Good REIT for British, US non-resident?

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danclarkie
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Good REIT for British, US non-resident?

Post by danclarkie » Tue May 13, 2014 6:04 am

Hi,

I am a British Expat, non US resident with my brokerage account in USD.
I am looking to diversify my portfolio with some REIT.

I initially wanted to get in on the booming London property market and so I considered IUKP but the cons are:
  • Low yield (comparatively)
  • GBP denominated
Ideally I would like to prevent my broker from screwing my on the currency conversion and buying a GBP fund with my USD.
So I considered some US REITs but the problem is that the dividends are subject to a 30% withholding tax which really takes a big chunk out of any yield :(
Can anyone point me in the direction of something suitable, or generally discuss options available :)

Many thanks.

Dan
http://www.expatfinance.net

helfordpirate
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Re: Good REIT for British, US non-resident?

Post by helfordpirate » Tue May 13, 2014 8:18 am

Did you rule out IUKP's stablemate - iShares Developed World Property Yield? High yielding global REIT (50% US I think), distribution yield 2.7%, Irish domiciled, London listed, USD base currency and USD share class through ticker (IDWP)?

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Re: Good REIT for British, US non-resident?

Post by danclarkie » Tue May 13, 2014 8:23 am

helfordpirate wrote:Did you rule out IUKP's stablemate - iShares Developed World Property Yield? High yielding global REIT (50% US I think), distribution yield 2.7%, Irish domiciled, London listed, USD base currency and USD share class through ticker (IDWP)?
This looks to be fit all the criteria I was looking for!
The yield is a little low for a REIT though, no?

Still looks like a solid REIT that otherwise ticks all the boxes.
Many thanks!
http://www.expatfinance.net

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Re: Good REIT for British, US non-resident?

Post by magneto » Tue May 13, 2014 10:16 am

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'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: Good REIT for British, US non-resident?

Post by danclarkie » Tue May 13, 2014 11:01 am

I think it is actually IWDP not IDWP ?
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helfordpirate
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Re: Good REIT for British, US non-resident?

Post by helfordpirate » Tue May 13, 2014 12:04 pm

IWDP is the GBP share class; IDWP is the USD share class

boglety
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Re: Good REIT for British, US non-resident?

Post by boglety » Tue May 13, 2014 11:14 pm

A more diversified REIT is GLRE

website is http://www.spdrseurope.com/product/fund ... =SPYJ%20GY

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Re: Good REIT for British, US non-resident?

Post by Valuethinker » Wed May 14, 2014 2:59 am

Just on 'currency of denomination'.

If it is GBP that doesn't matter *unless* the fund hedges its exposure back into sterling.

If it does not, then it is the currency of the assets which determines the performance. Converting NAV back into sterling is just an accounting exercise. If half the fund is in US REITs, and the USD rises against the GBP, the fund NAV will rise.

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Re: Good REIT for British, US non-resident?

Post by Valuethinker » Wed May 14, 2014 3:04 am

danclarkie wrote:
helfordpirate wrote:Did you rule out IUKP's stablemate - iShares Developed World Property Yield? High yielding global REIT (50% US I think), distribution yield 2.7%, Irish domiciled, London listed, USD base currency and USD share class through ticker (IDWP)?
This looks to be fit all the criteria I was looking for!
The yield is a little low for a REIT though, no?

Still looks like a solid REIT that otherwise ticks all the boxes.
Many thanks!
REITs have very low yields these days, as investors quest for income replacements for bonds (which also pay very low yields). Take a look at the yield on Land Securities (the ultimate blue chip UK REIT).

BTW the London property market is not booming. The London *residential* property market is booming, but the commercial one is healthy (in parts) and has made up much (but not all) of the fall post 2007. There is something of a split: blue chip buildings with good tenants are probably valued similarly to what they were in 2007, but secondary and tertiary stuff has not recovered anything as much. The Shard, just as an example, is not fully let and will not be for some time. Not sure about the Cheesegrater and the Walkie Talkie. The paper towel holder one is stalled again-- not building.

