Best low-cost broker for $2m retirement portfolio in AU and UK markets?

[Stock Control]

Hi all

I'm looking to invest $2m in low-cost ETFs on the Australian and UK stock markets. Most of the portfolio will go into Australian Vanguard ETFs but about $300,000 into the UK stock market to get access to ETFs that aren't available on the ASX (such as a Global Value ETF) or have lower ongoing managment costs.

I expect to make periodic dividend reinvestments, do annual rebalancing and maybe occasional switching of funds so I want to keep costs as low as possible.

Up to now I've used Interactive Brokers for a smaller portfolio. The fees are very good: 0.08% commission on stocks and 0.02% commission on forex at almost mid-market rates. But it's not good for a large portfolio because (a) Shares are held in the name of Interactive Brokers not the client and (b) The US assets of non-residents over 60,000 USD are subject to inheritance tax.

Nabtrade's 0.11% commissions are okay but for international investments they also apply a forex spread of 0.5% to 0.8% each time a security is bought or sold, ie about 1.5% costs for a round-trip. I think the same would apply when reinvesting dividends or to switch from one fund to another.

Can anyone suggest a better broker than Nabtrade to use for this?
Has anyone managed to negotiate better fees with Nabtrade?

 

[McLovin]

I don't understand how (b) works? If you're not trading US stocks or holding anty US assets why would US inheritance tax come into play. Moreover, why couldn't you just put the money in a trust and get around inheritance tax like everyone else in the US does?

 

[Stock Control]

I don't understand how (b) works? If you're not trading US stocks or holding anty US assets why would US inheritance tax come into play.

Good question! But from the IRS website: "Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee."

Moreover, why couldn't you just put the money in a trust and get around inheritance tax like everyone else in the US does?

Yeah that is a point. I wasn't planning to set up a trust but should maybe consider it.

 

[Ves]

Re: the US estate tax treaty on US assets held by Australian investors. I sent this in a PM to someone a few months ago after doing a bit of research:

The exemption threshold for the 2014 fiscal year for US residents on estate assets was $5.34m. Anything above is a flat rate of 40%.

http://en.wikipedia.org/wiki/Estate_..._United_States

Please note that this threshold and the tax rate are constantly changing & there is heaps of current debate. It is liable to keep changing.

My understanding is that the (1954) tax treaty between the USA and Australia means that we are allowed the same threshold as a US resident on any US based assets. I did read that document, but I can't remember where I found the bloody thing. There was a line in there that mentioned something along the lines of taxes levied on residents of both of those countries would be treated as if they were a resident of the country applying the tax.

There are also gift taxes. I don't think the US has exemptions for those to stop people from gifting assets before they die.

Also unsure if company / trust structures avoid the issue altogether.

I'm not 100% comfortable that this is the exact answer for individuals, and considering that the amount could potentially be big hit on the portfolio if I were to pass away after a very long and fruitful investing period I decided to limit my exposure to Australian domiciled ETFs (in particular VAS, VGS & VGE). It limits the options / flexibility for international exposure, but more peace of mind at this stage.

Not sure if it helps. Would really appreciate it if someone knew the actual answer.

 

[Stock Control]

Not sure if it helps. Would really appreciate it if someone knew the actual answer.

Yeah I feel pretty much the same way. I think it's possible that it might not apply due to tax treaties or because of some other clause in the law, but going that route means that you need to find and employ an advisor who knows, understands and can interpret the law, hope that that person's opinion is right, hope that the US IRS will agree to that opinion when the time comes, hope that the laws haven't changed surreptitiously in the meantime, etc, etc. And in addition you've got the third party risk of having the stocks held in a nominee account.

All in all I'd rather avoid that. Investments held in the UK don't (currently) seem to have any such risks other than the possibility that the law could change in time.

 

[McLovin]

Good question! But from the IRS website: "Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets. U.S.-situated assets include American real estate, tangible personal property, and securities of U.S. companies. A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee."

OK. Maybe I'm missing something here, but I don't see any reference to holding UK or AU assets.

 

[Stock Control]

OK. Maybe I'm missing something here, but I don't see any reference to holding UK or AU assets.

The US assets issue is why I am reluctant to use my Interactive Brokers account for my whole portfolio. IB holds customers' funds in US banks and US treasuries. See http://ibkb.interactivebrokers.com/node/2012.

UK and AU assets are okay.

 

[skyQuake]

You'd also pay stamp duty of 0.50% on buys in the UK unless the specific stock/etf is stamp duty exempt (they're usually not)

 

[McLovin]

The US assets issue is why I am reluctant to use my Interactive Brokers account for my whole portfolio. IB holds customers' funds in US banks and US treasuries. See http://ibkb.interactivebrokers.com/node/2012.

UK and AU assets are okay.

I see now. From the next paragraph on the IRS page that you linked to earlier...

Exceptions: Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds.

Personally, I think with the amount you are investing a trust offers much more flexibility and the cost of maintaining such a structure will be minimal as a % of the account balance.

You'd also pay stamp duty of 0.50% on buys in the UK unless the specific stock/etf is stamp duty exempt (they're usually not)

UK stamp duty is archaic. Even more stupidly, you don't pay stamp duty when you invest in an unlisted managed fund but do when it's an ETF.

 

[Stock Control]

Personally, I think with the amount you are investing a trust offers much more flexibility and the cost of maintaining such a structure will be minimal as a % of the account balance.

I'll look into that some more.

UK stamp duty is archaic. Even more stupidly, you don't pay stamp duty when you invest in an unlisted managed fund but do when it's an ETF.

UK stamp duty on ETFs was abolished in 2013.

I'm considering opening a Nabtrade account for AU shares and opening a UK stockbroking account for UK shares. I can convert AUD to GBP at midmarket rates and then purchase the shares directly in the UK account. It will be a bit more admin but better for future dividends and rebalancing. Another issue is that most UK accounts are nominee holders.