[UK/NL/Germany] Accumulating or Distributing ETFs

[vhk56]

Country of Residence: United Kingdom (moving soon)
Nationality: non-UK/EU/US
International Lifestyle: UK ( until mid 2023), Netherlands (mid 2023 - mid 2025), Germany (mid 2025 - long term)
Emergency funds: Six months expenses
Debt: 0
Age: 31
Desired Asset allocation: 8k - 10k GBP per year into passively managed index funds (80% stocks / 20% bonds)
_____________________________________________________________
A non UK/EU/US national here, currently living in UK. Because of my job in academia, I am moving from the UK to the Netherlands in mid 2023. And in mid 2025, I will move to Germany permanently. I plan to invest (long-term) the modest savings I have made, and after reading literature, I have found it best to create a 2 or 3 fund portfolio with Ireland domiciled UCITS ETFs.

I am undecided whether to go for an accumulating or distributing ETF because of different taxation situation in the countries where I am moving. Here is my understanding, please correct me if I am wrong:

1. UK has capital gains tax even when not distributed, so going accumulating ETFs can be a not so easy task while filing tax returns. Distributing ETFs might be an easier option. Note: Since I am leaving the UK in 6 months, I do not plan to make use of the tax sheltered options available to the UK residents.
2. Netherlands doesn't have capital gains tax, and it is seems to be convenient to hold accumulating ETFs. Claiming tax returns on distributing ETFs dividends seems to be complicated and time consuming, apparently a 6-8 months wait time. I am also eligible to have the 30% tax benefit as an expat in the Netherlands.
3. Germany has capital gains tax, distributed or not. It might be therefore convenient to hold distributing ETFs.

_____________________________________________________________

Do you have any suggestion as to what I should do in this scenario?

Should I buy distributing ETFs now, sell it when I leave UK and buy equivalent accumulating ETFs when I move to the Netherlands? And similarly, sell those accumulating ETFs when I leave the Netherlands and buy equivalent distributing ETFs when I move to Germany? This feels very daunting and I am unsure if this is the most efficient way to handle the situation. I am partly tempted to just go ahead with distributing ETFs and see how it goes with the taxes in the Netherlands.

Furthermore, would IBKR be a good choice of a brokerage platform in my case? Are there other equally good/ better options?

I would very much appreciate any pointers or tips from you

[tubaleiter]

Why not take advantage of an ISA while you're still in the UK? You can cash out at any time with no tax implications. You're unlikely to have enough capital gains or dividends to actually owe anything to the UK, but it avoids needing to deal with them at all on your final UK taxes. Just buy in ISA now (in accumulating funds, for simplicity), and then sell shortly before moving to the Netherlands.

I can't speak to the Dutch or German systems, but seems like you can make your life marginally simpler by using an ISA, even if only for 6 months. You could do the ISA with IBKR and hopefully not have to change brokers, even if you're moving accounts around with IBKR. I use IBKR and I think they work well for these multi-national situations.

[DoctorE]

You're probably better off with distributing in all 3 cases but you should ask an accountant in each country.

Netherlands has horrible tax treatment for investments.They tax investment income is via the 'box 3' system.
https://www.belastingdienst.nl/wps/wcm/ ... e-in-box-3
This is essentially a wealth tax on your stock investments of 1.7%. They assume you get like 0.0% on savings, 5.7% on stocks/other, 2.5% on bonds and tax you 31% on the 'assumed' income. If you have a -20% portfolio drop like in 2022, tough luck.

[vhk56]

Why not take advantage of an ISA while you're still in the UK? You can cash out at any time with no tax implications. You're unlikely to have enough capital gains or dividends to actually owe anything to the UK, but it avoids needing to deal with them at all on your final UK taxes. Just buy in ISA now (in accumulating funds, for simplicity), and then sell shortly before moving to the Netherlands.

Thank you tubaleiter for your reply. I was under the impression that withdrawing funds from the ISA would immediately incur taxes as it loses the tax-free wrapper provided by the ISA. But thanks for clarifying this, this was a very useful piece of information. If you do not mind, could you please redirect me where I can find more information on this?

