Managed funds for retired couple: exit tax, alternatives, etc

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Scenario:

Married couple, aged 68-75, pensions plus self-employment income 45-50k gross, 10% direct tax paid

Assets:
House = 250k approx
ARF fund = 70k, from which 5% income drawn each year
An Post savings = 150k
Other deposits = 50-100k
Managed fund = 150k

My query is about the managed fund.

Started May 2007, 100k premium + 1% extra allocation from Eagle Star = 101k, plus 3.5% commission rebate from discount broker = 104.5k initial net allocation.

Zurich Matrix funds, 8 funds, split evenly, 12.5% into each fund.

Fund value went as low as 85k I think.
Value June 2012 = 94k.
Value May 2015 = 150k, very strong recent gains, especially on 2 bond funds.

8-year 41% tax applied this month, so approx 20,000 tax paid on the gain.

It's staggering to pay 41% tax on gains, when your average income tax rate is 10%, and your MTR is 20%.

The tax is paid now, so can't do anything about it.

Question: will this happen again in 8 years time?

Question: any alternative more tax-efficient ways to hold savings?

ETFs, which I know a bit about, maybe?
Direct shares - couple may not be happy with this, they are risk-adverse.


Another question: could we get a lower AMC? I think the AMC is 1%. Even moving the 130k to an assurer with 0.5% or 0.75% AMC would save 325 to 650 pa.

Note that it is very unlikely these funds will ever be encashed, they will end up in estate.
 
Under insured products, tax is paid on profits every 8 years.

Yes, if they go into a platform provider, they can get a lower AMC and no 8 year tax.

Savings are taxed very heavily these days, deposit interest is taxed at the same rate.
If they are going to leave the money to their estate, why don't they start gifting €6k a year to each of their kids?


Steven
www.bluewaterfp.ie
 
Under insured products, tax is paid on profits every 8 years.

Yes, if they go into a platform provider, they can get a lower AMC and no 8 year tax.

Steven
www.bluewaterfp.ie

Steven, can you elaborate on "platform provider" and how they can avoid the eight year rule on deemed disposals of funds and ETFs? Do you mean Zurich et al?
 
Hi Username

I use Conexim to get access to ETF's and other global funds. The 8 year deemed disposal rule didn't apply to their structures. I am however, just after reading Rory's update on the ETF thread and the Revenue have recently issued a note saying that deemed disposal is to apply to ETF's after 8 years. I am waiting a call back from Conexim to confirm that it applies to their structures but I suspect it does.

Steven
www.bluewaterfp.ie
 
The following is for information and educational purposes only and does not represent specific investment or tax advice for an individual. Investors and their advisers should seek competent tax advice before considering any of the issues raised in this post.

This is an extremely complex and technical area where Irish Resident investors potentially meet complex issues of both Irish and International Taxation.

The correct tax treatment of an "international" fund such as an ETF and including certain Irish Domiciled Funds which are deemed by Revenue to be "Offshore Funds" is a particularly complex area of taxation which has suffered from lack of Revenue clarity on certain issues.

For example, until relatively recently, the correct tax treatment of US ETFS was not entirely clear in Ireland.

I have recently written a detailed white paper on the subject of the taxation of US Exchange Traded funds for Irish Resident Investors which highlights the risk of US Estate Taxes applying to these holdings (something many advisers seem to have been unaware of until I highighted it in the Sunday Times recently)

Some simple rules of thumb (with no absolutes)

If you invest through an Insurance Company like Irish Life - your taxes are taken care of by the fund accountant.

In almost every other circumstance (with a few technical exeptions) a tax payer must self- assess for taxation. If a fund is substantially the same as an Irish Unit linked fund (however it is held (with some exceptions)) then it will be subject to Gross roll up or exit tax at a rate of 41% currently appliable to both income and gains.

In most other circumstances (e.g. US ETFS) then it will be subject to income tax (at the investor's marginal rate of tax) and capital gains tax (currently 33%)

I mention exceptions and this is where things become even more complex.

For example I have some clients who are invested in "offshore funds" where the tax is automatically deducted at source by the fund administrator. So this is easier tax accounting than say investing in Rabo Funds or through a "fund platform" where investments are typically held in an Omnibus Account.
However, you can't achieve this outcome with ETFs.

