that an investment within an ISA is better than within a SIPP because the latter is taxed on withdrawal.”
That’s not what I argued. I argued that the tax on withdrawal wipes out the benefit of the WHT, so neither is better than the other (setting aside subsequent compounding).

You said: “Well, yes, it is taxed, but that’s irrelevant, unless you are trying to decide which of the two wrappers to use. ” But isn’t that exactly the question we are trying to answer? The one I was trying to answer is: if I have cash I want to invest in a US dom ETF, is it better to do so through an ISA or a SIPP (assuming it is possible to do either)? If the investment is for just one year (so we ignore the effect of compounding), the answer still seems to me to be no. Your worked example does not include the income tax on the withdrawal from the SIPP and I still don’t understand why you would ignore that.

Given that Jeffrey says there are few US dom ETFs that have reporting status, the issue is largely hypothetical, but I’d still like to understand if I’m missing something in my logic, because it probably means some other decisions I’m making are wrong.

@ivanopinion
You say “The [question] I was trying to answer is: if I have cash I want to invest in a US dom ETF, is it better to do so through an ISA or a SIPP (assuming it is possible to do either)?”
I was actually answering a different question: Given that you have assets in both SIPP and ISA, where should the US ETF go?

It still applies to your question. You should invest it in the SIPP and move the non-US stuff you have in the SIPP to your ISA (sell it and buy it back in the ISA that is). You will end up better off on the total package.

Again, I’m assuming you consume both tax sheltered spaces. If you don’t, it’s a different story and ISA vs SIPP depends on individual circumstances. I would still argue though that unless you need the money before retirement, SIPP comes ahead, because of the upfront tax relief, that is usually greater than the withdrawal tax rate. Here’s an example:

You have £5000 to invest.

You invest for 20 years, during which time US stocks double in price and pay dividends of 50% of initial price level in total.

SIPP:
Assuming 40% marginal tax rate and 2% NI, your SIPP gets £8620.69 to invest.
End SIPP balance is £8620.69 * 2 + £8620.69 * 50% = £21551.725
This gets taxed at 15% on withdrawal, so you end up with £18318.97

ISA:
You invest after tax income, so £5000.
End ISA balance = £5000 * 2 + £5000 * 50% * 85% = £12125

So SIPP is way ahead. Most of the benefit is from the tax relief of course, the divs just increase the benefit.

ISA vs SIPP is a separate topic though, and a more complicated one. For example what if tax rates change or you are at a higher tax bracket at retirement? I was only arguing the div WHT because it’s a net benefit under all circumstances (assuming you consume both ISA and SIPP tax sheltered spaces).

Regarding reporting status funds, again, this is not an issue in a SIPP, but all the cheap Vanguard trackers have reporting status anyway.

John, many thanks for the Snowman spreadsheet

Max

No, that’s the correct withholding of 15%, reduced from the standard 30% charged without the W-8BEN form.

@theta @ Jeffrey
Thanks for the information.i have written an email to the xo sipp admin.
Regards

@john
Thanks.I have written an email to the sipp administrator.The form was submitted last year and shows up in the sipp online folder.It must be a mistake by them.I actively follows the posts here and posts by theta & ivanopinion made me look on the sipp dividends .

Thanks to all
regards

How did you folks know exactly when I had finished migrating my HSBC American Index fund to VUSA, so you could raise this withholding tax issue?

It’s worth noting an undocumented limitation the Halifax service has. Trades – or at least sales of funds from their S&S ISA – over a certain limit fail with a “service unavailable” message. More unhelpful is that they suggest you “try again later”, rather than just indicating it must be handled over the phone. There’s no indication of a limit and it looks just like a broken server. The limit might be £100k as sale of a lesser amount went OK.

To their credit it was resolved quickly over the phone and their complaints team contacted me promptly. I think this reflects the no-frills nature of their website. It’s not a patch on H&L.

Frustrating at the time but OK when you consider it’s £12.50 a year probably bearable.

That rhymes with my experience. I hold VNQ with HL and was told via secure message by them back in mid December that the new regulation requiring PRIIP’s to publish a KID was to come into force on 1st January 2018.

