Why no stamp duty on some investment trusts?
|Investment | Investment Trusts
Asked by mickz, submitted
19 July 2011.
I've noticed that I don't pay Stamp duty on some of my Investment Trust purchases, such as
Genesis Emerging markets
Henderson Far East Income
but I do pay 0.5% stamp duty on other IT purchases made at the same time. They all appear to be LSE listed and denominated in GBP and conventional ITs so I can't see why they're treated differently. Could you explain the reason behind this?
Answered by Justin on 21 July 2011
A quick check of the HMRC rules suggests that stamp duty on share purchases via a UK stock exchange doesn't apply if the shares are in a foreign company who doesn't keep a register of shareholders in the UK. This is the rule that permits exchange traded funds (ETFs) to be exempt from stamp duty.
As the Genesis IT is domiciled in Guernsey and the Henderson IT in Jersey, then assuming they don't maintain a shareholder register in the UK they'd benefit from the same rules - hence the reason you didn't have to pay stamp duty when buying them.
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Readers' Comments (3) - To post a comment please register or login
Comment by mickz at 5:49pm on 21 Jul 2011:
Thanks Justin, I'm sure that I must be taking some additional risk, but I can't see what it is...
The most likely ' bad news' is that the IT doesn't perform very well - in which case I could swap it to another one, but holding the share register in the channel islands doesn't influence that.
If the IT goes bust, then I wouldn't get anything - but that's no different from Woolworths or HMV or any other company's shareholders...
Perhaps it's something to do with fraud and FSCS compensation?? But even if that did occur on the small Henderson IT, then I'd have thought Henderson would have to compensate any investors, or no-one would trust it's other funds either and it would put itself out of business. Perhaps that's more of a concern for the much smaller Genesis...
Comment by justin at 6:55pm on 21 Jul 2011:
You're welcome. Investment trust risks (excluding underlying investments) whether onshore or offshore are really gearing (i.e. trust borrows money to invest, increasing exposure), discount/premium to NAV volatility and not being covered by the FSCS if the IT goes bust due to fraud (rather than poor investment performance).
However, fraud is unlikely and agree with your view Henderson would invariably step in anyway to protect reputaion. I'd lose far more sleep over the uncertain short term outlook for markets than these factors!
Comment by mickz at 9:59am on 22 Jul 2011:
I'm planning on holding these long-term, so any short term volatility just makes for better buying opportunities. Thanks for confirmation that there's no major risk factor that I've overlooked :¬)