Another extremely important point to note for Financial Brokers is that if you advise a client to purchase an offshore investment that is subject to self-assessment, then you are required to file a Form 8d with Revenue confirming the name and PPS number of the investor and the details of the fund purchased.

This is covered by Section 896 of the TCA 1997

Persons who should make this return
Any person carrying on a trade or business in the State in the ordinary course of the operations of which that person acts as an intermediary in, or in connection with, the acquisition of a material interest in an Offshore Fund or Foreign Life Policy.

Intermediary
An intermediary means any person carrying on in the State a trade or business in the course of operations of which that person provides relevant facilities.
Relevant Facilities
Relevant Facilities means:
the marketing in the State of Offshore Products,
the acting in the State as an intermediary in relation to the acquisition or disposal, in whole or in part, of Offshore Products by or on behalf of persons who are resident or ordinarily resident in the State, or
the provision in the State of facilities for the making of payments from an Offshore Product to persons who are entitled to the Offshore Product, whether on the disposal, in whole or in part of the Offshore Product, or otherwise.
Offshore Fund
An Offshore Fund is:
a company resident outside the State,
a unit trust scheme the trustees of which are not resident in the State, and
any arrangements, other than above, which take effect by virtue of the law of a territory outside the State and which, under that law, create rights in the nature of co-ownership.
Offshore Product
An Offshore Product means:
a material interest in an Offshore Fund, or
a foreign life policy.
Foreign Life Policy
Foreign Life Policy means a policy of assurance on the life of a person commenced:
by a branch or agency (carrying on business in a State other than the State) of an assurance company, or
by an assurance company (carrying on business in a State other than the State) other than by its branch or agency carrying on business in the State.
Penalties
Where an Intermediary fails:
for any chargeable period to make a return required to be made by the intermediary in accordance with Section 896(2) TCA 1997,
to include in such a return for a chargeable period details of any person to whom the intermediary provided relevant facilities in the chargeable period, or
to take reasonable care to confirm the details of the kind referred to in Section 896(2) TCA 1997, furnished to the intermediary by a person to whom the intermediary has provided relevant facilities in the chargeable period,
the intermediary shall in respect of each such failure be liable to a penalty of €1,900.
Where a person:
fails to furnish details of the kind referred to in Section 896(2) TCA 1997 to an intermediary who has provided the person with relevant facilities, or
knowingly or wilfully furnishes that intermediary with incorrect details of that kind,
the person shall be liable to a penalty of €1,900.
 
Why have they made this so complicated if I buy a few different ETF's I am expected to pay exit tax on the ones that make a profit at 41% which I accept but surely I can deduct the losses of other ETF's first , that is grossly unfair if I cannot .

If financial advisors are unsure of what is what with these products what chance has an ordinary joe got of figuring it all out , sort it out revenue they are making it a nightmare for Irish people to invest .
 
Conexim don't deal directly with clients (as per their website), you need to go through an advisor such as Steven.

Steven, I'd be very interested to hear Conexims reply/stance on this...... I'd be highly surprised if they can help investors avoid the deemed disposal after eight years. However, I'm so, in all ears......
 
Conexim don't deal directly with clients (as per their website), you need to go through an advisor such as Steven.

Steven, I'd be very interested to hear Conexims reply/stance on this...... I'd be highly surprised if they can help investors avoid the deemed disposal after eight years. However, I'm so, in all ears......

Yes, they deal with intermediaries.

I have sought more clarification on this.

Steven
www.bluewaterfp.ie
 
Just to clarify one point in my previous post.

If you are looking to avoid the tax compliance requirements of exit tax especially having to deal with the 8 year deemed disposal issue, it is possible to invest in a limited range of fund options where the fund custodian will deduct the tax for you at source.

You would still be liable for the tax, but at least you wouldn't have to do all the calculations and self assessment and all that nonsense.

This is not possible where the assets are held in an omnibus account - which is standard industy practice
This is not possible for Exchange Traded Funds
This is not possible for all fund managers (for example I have spoken with JP Morgan who administer Vanguard's funds in Ireland and they won't facilite this)
 
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