I also hold VNQI with AJB in a SIPP.
My plan was to move VNQ into the SIPP but that’s all been kicked into the long grass by this turn of events.

I’m hoping against hope that by the time I’m ready to rebalance these holdings, that the regulatory requirements have been met. Stuck in limbo at the moment, can sell but don’t want to, can’t buy but will need to at some point.

The whole thing is a mess and a bit of a kick in the teeth for me as I had only recently purchased these when the changes came in.

This is the meat of the secure message I received from HL on 15th December 2017

No action necessary – for your information only

This means that from 1 January 2018 you will not be able to buy any more of this stock. As well as the dealing instructions you give us, the new regulation applies to automated trades we place on your behalf (such as dividend reinvestments, limit orders and regular savings instructions). Therefore, from the start of next year we must also turn off any automated trades we would otherwise have placed in this stock.

Please remember, you can continue to hold the stocks you own, or sell them at any stage, however you will not be able to buy any more.

I am sorry about this, but the regulation is very clear. We have no discretion in the matter and it affects all UK stockbrokers in the same way.

Please note that the new regulation does not come into effect until 1 January 2018, so you can trade as you always have until then. We are writing to you now to give you time to consider your options.

If you have any questions please do not hesitate to contact us.

Hi all,

I would like to mention that iWeb have acted highly irresponsibly with regards to my account. To verify a new account they request an actual physical copy of my passport mailed to them – something I was highly reluctant to do, but I tried their alternative (which is to take it into a branch and have staff send a certified copy internally) and certified copies got lost in their internal post three times. So I gave up and mailed it in. They sent my passport back to me:

a) using Recorded (not special) delivery, when I’d sent it in using special delivery
b) in an envelope with a see-through window on it

It’s not very surprising that my passport was stolen in the post then. I’ve filed a crime report, am in the process of replacing it, and will be filing as many complaints against iWeb as I can. As an FCA regulated company it seems pretty irresponsible to send UK passports around not using special delivery, and in envelopes with transparent windows.

Anyway, I’m posting this as both a warning, and in the hopes that someone might point me to a good place to complain!

New Investor –
Three family members and I had no issues opening iWeb accounts with only the standard on-line verification (electoral role, credit reference agency ID checks, etc). However for anyone else in this situation the post office do a cheap documentation certification service and it worked well when dealing with family legal needs recently, leaving you able to post direct to head office and so bypassing the need to rely on a local bank branch: https://www.postoffice.co.uk/document-certification-service

@martin: You would almost certainly need to take regulated financial advice for that, and must by law for any DB scheme worth more than £30,000. Not sure you can actually transfer a UK scheme to an Irish one. There are QROPS and QNUPS, but these are expensive, unnecessary and or risky. I’m not sure why you wouldn’t just leave the scheme where it is until you retire and start a new DC scheme in Ireland.

@Jeff and John,
This is probably an issue with UK brokers then, because I have been able to buy US ETFs within my SIPP with Interactive Brokers (VTI and VNQ specifically, this month). And I hope this doesn’t sound like a promotion for IB, but even if AJBel/HL/etc did allow US ETFs, why would one prefer to trade there given the horrendous FX conversion fees they charge? With IB you convert FX at interbank rates with a flat $2 dealing charge.

@Robbo
Few ETFs are accumulation.

On all the platforms I use, you need to choose whether divs are reinvested or paid out of the ISA. I imagine that if you look at the settings you can opt to have the divs stay in the ISA and either be automatically reinvested or accumulate as cash, which you invest as you wish.

The divs are not taxable, whether they stay in the ISA or not.

An ISA sharedealing account is usually (always?) accompanied by an associated cash account which is also within the ISA wrapper (but usually pays little or no interest). This is where dividends are usually paid into and also any new ISA annual contributions. If you also have a non-ISA trading account then that will usually have its own associated cash account. Be careful when transferring cash from the non-ISA cash account to the ISA cash account because that will count towards your annual ISA contribution limit.