Although insurance firms and asset managers are taking up new space, the banks are still cutting back. So the City is not in terribly bullish state. Canary Wharf is full but a lot of that is people moving from elsewhere (and downsizing: I think I read KPMG is now basing its staff entirely in CW with about half the space it formerly used, London-wide). West End of course space is always in short supply because there is so little new space.

The suburbs are basically dying as commercial centres-- shopping malls and residential replacing for example the offices built in the 60s in Croydon. Office employment is recentralizing.

helfordpirate
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Re: Good REIT for British, US non-resident?

Post by helfordpirate » Wed May 14, 2014 12:18 pm

@Valuethinker You are of course right about the GBP share class not removing currency exposure from the base currency. But the OP seemed to be concerned about additional costs by having his broker do the currency conversion. Obviously doesnt trust them - perhaps should get a new broker!

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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Mon Nov 09, 2015 10:13 pm

helfordpirate wrote:Did you rule out IUKP's stablemate - iShares Developed World Property Yield? High yielding global REIT (50% US I think), distribution yield 2.7%, Irish domiciled, London listed, USD base currency and USD share class through ticker (IDWP)?
The thread is old but I still have a question!

Is this London listed iShares REIT also subject to dividends withholding tax?

Thanks !

Nicholas

EDIT: I think I found the answer elsewhere:

viewtopic.php?t=162448#p2439596

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Re: Good REIT for British, US non-resident?

Post by Micks » Tue Nov 10, 2015 5:03 am

NJSTONE9 wrote:
helfordpirate wrote:Did you rule out IUKP's stablemate - iShares Developed World Property Yield? High yielding global REIT (50% US I think), distribution yield 2.7%, Irish domiciled, London listed, USD base currency and USD share class through ticker (IDWP)?
The thread is old but I still have a question!

Is this London listed iShares REIT also subject to dividends withholding tax?

Thanks !

Nicholas

EDIT: I think I found the answer elsewhere:

viewtopic.php?t=162448#p2439596
I think you can deduce the historical numbers from the annual report (here). For the year ending October 2014, they received $101,292 in dividends (p.176) and paid $11,945 in non-reclaimable foreign withholding tax. Divide the tax by the dividends and you get: 11945/101292x100%=11.79% in dividend withholding tax over the dividends received. For 2013 this is 11310/93352x100%=12.12% withholding tax over the dividends received.

So the answer to your question would be: yes (an estimate would be about 12% times the dividend yield, based on the small sample of historical data we have got).
Kind regards, Mick

NJSTONE9
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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 5:27 am

Thank you Mick, you're very helpful.

I have one more question. My understanding of IDWP is that it is only the US part that attracts the withholding tax. That, and the fact it is domiciled in Ireland, reduces the amount to the 11-12% you calculated. The TER is a bit high though, at 0.59%.

If I bought say, REET from iShares.com, would I pay the dividends withholding tax on the full amount, ie 30%, because the fund is domiciled in the US? Or would it only be 30% for the US segment of the fund?

The TER for REET is just 0.14% so I'm wondering if it might overall be a better deal than IDWP. However, I have no idea how to calculate whether or not that is true.

VNQI is 0.24% and VNQ is 0.12% by way of comparison.

I'm not concerned about the inheritance fax as I won't be acquiring $60k in US domiciled stocks.

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Re: Good REIT for British, US non-resident?

Post by Micks » Tue Nov 10, 2015 6:02 am

NJSTONE9 wrote:Thank you Mick, you're very helpful.

I have one more question. My understanding of IDWP is that it is only the US part that attracts the withholding tax. That, and the fact it is domiciled in Ireland, reduces the amount to the 11-12% you calculated. The TER is a bit high though, at 0.59%.

If I bought say, REET from iShares.com, would I pay the dividends withholding tax on the full amount, ie 30%, because the fund is domiciled in the US? Or would it only be 30% for the US segment of the fund?

The TER for REET is just 0.14% so I'm wondering if it might overall be a better deal than IDWP. However, I have no idea how to calculate whether or not that is true.