Also, I have heard that one can retain the ISA even after moving abroad, without having tax implications in the UK. Is that true?
Context: Now that ISA seems to be a good option, I see a further opportunity. I might be eligible for an exemption as a partial non-resident when I move to the Netherlands, meaning that I wouldn't have to report foreign investments while in the Netherlands. If I get this exemption, then it is possible that I can avoid being taxed on the ISA while in the Netherlands. Even if it is just for two years, I feel that it might be worth it.

[vhk56]

This is essentially a wealth tax on your stock investments of 1.7%. They assume you get like 0.0% on savings, 5.7% on stocks/other, 2.5% on bonds and tax you 31% on the 'assumed' income. If you have a -20% portfolio drop like in 2022, tough luck.

That seems to be extreme! Thanks for sharing this information DoctorE, I was not aware of this.

However, during further reading I got to know that I might get an exemption. I am not fully sure if it will happen, but IF I get the 30% tax ruling in the Netherlands as an expat, I could be considered a partial non-resident. This way, I would be exempt from reporting my international investments for tax purposes in box 3, while in the Netherlands.

[TedSwippet]

UK has capital gains tax even when not distributed, so going accumulating ETFs can be a not so easy task while filing tax returns. Distributing ETFs might be an easier option.

Not quite right. The UK's dividend tax applies annually to dividends that are not paid out but retained by accumulating ETFs. You get to subtract those out on sale to arrive at the taxable capital gain.

Note: Since I am leaving the UK in 6 months, I do not plan to make use of the tax sheltered options available to the UK residents.

I see from later posts that you've started rethinking this. An ISA seems ideal while you're a UK tax resident, but later ...

Also, I have heard that one can retain the ISA even after moving abroad, without having tax implications in the UK. Is that true?

An ISA has no tax implications while you're in the UK. In theory you can keep one when abroad (though no longer contribute). There is certainly no law to say you cannot; you only have to be UK resident to contribute to one. In practice though, many ISA providers appear to simply refuse to hold accounts open once you are no longer UK resident.

Check the T&Cs of several and you'll probably find words to the effect of "if you leave the UK you will have to close your account with us". Interactive Brokers might be an exception; they are well used to dealing with people who move country. Choose your ISA provider wisely, in other words.

[vhk56]

Not quite right. The UK's dividend tax applies annually to dividends that are not paid out but retained by accumulating ETFs. You get to subtract those out on sale to arrive at the taxable capital gain.

I think I understand it now, thank you!
So to confirm, if choose accumulating ETFs that are wrapped in an ISA, I avoid this hassle altogether?

Check the T&Cs of several and you'll probably find words to the effect of "if you leave the UK you will have to close your account with us". Interactive Brokers might be an exception; they are well used to dealing with people who move country. Choose your ISA provider wisely, in other words.

Yes, I will definitely do that. IBKR is at the top of my list now, but I shall check the options carefully before choosing an ISA provider

[tubaleiter]

Thank you tubaleiter for your reply. I was under the impression that withdrawing funds from the ISA would immediately incur taxes as it loses the tax-free wrapper provided by the ISA. But thanks for clarifying this, this was a very useful piece of information. If you do not mind, could you please redirect me where I can find more information on this?

Also, I have heard that one can retain the ISA even after moving abroad, without having tax implications in the UK. Is that true?
Context: Now that ISA seems to be a good option, I see a further opportunity. I might be eligible for an exemption as a partial non-resident when I move to the Netherlands, meaning that I wouldn't have to report foreign investments while in the Netherlands. If I get this exemption, then it is possible that I can avoid being taxed on the ISA while in the Netherlands. Even if it is just for two years, I feel that it might be worth it.