Sorry my mistake you’re all absolutely right, just checked again and the cash is still in a cash account within the ISA wrapper. My broker is IG and I don’t believe they offer automatic dividend re-investment. I am looking to transfer from IG to X-O.co.uk but I don’t believe they offer dividend re-investment either. I’ll probably have to let it build up and then manually re-invest it once or twice a year.

The reason I am using ETF’s is that I already have 50k in the equivalent accumulation funds via iWeb but I have been trying to diversify brokers when reaching the FSCS protection limit. There are limited options for flat fee brokers though.

Am I just worrying too much or does anyone else do this broker diversification too?

@Jeff
I was interested in the last sentence of what they say about withholding tax:
“UK investors are automatically hit by a 30% withholding tax on dividends and interest paid by US-domiciled ETFs. You can cut this tax to 15% if you periodically complete a W8-BEN form for your broker. You can even offset that 15% against the rest of your UK dividend income tax bill.”

The last sentence is a bit loosely worded. The words “the rest of” suggests that they mean you could offset it against the UK tax on other dividends, which would be handy for someone who is only paying 7.5% UK tax on the divs and has other divs on which they would otherwise pay 7.5%. You would use half the 15% WHT to eliminate the 7.5% UK tax on the same dividend and then use the other half to shelter an equivalent sized dividend from UK tax.

But I don’t think that is right. You can only claim the lower of the foreign tax and the UK tax on the same income. They must just mean that you can offset the 15% against your UK dividend income tax bill on the same dividend. So if you are a higher rate payer, you pay 25-15=10% extra tax in the UK and the US tax is not an incremental cost. If you are a basic rate payer, there’s no extra tax to pay in the UK, so only half of the US WHT is an incremental cost.

@Jeff
Interesting article, thanks.

@the accumulator
Yes, via interactivebrokers.co.uk (although even if I go via interactivebrokers.com there’s no difference, the interface is the same globally, the regional differentiation are determined by the account/login).
I think the answer may be in that I am classified as sophisticated investor, and therefore benefit from the exception that is mentioned in the article that Jeff posted.

It’s actually less impressive than it sounds.
I think these are the criteria:
https://www.nelsonslaw.co.uk/high-net-worth-sophisticated-investors/

I didn’t specifically apply for it, other than filling the account application questionnaire.

I have a Fidelity SIPP exclusively invested in ETFs to take advantage of the charging structure mentioned. They don’t offer every ETF under the sun, but they do have a reasonable selection of big trackers, including the low charging iShares accumulation ones. I think this is about as low as you can go on combined platform and fund charges.

Try looking at https://www.fidelity.co.uk/pension/fidelity-sipp and following the “what can a SIPP invest in” link.

Great that this is sorted out.
When I go to investment finder, one option is ETFs. Click that and you get a search form with various criteria. Just click search without populating any box and you get more than 100 ETFs.

This direct link may work to get the ETF list up straight away.
https://www.fidelity.co.uk/investing/investment-finder/#?universeId=ETEXG$XLON_3518%7CETALL$$ALL_3518&investmentType=exchangeTradedFunds

Fidelity are not perfect (who is?). I’ve had to deal with a few members of staff who have given nonsensical answers to queries because they simply haven’t understood the basic point under discussion, but once escalated above them my experience is that you can get to somebody intelligent. Since I just want to buy and forget some big trackers, I’m OK with this standard of service because I shouldn’t have to speak to them very often.

I had an ISA with them a few years ago (now with iweb) , and was happy with the service then.

I also like their offer to reimburse transfer fees, which gives me a way to get out of AJBell after they did the dirty on us.

The Investment finder without drilling down the filters to a SIPP does indeed generate 118 ETF funds which I had originally used as the ‘list’. However, email this afternoon from the Fidelity complaint man included a spreadsheet featuring only ~80 which I can cope with. So the website does need work to give the correct avaialble funds for SIPPs.

Still waiting on the answer to a charges question. I read somewhere that if your funds generate income (typically dividends) then that cash element negates the £45 cap? So far have had various answers from Fidelity so waiting for clarification on that one. Some say the charges are £45 for funds and 0.2% for cash element, others say 0.2% for the lot!

@JohnS
BTW always keep some cash in your account as they take fees monthly & if there is no cash, they will sell some units.