VNQI is 0.24% and VNQ is 0.12% by way of comparison.

I'm not concerned about the inheritance fax as I won't be acquiring $60k in US domiciled stocks.
IDWP holds about 57% in US REITs/stocks, which would attract US taxation on dividends. The other 43% of the portfolio is stocks or REITs elsewhere in the world, but can also be taxed by those countries. May be at higher rates than the US, may also be lower.

One thing to consider is that REIT dividends are not necessarily taxed equally to dividends from stocks. REITs in the US can structure their dividends as capital gains instead of dividends (and can also recharacterize previous dividends as return of capital), which may be taxed differently. So you would have a bunch of reasons how the withholding tax differs from the US withholding tax on equity dividends; other countries, other type of dividends and of course the movement of constituents in the fund (which could for instance change the portion of US REITs and thus also the US taxes within the year).

If you are not a US person and your country does not have a withholding tax treaty with the US, you would indeed pay 30% withholding tax on distributions from US domiciled funds or stocks. So the global REIT ETF (REET) would pay withholding taxes on non-US holdings to the respective governments and when it distributes the dividends to you, those get taxed by 30%. So you would get hit by withholding taxes twice, and pretty hard too.

I can make an example comparison between the TERs and withholding taxes of REET and IDWP. Let us assume dividend yield is at 3% (REITs yield more than equities in general) for both funds. For IDWP we have an estimated withholding tax rate of 12%, times 3% yield is 0.03x0.12x100%=0.36% and add this to the TER of 0.59%, which is 0.95% for IDWP as our yearly estimated costs.

Page 44 of the annual report for REET shows $342,050 in dividend income and $18,163 in foreign withholding taxes. 18163/342050x100%=5.31% in withholding taxes over the year ending in April 2015. Times the 3% dividend yield we assumed, we would get 0.16% in foreign withholding taxes per year. The fund then distributes the 3% yield minus 5.31% of that (which is already paid to foreign governments) to you, which is taxed at 30%, leading to (0.03x0.9469)x0.3x100%=0.85% in yearly US tax withholding. Add these two withholding taxes to the TER and you get yearly costs including taxes of 0.16+0.85+0.14=1.15%.

So IDWP comes ahead with costs of 0.95% over REET with 1.15%. The comparison is somewhat flawed as I use a pretty small sample (and differing time periods for the two), but I think you can reasonably assume that IDWP will win this battle most of the time. Has gotten a bit complex this post, but hope it made sense to you. Let me know if you have questions.
Kind regards, Mick

LittleD
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Re: Good REIT for British, US non-resident?

Post by LittleD » Tue Nov 10, 2015 6:40 am

If you would like to investigate an ETF international reit, you could look at RWO which
is cheap enough and has a diversified portfolio. Please remember that if interest rates
are falling or stable, reits will do fine. In a rising rate environment, reits do poorly like
Utilities.

NJSTONE9
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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 6:40 am

Page 44 of the annual report for REET shows $342,050 in dividend income and $18,163 in foreign withholding taxes. 18163/342050x100%=5.31% in withholding taxes over the year ending in April 2015. Times the 3% dividend yield we assumed, we would get 0.16% in foreign withholding taxes per year. The fund then distributes the 3% yield minus 5.31% of that (which is already paid to foreign governments) to you, which is taxed at 30%, leading to (0.03x0.9469)x0.3x100%=0.85% in yearly US tax withholding. Add these two withholding taxes to the TER and you get yearly costs including taxes of 0.16+0.85+0.14=1.15%.
Doesn't Ireland have a reciprocal tax arrangement with the US? https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs

This suggests that there is no additional tax imposed by Ireland and the original tax is reduced to 15% from 30%. How would this affect the final yearly cost?

Thank you again!

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Re: Good REIT for British, US non-resident?