The way an ISA works, you're putting in post-tax money. If you then withdrew that money later, there's no tax (unlike a pension/SIPP) - you already paid tax. That's equally true of a taxable investment account. Where the ISA is special is that any dividends, capital gains, or interest on the money while it's inside the ISA are also not taxable. So if you deposit £10,000 today, and 6 months from now you're fortunate enough that it's grown to £11,000, you then withdraw the £11,000 from your ISA and nothing is due to HMRC.

In that example, and any realistic example for 6 months of potential returns, you'd also be under the capital gains allowance (£12,300, dropping to £6,000 for 2023/24) and the dividend allowance (£2,000, dropping to £1,000 for 2023/24), and probably under your personal savings allowance, if you have one. So even in a taxable account, you wouldn't owe any tax, but you may need to report the earnings. That's not terribly difficult, but it adds slightly to tax complications. Having those gains inside the ISA wrapper just avoids any reporting.

Note that none of the above applies to a LISA - withdrawing from a LISA means you lose the bonus and pay a penalty, unless it's for a qualifying first house purchase or you're over 60. Don't think a LISA matches your needs at the moment.

More info on ISAs: https://www.gov.uk/individual-savings-accounts and https://www.moneysavingexpert.com/savin ... thout-tax/

I think TedSwippet partially answered the second question: you are allowed to keep an ISA if you leave the UK (although not allowed to contribute any more), but many ISA providers will not support this. I would not be surprised if IBKR was fine with it, but would expect them to be the exception. Possibly also Hargreaves Lansdown, who are slightly more international-friendly than most others. But definitely up to you to confirm with them, and there may be others, it's not a question I've needed to ask.

[vhk56]

Thank you tubaleiter, your examples and the resources you shared have been very helpful!
It is fairly clear to me that ISA is probably the best option I have for now.

Best case scenario for me is if
i) I can hold on to the ISA when I move out from the UK AND
ii) get a waiver for reporting international investments while in the Netherlands due to my special situation.

I have initiated a conversation with the IBKR regarding their stance on non-resident ISA holders. I hope to hear back from them soon, and hopefully a favorable news. Though ii) is tricky, I hope that it happens

Nonetheless, I wanted to be prepared if i) doesn't happen. I haven't worked out the calculations yet, but I suppose that in the event I have to sell all my funds parked in the ISA (max expected investment ~ £20 - 30k) when I leave the UK, and purchase similar funds when I move to the Netherlands, I wouldn't incur substantial costs. Do you have any suggestions how I should proceed if I were required to go this route?

[tubaleiter]

Nonetheless, I wanted to be prepared if i) doesn't happen. I haven't worked out the calculations yet, but I suppose that in the event I have to sell all my funds parked in the ISA (max expected investment ~ £20 - 30k) when I leave the UK, and purchase similar funds when I move to the Netherlands, I wouldn't incur substantial costs. Do you have any suggestions how I should proceed if I were required to go this route?

First thought: ISA allowance is "only" £20k a year, so if you want to go over that, make sure you get the ISA opened and funded before the next tax year starts on 06Apr. No issue putting in £20k before 06Apr and then another £20k just after 06Apr.

If you aren't able to hold on to the ISA, you simply sell into cash and transfer that cash to an account that works in the Netherlands as part of moving. Probably simplest to be in cash at the point of stopping being a UK tax resident and starting being a Netherlands tax resident - no harm since it's coming from an ISA, and avoids any complications around different tax years, capital gains basis, etc.

Costs would include:
1. Dealing fees from your UK broker - single or low double digits £, depending on the broker and the investment (this is a good argument to keep all your investment in a single fund, like an all-world tracker, so you only pay one fee). Could even be zero, depending on the broker.
2. Transfer & currency conversion from GBP to EUR. Let's use Wise as a baseline, as the most commonly recommended option. On £30k, that's a fee of £122.70 at the moment. Note that IBKR also has extremely cheap currency conversions, so likely better to use them. Especially easy if you use them for investing from the Netherlands/Germany, even if you have to close your ISA (keeps all the money with one brokerage, just moving from an ISA to a Dutch account type). IBKR charges 0.2 basis points (0.002%) for a currency conversion with a $2 minimum, so that's a $2 fee.
3. Dealing fees from your Dutch broker - don't know the Dutch system, but expect it's not too different from the UK.