For SSAS you might be interested in this article: https://www.ftadviser.com/sipp/2018/01/04/best-sipps-and-ssas-named/

It appears that AJ Bell Platinum also offer a SSAS.

I have seen the discussion below regarding holding an etf in a Fidelity Sipp with a maximum platform charge of £45. As others have stated the website seems to be wrong – when you search for etfs, putting Sipp into the filter, it comes up with none. I rang them and even after explaining some people posting do have an etf in a Sipp with them they say it’s not possible. Someone mentioned an email address to write to at Fidelity where they will manually send you the etfs – if someone knows this please could let me know who to write to please? (I want to transfer a VWRL etf, currently held at AJ Bell to Fidelity to reduce charges.)

Is it worth changing to save £55 per year?

On a related subject: how do Fidelity take their service fees etc when you have an ETF/IT portfolio? I previously held funds with them, which they sold some of to pay fees. This would not work when you hold ETF/ITs though, as they charge for selling in these cases. AJ Bell are willing to wait for income from the holdings, and take it from there when it arrives..

K

Thanks Linda
I had already done what you suggested and showed it to the Fidelity adviser online. If you click on any of the individual 118 ETFs that come up you will see that they are either only available in an ISA or normal account. So their website is misleading and on the phone I was told it was impossible to have an ETF in a SIPP. Sipper (who has posted) DOES though as do a few other people who have posted. Just wondering how to get around this problem – some people seem to have emailed someone in Fidelity to get it sorted and I’m wondering who?

“Is it worth changing to save £55 per year?”

Yes because:
Fidelity pay the transfer fees
They have a cash back offer on at the moment on transfers
and possibly most importantly they have no charges when you want to start withdrawing.

Selftrade have changed their price structure. Fixed quarterly charges and no inactivity fees.
https://selftrade.co.uk/informational/pricechange

Clubfinance are no longer accepting new account registrations. After spending 10 minutes on their website looking for a sign-up page, I gave them a phone call and they told me they’re not open for new business at the moment – I think this is since they’ve been acquired by Wealth Club. @ The Accumulator, might be worth removing them from the table above (possibly after calling and checking my experience for yourself!)

@ Damian – iWeb don’t offer regular investing so yes you would pay 8 x £5 in trading fees per month to invest in 8 funds.

@ Damian , what you could do, which is exactly what I do and it works is the following (I assume you would like to minimise platform holding costs):

1) Open iWeb S&S ISA and move all your current investments over to iWeb (“in-specie” transfer). One off costs of £25 + transfer costs from your current broker.
2) Continue investing into an ISA with a provider that doesn’t charge any fees for monthly investments into funds – e.g. CSD is a good example that I use. Also, note what that provider chargers as transfer fees per holding – CSD charges £10 per line of stock/fund for example so do your research on this.
3) Once a year, do a transfer of all those funds to iWeb. Example: for 8 funds with CSD you would pay £80 per year to transfer them to iWeb. You should specifically instruct iWeb and original broker to keep your original ISA open – as you will continue investing into it,
4) Repeat steps 2 and 3 once a year every year. With CSD as an example of the ISA in which you do all the buying, your fees would be 8x£10 transfer fees + 0.0025%*average total holding in the year. This is probably close to £100 all in really per year with no additional payable fees to iWeb. This compares very favourably to buying 8 funds every month for £5 each in iWeb (12*8*£5=£480) and it beats keeping all funds in a % fee platform/broker as well (just at £100,000 total value you would be paying £250 to CSD every year).

Bit of a hassle with yearly admin, but it works if you invest a lot in many different funds and on periodic basis.

Key rules to note:
– You can only open up one new ISA account per financial year
– You can fund only one ISA in a financial year
– In-specie transfers to another ISA provider do not count as contribution to ISA – so you are free to do them as often and whichever way you would like.
– Check with iWeb prior that they are able to accept the 8 funds you hold..

Hope that makes sense!