Post by Micks » Tue Nov 10, 2015 6:51 am

NJSTONE9 wrote:
Page 44 of the annual report for REET shows $342,050 in dividend income and $18,163 in foreign withholding taxes. 18163/342050x100%=5.31% in withholding taxes over the year ending in April 2015. Times the 3% dividend yield we assumed, we would get 0.16% in foreign withholding taxes per year. The fund then distributes the 3% yield minus 5.31% of that (which is already paid to foreign governments) to you, which is taxed at 30%, leading to (0.03x0.9469)x0.3x100%=0.85% in yearly US tax withholding. Add these two withholding taxes to the TER and you get yearly costs including taxes of 0.16+0.85+0.14=1.15%.
Doesn't Ireland have a reciprocal tax arrangement with the US? https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs

This suggests that there is no additional tax imposed by Ireland and the original tax is reduced to 15% from 30%. How would this affect the final yearly cost?

Thank you again!
Yes that is true, although REET is a US domiciled ETF, so not domiciled in Ireland. If a US domiciled ETF distributed dividends to you, it depends on the treaty between your country and the US how high the taxes on those dividends are. If there is no tax treaty between your country and the US, you would receive the dividends from REET after withholding of 30% US tax. If you are from Ireland, which has a treaty with the US reducing US withholding tax from 30 to 15%, you would pay 15% over the dividends of REET.

There are a few types of withholding tax that could differ per option. You would have the withholding tax from your own government: if you are a Belgian investor you would for instance pay 25% tax on dividends. You would have the withholding tax from the country where the fund is domiciled: so if you are a Belgian investor investing in US domiciled ETFs, you would pay 15% on the dividends you receive (before the 25% personal tax). And even before that, you would have the withholding tax on the fund level: so the US domiciled fund pays withholding taxes to the Dutch government if it holds a Dutch REIT that distributes dividends. All three types might hurt you.

Ireland does not tax dividends, so the second type I mentioned would disappear when you choose Ireland domiciled funds. Hope this clarifies it a bit.
Kind regards, Mick

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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 7:06 am

Yes that is true, although REET is a US domiciled ETF, so not domiciled in Ireland.
Oops, I meant to specify IDWP or the https://www.spdrseurope.com/product/fun ... er=SPYJ+GY REIT mentioned in a previous post.

So at the end of the day, the tax hit isn't quite as bad for those Irish domiciled ETFs as it would be if I bought from the US, like REET, or RWO. (I live in Singapore and so far I have only bought from the LSE.)

RWO does look like a good option, it just depends whether it being a US domiciled one outweighs the advantages of it being more diversified.

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Re: Good REIT for British, US non-resident?

Post by LittleD » Tue Nov 10, 2015 7:18 am

It is well known and suggested in portfolio construction that Reits should be only held
in tax deferred accounts in whatever country you live in. That way, all of the dividends
and capital gains are excluded from taxes until retirement. Reits should usually not
be held in taxable accounts. Reits, by law, have to pay out almost all of their
earnings in dividends and capital gains.

NJSTONE9
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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 7:25 am

LittleD wrote:It is well known and suggested in portfolio construction that Reits should be only held
in tax deferred accounts in whatever country you live in. That way, all of the dividends
and capital gains are excluded from taxes until retirement. Reits should usually not
be held in taxable accounts. Reits, by law, have to pay out almost all of their
earnings in dividends and capital gains.
There is no capital gains tax in Singapore and dividends aren't taxed either, so it is only an issue of the US tax being applied in my case.

Would it be worth holding European and Asian REITS in place of US ones? I'd lose out on some diversification but achieve part of my objective. I'm not looking to hold more than 10% of my portfolio in REITS. Just seeking another layer of asset diversification beyond equities and bonds.

LittleD
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Re: Good REIT for British, US non-resident?

Post by LittleD » Tue Nov 10, 2015 7:32 am

European Reits would be my choice because there are better financial reporting requirements and controls
in those countries. I have never trusted controls or financial accuracy in Asian countries, especially China or
India. If you can find a good, low cost, Reit domiciled in Europe, that would be my choice since taxes
are not an issue.