Add that all up and we're talking a minimum of $2k (zero fee UK and Dutch brokers, IBKR currency conversion), reasonable max of maybe £150 (£12 dealing fee at each broker, Wise currency conversion). I'm sure you could find ways to do it at higher cost, if you wanted!

[vhk56]

First thought: ISA allowance is "only" £20k a year, so if you want to go over that, make sure you get the ISA opened and funded before the next tax year starts on 06Apr. No issue putting in £20k before 06Apr and then another £20k just after 06Apr.

Yes, indeed this was my idea

1. Dealing fees from your UK broker - single or low double digits £, depending on the broker and the investment (this is a good argument to keep all your investment in a single fund, like an all-world tracker, so you only pay one fee). Could even be zero, depending on the broker.

Oh, are there any transparent zero fee brokers? I read somewhere (I think monevator) to be wary zero fee platforms.

Thus far I have come to the following plan for investing while I am in the UK:

• Investment (<£30k, split across the two tax years) wrapped within an ISA, while I am in the UK ( i.e. next 6 months)
• 20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (? Not fully sure, but hedging to EUR as I will move to the EU in 6 months, seems to be reasonable)
• 80% iShares Core MSCI World UCITS ETF USD (Acc)

Now, I am very tempted to use the IBKR as a one-size-fits-all solution, given my international lifestyle. With their low currency exchange fee, they already top the list for the currency conversions I might have to make. Idea was to also set up the ISA with them, close it (if necessary) and continue to use IBKR platform for my investments while in the Netherlands, and also later when I move to Germany.

However it isn't the most intuitive platform out there. I am unable to find the KID or the ISIN number for bond and equity ETFs listed above, in their platform. I see the tickers EUNA and SWDA, respectively though. Is that sufficient? Or am I looking for the information at the wrong place? Am I missing something? (I know that IBKR have been around for a while, but I just want to make sure that I am doing the right purchase )

[jjmaddison]

Hey, man, I just had the same situation, moved to NL from outside the EU.

So here's to all who move to the Netherlands and don't have US residency.

1) No Capital Gains tax. You know that, right?
2) Want to use the 30% ruling? (sure you do) Then you can't claim benefits of double taxation agreements.

=> USA reaps 30% withholding tax from dividends.
=> Ireland takes 20% (or maybe 15 not sure) from cash interest.

=> For Irish-domiciled funds, distributing vs accumulating makes no difference except that accumulating might be more convenient (reinvests automatically and faster).

Let me know if you have other questions.

I use IB IE for investing.

P.S. There's also an expat pension scheme here, something like 401(k) in USA or maybe ISA, you might want to max it out.
P.P.S. Before moving to Germany, hopefully you'll have profits to sell and get untaxed capital gains

[tubaleiter]

Oh, are there any transparent zero fee brokers? I read somewhere (I think monevator) to be wary zero fee platforms.

They make their money somewhere, for sure. Given the short time frame, and that you may literally be only ever making three trades with them (buy before 05Apr, buy after 06Apr, sell all), the difference in brokers is not going to make a massive difference. I don't have a specific zero fee broker recommendation, since none of them want to play with me (a US citizen resident in the UK), but I'd just link back to Monevators broker table and pick one - not going to move the needle as long as they're generally competent and not extortionate: https://monevator.com/compare-uk-cheape ... e-brokers/ IBKR might be the way to go for portability and depending on their answer to keeping the ISA, and they're not zero fee, but their fees are low enough to be negligible for these purposes.

Thus far I have come to the following plan for investing while I am in the UK:

• Investment (<£30k, split across the two tax years) wrapped within an ISA, while I am in the UK ( i.e. next 6 months)
• 20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (? Not fully sure, but hedging to EUR as I will move to the EU in 6 months, seems to be reasonable)
• 80% iShares Core MSCI World UCITS ETF USD (Acc)

Asset allocation and fund selection looks completely reasonable to me. Agree on the EUR hedging, makes sense in your case. People could propose a million tweaks to this, but it's simple, low-cost, easy to do - works for me.