@Damian: IMHO for most people with a £100,000+ sized portfolio, if looking to lower costs, you should consider a flat-fee broker. However, if you are conditioned to using a traditional personal pension plan or % fee broker, where fund trades are “free”, then you probably need to change the way you buy new units, as suggested by John. If you are going to hold 8 funds, there is really no need to buy all 8 funds every month. You don’t even need to invest monthly, just buy whenever you happen to have enough new money and dividends/interest to buy a good chunk of whichever sector is lagging it’s target allocation the most. Even if you mechanically bought one fund a month in a round-robin fashion your costs would drop (in your example) to 0.06% annually on iWeb (excluding the actual fund charges). It doesn’t even matter if some funds are accumulating and some are distributing, as it will all balance out over the long run. I think it’s good mental training to be always buying low and almost never selling. It can help psychologically to have a fixed amount of cash going into the account every month, even if it’s not earning any interest for the month or two before you spend it. It really depends on how much time you want to spend monitoring things and if you can trust yourself to stick to a defined spending/allocation strategy.

I used to have few different trackers. Now I just have VWRL at iWeb. So costs me the £25 one off set up fee and I reinvest dividends 4 times a year, do any topping up then, so making a £20 annual fee. Works well for me and cheaper than AJBell who I used to be with, even with their small £1.50 regular invester dealing charge.

A shame there’s no edit feature… I intended to write in the last sentence..

Hope that clarifies, of course the sensible thing in terms of effort, time and cost is to buy one cheap global index tracker and let that do all the regional [i]allocations[/i] for you.

Broker table updated. XO and Share Deal Active now charge SIPP fees after year 1. Club Finance no longer open for business and now removed. Flat fee brokers broadly similar – though Alliance Trust and Share Deal uncompetitive. The top 8 percentage fee can all do a job for small investors though the best fit depends on individual needs / portfolio variation.

Hi, the FSA projection document you reference is dated 2012 and is out of date. Latest FCA generated version is here https://www.fca.org.uk/publication/research/rates-return-fca-prescribed-projections.pdf

@old_eyes – thanks very much for the heads up. Much obliged.

@dearieme – it means there’s no relevant info to add in that particular field

@Damian – Between my partner and I we have 7 funds across our ISAs. Every time we add money we just plonk it in whichever fund is currently most underweight. Admittedly we are not adding a defined amount of money every week. It is a bit variable on amount and when it becomes available, so we have always done it manually. But it is really easy. Move the money into cash holding on the platform on one day (1 minute). A couple of days later issue a buy instruction for the underweight fund (1 minute). So not totally automatic, but hardly onerous.
You could reduce the number of funds, but you don’t have to as long as you know your target allocation. I look at my bank account at least once a week, so that I know what is going on, and at our ISA accounts once a month. The on-cost of buying my chosen fund every month or couple of months is trivial.
Over the last 5 years, I have never hit my target allocation exactly, but that does not matter. I am always trending to the target in a curve of pursuit.

@John. I don’t think having a few different funds demonstrates “a belief by the investor that they know better than the markets do themselves, what the global marketplace will do in future”. The Slow and Steady Portfolio on this site invests in seven funds. Tim Hale recommends quite a few different funds, and the Permanent Portfolio has over 10 in many of its implementations.
Yes, you can buy a lifestyle fund and have it all sorted for you, or you can severely restrict the range of assets you invest in. The reason many select a range of funds is diversification. I don’t think that trying to select a portfolio that covers the asset classes and tries to spread the risk is trying to outguess the market. Even the one-stop shop funds are trying to estimate what an ideal portfolio is, not actually trying to hold balanced amounts of absolutely everything.
I can see that being over analytical and fund picking can edge into active investing, but I would argue that selecting funds to give a mix of home and global, defensive and growth, spread across the classes, fitting our risk appetite, trading rarely and sticking to our portfolio plan is what most of us mean by passive investing

@Jeff Baranek. I would agree with Lars on equities. We have two equity funds FTSE All Share and Global ex-UK because I read Lars after I invested in both, and I don’t see the value of shifting assets for the sake of it. Others argue that some home bias is worthwhile if that is where you spend your money. I don’t know, so am happy to stay where I am. I guess I have about double the exposure to the UK than is warranted by its share of the global economy. Don’t know what that would be in terms of FTSE All Share as percentage of total global equities.
Then there are other asset classes and defensive investments. I could bring the number of funds down, but don’t want to go to a single lifestyle fund. I may be wrong, but I am comfortable.

