The investment trusts you can buy without paying stamp duty

Do you resent paying a tax every time you buy shares in an investment trust? On more than a quarter of trusts, it turns out that you don’t have to.

Stamp duty at 0.5% is normally levied on purchases of shares on the London stock market, including investment trusts, but the rule does not apply to shares in companies or trusts whose legal home is outside the United Kingdom.

Many trusts are domiciled in places such as the Channel Islands or the Isle of Man, which are not officially part of the UK. Transactions in their shares do not therefore attract stamp duty. Occasionally London-listed trusts are domiciled further afield, such as in Ireland, Luxembourg or Bermuda. Of the 378 trusts on the Association of Investment Companies’ list of quoted funds, 103 are domiciled outside the UK.

Among trusts exempt from stamp duty are one in the FTSE 100, two on Fidelity’s Select 50 list, one managed by Fidelity and several that focus on income. 

The one in the FTSE 100 is Pershing Square Holdings, a concentrated portfolio of mostly US shares managed by the American billionaire Bill Ackman. The £10bn trust is domiciled in Guernsey, so you pay no stamp duty if you buy its shares.

The two stamp-duty-exempt trusts on our Select 50 list of recommended funds are Balanced Commercial Property and International Public Partnerships, which invests in infrastructure assets. They also have their legal home in Guernsey.

The one Fidelity-managed trust to be exempt from stamp duty is Fidelity Emerging Markets, which has its legal home in Guernsey.

Several stamp-duty-exempt trusts stand out for their yield. Among them are BBGI Global Infrastructure, which yields 5.8%, GCP Infrastructure Investments (6.6% yield), Greencoat Renewables (6.1% yield), Invesco Bond Income Plus (7% yield), JLEN Environmental Assets (7% yield), Real Estate Credit Investments (8.5% yield), Renewables Infrastructure Group (5.9% yield), Sequoia Economic Infrastructure Income (7.5% yield), TwentyFour Income (9.2% yield) and TwentyFour Select Monthly Income (9.1% yield). Yields vary as share prices rise and fall and are not guaranteed.

Investors do not pay stamp duty when they buy ordinary ‘open-ended’ funds or exchange-traded funds (ETFs), even though the latter, like investment trusts, are quoted on the stock market. The Association of Investment Companies has described this difference in treatment as unfair and has called for stamp duty on trusts to be scrapped. Others in the industry have said stamp duty on all shares, not just investment trusts, should be abolished. Fidelity and the Investment Association, the fund management trade body, are among those to have said recently that the new government should scrap the tax.

You can find the legal domicile of any investment trust available from Fidelity by visiting that trust’s page on our website and selecting the ‘trust info’ tab. You can often tell too from the company’s legal name whether it is domiciled outside the UK: trusts whose name ends in ‘limited’ are likely to have their legal home overseas.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Shares in investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.