Beware the ETF tax trap

Many investors now enjoy the cost-benefit and simplicity of exchange-traded funds. But if you are one of them, watch out: there is a chance you may be liable for far more tax than you thought.

Many investors now enjoy the cost benefit and simplicity of exchange-traded funds (ETFs). But if you are one of them, watch out: there is a chance you may be liable for far more tax than you thought.

A report by fund manager BlackRock has revealed that a quarter of all the ETFs listed in Britain do not have 'reporting' or 'distributor' status. That may sound arcane, but it is very important in tax terms. Without it, gains from an ETF can be liable for income tax rather than capital gains tax (CGT). And that could make a big difference to your tax bill. For example, if you are a higher-rate taxpayer, liable for CGT at 28%, and you own a non-distributor ETF, you should be paying 40% tax on gains treated as income.

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.