NJSTONE9
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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 8:03 am

LittleD wrote:European Reits would be my choice because there are better financial reporting requirements and controls
in those countries. I have never trusted controls or financial accuracy in Asian countries, especially China or
India. If you can find a good, low cost, Reit domiciled in Europe, that would be my choice since taxes
are not an issue.
Thank you. Out of interest, is this https://www.spdrseurope.com/product/fun ... er=SPYJ+GY the European equivalent of RWO? (I know it's global, not European).

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Re: Good REIT for British, US non-resident?

Post by Micks » Tue Nov 10, 2015 8:17 am

NJSTONE9 wrote:
Yes that is true, although REET is a US domiciled ETF, so not domiciled in Ireland.
Oops, I meant to specify IDWP or the https://www.spdrseurope.com/product/fun ... er=SPYJ+GY REIT mentioned in a previous post.

So at the end of the day, the tax hit isn't quite as bad for those Irish domiciled ETFs as it would be if I bought from the US, like REET, or RWO. (I live in Singapore and so far I have only bought from the LSE.)

RWO does look like a good option, it just depends whether it being a US domiciled one outweighs the advantages of it being more diversified.
I agree and would certainly prefer Irish domiciled ETFs over US domiciled ETFs, the taxes you pay on US domiciled ETFs are as shown in the previous calculations a lot higher (especially because you live in a non-treaty country, which leads to 30% withholding tax on dividends from the US). A fund domiciled in Ireland, can profit from tax treaties Ireland has with the countries the fund may invest in. So where the US domiciled ETFs have at least 30% tax withholding on dividends, the Ireland domiciled ETF IDWP only has about 12% tax withholding on dividends. With the high dividends of REITs, I would probably prefer the Irish domiciled one (have not looked into the funds in detail).
NJSTONE9 wrote: Would it be worth holding European and Asian REITS in place of US ones? I'd lose out on some diversification but achieve part of my objective. I'm not looking to hold more than 10% of my portfolio in REITS. Just seeking another layer of asset diversification beyond equities and bonds.
Realise that most equity indices include REITs, so when you buy a European REIT fund, you overweight European REITs. So it is not that you are decreasing your diversification if you already invest in them through your equity ETFs, rather only put the overweighting in EU REITs.

Recall we found that the tax withholding with IDWP ETF (developed markets REITs) was about 12%. The wikipage you mentioned earlier shows for IUSP (iShares US Property Yield) that tax withholding was about 13% over the past four years. Not much of a difference, so I think I would prefer the developed markets REIT ETF to have some more diversification.
Kind regards, Mick

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Re: Good REIT for British, US non-resident?

Post by NJSTONE9 » Tue Nov 10, 2015 8:44 am

Thank you very much everyone. It's been most illuminating. :happy

LittleD
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Re: Good REIT for British, US non-resident?

Post by LittleD » Tue Nov 10, 2015 9:09 am

NJSTONE9 wrote:
LittleD wrote:European Reits would be my choice because there are better financial reporting requirements and controls
in those countries. I have never trusted controls or financial accuracy in Asian countries, especially China or
India. If you can find a good, low cost, Reit domiciled in Europe, that would be my choice since taxes
are not an issue.
Thank you. Out of interest, is this https://www.spdrseurope.com/product/fun ... er=SPYJ+GY the European equivalent of RWO? (I know it's global, not European).

This reit might just fit the bill since it is based in the Dow Jones Global Reit Index. Looks well diversified and should
provide decent yields which in your case are tax advantaged. A nice diversified product for an overall global
diversified portfolio.
Good Luck with your investments!

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Re: Good REIT for British, US non-resident?

Post by InvestorNewb » Wed Nov 11, 2015 9:10 am

I have almost 20% of my portfolio in REIT (VNQ). My entire tax-deferred account is currently dedicated to it. I realize this it higher than most so with new money I will be buying other total market ETFs.

My rationale for doing this was that I wanted to keep my tax-deferred account simple and only invest in one thing. I also wanted to take advantage of the high dividends and the tax treatment of the account. When dividends are paid out it is always nice but I don't want to take too much risk in one sector.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

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