So a bigger share of capital than of the global economy (4%). Interesting.

@ Jeff – While I largely agree, theories can breakdown at the extremes. I read a piece once that said the Japanese stock market was p/e 50 or thereabouts in 1989. Much as I don’t think I have edge, that presents an interesting conundrum for the committed passive investor. What would you do if that scenario unfolded now? For me, the answer lies in William Bernstein’s over-balancing: using a rules-based mechanism to take money off the table when risk seems very high by historical standards.

I wrote a bit about rebalancing here:
http://monevator.com/market-up-should-i-sell/

@ Trever – thank you for in the info on that. In situations where brokers treat old and new customers differently, I default the table to the new regime. That way you can assess your options if you’re unhappy where you are.

For Cavendish online the table states a £1.50 fee for regular investing – how is this different to a dealing fee? Apologies if a very basic q from a newbie

idealing.com is worth a look. They’re a smaller operation compared with some, good value and easy to deal with. I’ve used them since 2002 for ISA and general investment holdings and haven’t had any problems

Bestinvest increasing cost of SIPP from Oct: £100 p.a. on top of everything else

Is there anything on Bestinvest’s website about this new fee?

Charles Stanley are increasing their platform charges from 10th September 2018, the 0.25% platform charge broadly speaking increases to 0.35%pa.

https://www.charles-stanley-direct.co.uk/invest/platform-fee-increase

I’m with Charles Stanley Direct but haven’t been notified of a change in charges…looks like I’ll be swapping out to a fixed fee broker a bit earlier…although I need one that provides a JISA which is somewhat limiting (rules out iWeb)

Just trying to subscribe to the comments 🙂

@AndyP

Just wanted to point out that the Cavendish Online £1.50 regular investment fee only applies to ETFs & ITs (normal dealing fee is £10). It does not apply to other funds on the platform that are free to deal—these are also free in a monthly saving scheme. The table above gives the impression that they are not.

Is it me misunderstanding or is it really the case that bestinvest are the only platform to charge the full platform fee on a shares only portfolio? Other platforms either have no platform fees for shares only accounts, or have a reasonable cap such as £45 max per year. Or they pay it back in dealing commission offsets making it essentially zero fees in practice. A similar portfolio with bestinvest costs £100s in platform fees which seems like daylight robbery, unless I am mistaken?

@ivanopinion I will be moving my shares only portfolio from Best(joke)Invest to another platform which will cost me nothing in platform fees. This will save me a few hundred pounds a year. I will also be moving my SIPP but have not decided where to yet. I believe Vanguard are launching a SIPP ( I think I read somewhere it would be around October) so might wait a couple of months and see what they have and move it to them, potentially saving me a further £200 a year. By moving everything away from BI I will save over £600 a year, which is a very significant saving. Wish I’d looked into this before.

Snowman’s point above about getting out of CSD is helpful. I’m now feeling I really ought to move before it is too late…
One of the many things that makes me nervous about switching is keeping control of what is going on. If I switch, whether it’s a taxable account or an ISA, I don’t want any selling of funds – not wanting to mess about with capital gains or lose ISA status. I’d want it to be simply a re-registration of the fund on another platform.
What is the best way to ensure this happens? I know I need to check the funds are available on the new platform. But the language used around transfer, switch, re-registration, doesn’t always seem to make it clear
It’s a shame about CSD. I’ve found their service to be good – nice clear statements and calculations of capital gains…and fixed fee brokers, with the exception of iWeb, seem to get poor write ups.

Just re-checked Cavendish Online, and I can’t see any reference to a £1.50 charge for regular savings. I think it should be £0.

Haphazard – what you want is to tell the new provider you want the transfer to be “in specie”. Both the sending and receiving ISA provider have to support this, so make sure to check with whomever you pick for your new ISA that they are OK with accepting in specie transfer from CSD.

CSD have been very helpful with an in specie transfer to iWeb a couple of months ago that took just 4 weeks start to finish in my case.