Now, I am very tempted to use the IBKR as a one-size-fits-all solution, given my international lifestyle. With their low currency exchange fee, they already top the list for the currency conversions I might have to make. Idea was to also set up the ISA with them, close it (if necessary) and continue to use IBKR platform for my investments while in the Netherlands, and also later when I move to Germany.

However it isn't the most intuitive platform out there. I am unable to find the KID or the ISIN number for bond and equity ETFs listed above, in their platform. I see the tickers EUNA and SWDA, respectively though. Is that sufficient? Or am I looking for the information at the wrong place? Am I missing something? (I know that IBKR have been around for a while, but I just want to make sure that I am doing the right purchase )

IBKR are good at many things, but user interface is decidedly not one of them!

Let's make sure we're talking the same funds - for the bond one, I find AGGH: https://www.ishares.com/uk/individual/e ... -ucits-etf On IBKR, I can only find this under EUNA, the ticker for the listing on the Xetra exchange, but looks like that will work. Description is: ISHARES GLB AGG EUR-H ACC - IBIS2. I am getting an error message that I don't have trading permissions for it, but you can probably request them. I can find the USD version AGGG or the GBP hedged version AGBP just fine, no permissions issues, so not sure what's the deal with the EUR hedged one.

and for equities, SWDA, https://www.ishares.com/uk/individual/e ... f-acc-fund. SWDA pops right up on IBKR for me, and I don't have any trading permissions errors for it.

[vhk56]

IBKR are good at many things, but user interface is decidedly not one of them!

Let's make sure we're talking the same funds - for the bond one, I find AGGH: https://www.ishares.com/uk/individual/e ... -ucits-etf On IBKR, I can only find this under EUNA, the ticker for the listing on the Xetra exchange, but looks like that will work. Description is: ISHARES GLB AGG EUR-H ACC - IBIS2. I am getting an error message that I don't have trading permissions for it, but you can probably request them. I can find the USD version AGGG or the GBP hedged version AGBP just fine, no permissions issues, so not sure what's the deal with the EUR hedged one.

and for equities, SWDA, https://www.ishares.com/uk/individual/e ... f-acc-fund. SWDA pops right up on IBKR for me, and I don't have any trading permissions errors for it.

Yes these are the funds!

I have heard back from IBKR and they said its possible to keep the ISA. I now see that InvestEngine is also a possible alternative (they additionally have zero monthly minimum fees, where as IBKR has ). Does anyone have any experience with it?

At some point I would have to cash the ISA and recreate the portfolio, probably on a brokerage platform like IBKR, as keeping the ISA could get me into tax complications when I move to Germany( but that will be after 2 years). As far as the immediate two years I spend in Netherlands are considered, tax wise doesn't matter whether I keep the funds in ISA or not. I am just wondering what would be the best time to do the switch i.e. right away when I move out of the UK or just before I move out of Netherlands. Do you see any advantage in holding the funds in ISA longer? Any thoughts on this?

[vhk56]

1) No Capital Gains tax. You know that, right?
2) Want to use the 30% ruling? (sure you do) Then you can't claim benefits of double taxation agreements.

I am aware of 1). Not so much about 2)
Could you redirect me where I can read more in this, please?

=> USA reaps 30% withholding tax from dividends.
=> Ireland takes 20% (or maybe 15 not sure) from cash interest.
=> For Irish-domiciled funds, distributing vs accumulating makes no difference except that accumulating might be more convenient (reinvests automatically and faster).

a) The US 30% tax happens only for US domiciled ETS, am I correct?
b) I am not sure how I would accrue cash interest in Ireland with Irish-domiciled ETFs.
c) I see what you mean about distributing vs accumulating, and had the same thought about it in the context of Netherlands for Irish-domiciled ETFs.

I use IB IE for investing.

