Now for clarity I would like to confirm that when I talk about shares or talk about equities – there are the same thing.
So from reading our Client Agreement you understand that we make a charge for our services of 1/12th of 1% of the amount managed every month you use our services.
And you understand that the platform we recommend makes a charge typically of 1/12th of 0.26% a month of the amount invested on the platform.
And finally you understand we prefer not to include funds within our main managed portfolios, thus avoiding annual fund management fees. The cost of owning a UK FTSE 100 tracker maybe low, at 0.2% per annum, but it is a perennial cost that can be avoided by just owning those shares directly.
Equity (Share) Ownership Costs
When we add a share to your portfolio there are additional costs to consider.
- Brokerage – Neither ourselves or the platforms we recommend are members of The London Stock Exchange, so a broker is required to source (or sell) the shares we choose for our portfolios. Individually the cost of buying a shareholding (any number of shares from 1 to 100,000s) is currently £3.75. However we seldom just buy a share for any one individual, instead we group individuals together when we trade. On average around 100 of us could each be buying the same share at the same time. Therefore the £3.75 brokerage fee is split 100 ways, reducing our personal cost to just 4p. This aggregate trading is one of the benefits of investing together.
- PTM – PTM (Panel of Takeovers and Mergers) is a £1 government levy that is automatically charged to investors when they buy or sell shares for over £10,000 listed on the London Stock Exchanges. This tax is not levied on overseas shares.
- Stamp Duty – You’ll pay Stamp Duty Reserve Tax (SDRT) if you buy shares electronically through the ‘CREST’ system (a computerised register of shares and share owners) listed on the main London Stock Market. SDRT is not payable on overseas shares or those listed on the Alternative Investment Market (AIM). The tax is taken automatically when you buy the shares, so you do not need to do anything else about your tax. SDRT is charged at 0.5% when you buy shares electronically.
Typical Cost
We have averaged out the additional costs incurred on a typical Moderate portfolio of £450,000 over the last couple of years.
- Brokerage – 8p per transaction. There were 193 equity transactions.
- PTM Levy – 2p per transaction. There were 114 transactions.
- Stamp Duty – £28.15p in tax. There were 61 transactions.
This period was exceptional spanning the end of 2021 and most of 2022. Portfolios were altered greatly as inflation began to run away and interest rates were increased. Our research suggests that on-average the cost of direct share ownership should be around 0.05% of the value of the portfolio per annum. (£223 per £450,000)