ETFmatic launched two years ago because our founders believed that everyone in Europe deserves cost effective portfolio management with asset allocations that make sense to them. At ETFmatic, we manage each client’s portfolio individually. Buying and selling our selection of ETFs, we aim to bring the client portfolio as close as possible to their target allocation. Additionally, we aim to reduce the need for aggressive rebalancing, which may have tax consequences in some EU countries such as the UK.
But that was only the beginning. We have kept busy thinking about and developing new solutions which add further value to our services. Thanks to our innovative approach, We are thrilled to introduce new tools which enable clients to adjust their portfolios by also including their tax preferences into the equation.. The aim is to offer clients more of the kind of services that have historically only been available to individuals with several million to invest.
ETFmatic’s next step for increasingly tax optimised portfolios will roll out this week with the launch of our capital gains harvesting feature. It operates by identifying and selling those ETFs that have increased in value and replacing them with similar ETFs to ensure that we maintain the same asset allocation exposure for our client.
This functionality may be useful to clients who either live in a country that provides for a tax-free allowance, or know that they can offset the capital gains harvested by ETFmatic against losses in other parts of their overall investment portfolios.
How useful this turns out to be to individual clients will of course depend greatly on their personal circumstances and we strongly suggest that anyone who is not familiar with concepts like capital gains tax or tax-free allowance consults with a professional tax advisor before deciding to turn on the functionality on their account.
In the UK, clients could use their tax-free allowance, which for the 2017/2018 tax year stands at £11,300 per year. In our opinion, this could potentially enable those clients who pay the higher income tax rate (20% tax on capital gains) to accumulate up to £2,260 of tax benefits for every year that they hold the portfolio. For a portfolio that’s held for 10 years, this may well mean a potential £22,600 in tax savings when liquidating the portfolio (assuming the tax-free allowance remains at the same level as it currently stands).
Capital gains harvesting also lays the groundwork for further tax optimisation tools we are building to enable loss harvesting in the future.
ETFmatic will begin rolling out capital gains harvesting to our clients in the 32 EU states. However given the requirements around gains harvesting, along with potential costs of frequent selling, the feature will initially only be available to eligible clients with portfolios of GBP/USD/EUR 50,000 and above as they will see the greatest benefits. If you are eligible, all you have to do is login, edit any goal and enter a few details under 'Tax Optimisations' to activate it. We will only harvest capital gains up to and including the portion of your tax-free allowance which you allocated to your ETFmatic account.
ETFmatic does not offer and does not hold itself to offer tax planning services or advice. Those clients who are not familiar with concepts such as capital gains tax or tax-free allowance are reminded to seek professional tax advice before deciding to enable the feature for their account.