P.S. There's also an expat pension scheme here, something like 401(k) in USA or maybe ISA, you might want to max it out.

Would like to know more on this as well. Could you maybe share resources for reading on this as well, please?

[tubaleiter]

I have heard back from IBKR and they said its possible to keep the ISA. I now see that InvestEngine is also a possible alternative (they additionally have zero monthly minimum fees, where as IBKR has ). Does anyone have any experience with it?

I have no experience with InvestEngine, but I see that Monevator has a referral link to them. The Monevator team seems pretty upstanding, so I wouldn't expect them to have a referral with anybody dodgy.

At some point I would have to cash the ISA and recreate the portfolio, probably on a brokerage platform like IBKR, as keeping the ISA could get me into tax complications when I move to Germany( but that will be after 2 years). As far as the immediate two years I spend in Netherlands are considered, tax wise doesn't matter whether I keep the funds in ISA or not. I am just wondering what would be the best time to do the switch i.e. right away when I move out of the UK or just before I move out of Netherlands. Do you see any advantage in holding the funds in ISA longer? Any thoughts on this?

It doesn't seem like there would be any particular advantage in staying in an ISA once you leave the UK, since it doesn't do anything helpful (or harmful) for the Netherlands. Slightly lower fees outside an ISA, typically (for IBKR, no fees to have a brokerage account, £3/month for an ISA, although offset by any trading fees), so saves you a bit of money to move to a brokerage.

The one thing staying in the ISA does do is protect against changes in life plans. If you decide, for whatever reason, that you want to come back to the UK, the funds would already be in the ISA. But if you carry on with your current plan and move to Germany, you'd just want to liquidate the ISA before moving.

So to me, there's no rush to liquidate the ISA, but also no reason to wait until the last minute before the move to Germany. I'm taking as an assumption that the Netherlands has no particular challenges for the ISA, I just don't know Dutch taxes barely at all.

[jjmaddison]

For some reason I wasn't notified about the reply, so sorry for the delay.

Here we go, Dutch stuff.
There be specific terms and dragons.

1) No Capital Gains tax. You know that, right?
2) Want to use the 30% ruling? (sure you do) Then you can't claim benefits of double taxation agreements.

I am aware of 1). Not so much about 2)
Could you redirect me where I can read more in this, please?

I have an official letter from Dutch tax inspection about that. Also I talked to them on the phone.

Those who get 30% ruling can choose to become partial non-residents of the Netherlands and pay no tax on worldwide wealth and dividend-like income (box 2 and box 3).

In fact, you may declare that you want to be a full resident, but then you have to pay all these taxes... Usually people don't do that.

So, when you become a non-resident with respect to box 3:
1) you get a partial tax residency certificate,
2) tax inspection won't stamp your forms that declare that you're a full resident of the NL with respect to double taxation treaties.

As said, you're not considered a full resident of the Netherlands, it doesn't tax your worldwide savings, so double-taxation treaties do not apply to this kind of income.

a) The US 30% tax happens only for US domiciled ETS, am I correct?

Correct.

b) I am not sure how I would accrue cash interest in Ireland with Irish-domiciled ETFs.

If you have cash in your account, IB pays interest. This part was exclusively about interest on cash, if you have any.

c) I see what you mean about distributing vs accumulating, and had the same thought about it in the context of Netherlands for Irish-domiciled ETFs.

I use IB IE for investing.

P.S. There's also an expat pension scheme here, something like 401(k) in USA or maybe ISA, you might want to max it out.

Would like to know more on this as well. Could you maybe share resources for reading on this as well, please?

I don't remember, but let me google it for you: https://www.google.com/search?q=netherl ... deductable =)

There are many resources, I didn't pay them a lot of attention, because everything seemed simple enough.
Ask your employer. They usually enroll you into some kind of pension fund, and then you're allowed to configure your investment profile and the contribution size. My fund has everything online.

P.S. I checked the "Notify" flag below the message. Happy to add some Netherlands information, maybe worth adding to the wiki, whatyathink?