41% to 38% reduction in exit tax on life assurance products

[Brendan Burgess]

Savings and investment​

The EU Savings and Investments Union aims to make it easier, safer and cheaper for people to invest. This gives citizens a better return and helps to fund businesses so that they can continue to grow.

In recognition of the importance of encouraging retail investment, today I am reducing the tax rate that applies to Irish, and equivalent offshore funds and foreign life assurance, products from 41% to 38%.

Reflecting the complexity of the tax framework for retail investment, and to facilitate due consideration of the Funds Sector 2030 Report, I intend to publish a roadmap early next year, setting out my intended approach to simplify and adapt the tax framework to encourage retail investment. It will take into account the European Commission’s recommendation on Savings and Investment Accounts.

Of course, Ireland has a leading position in the investment funds and asset management industry globally, supporting almost 37,500 jobs across the country.

An Implementation Plan for the overall Funds Sector 2030 Report is also being published today.

That report recommended a public consultation on potential options for an entity level tax for IREFs. I do not propose to progress this recommendation. However, my Department will undertake a public consultation on proposals to simplify the IREF regime without limiting its effectiveness.

 

[Steven Barrett]

No mention of deemed disposal. I think people would have accepted deemed disposal going before the tax reduction.

A can is being kicked down the road again. They had a full year to consider these issues without having to delay it. It'll be 2027 before it is implemented.

 

[Zion2022]

I think people would have accepted deemed disposal going before the tax reduction.

Deemed disposal and inability to offset gains & losses would have been much more welcome than going at the rate itself. Disappointing…again.

 

[Uafásach]

If/when deemed disposal is abolished I wonder will it be for future investments or retrospective? Has minister ever given a steer?

 

[Duke of Marmalade]

It is a very disappointing reduction in the rate. I think the fact that it has a retrospective impact on deemed disposals is a major impediment to levelling it up* with the DIRT rate.

* whatever "levelling up" means. When it was first introduced the equivalent rate was DIRT + 3%. However, that was before Deemed Disposals were introduced. A strong case can be made that they should be equal.

 

[Duke of Marmalade]

If/when deemed disposal is abolished I wonder will it be for future investments or retrospective?

IMHO on DD we will never go back to the situation at the introduction of gross roll-up when some in the industry got too excited and circulated their clients with "put a lifebelt round your assets" brochures promoting gross roll-up for life. This is well discussed elsewhere but any replacement system will prevent rolling up dividend income tax free for life.

 

[ashambles]

41% to 38% seemed encouraging to me (when was the last positive change for investors?).

The tax rate on money market funds will be 38%, whereas for deposit accounts for Form 11 filers the tax rate is 33% DIRT + 4.2% PRSI = 37.2%. If they drop the fund tax another 1% then the tax on cash on funds becomes less than the taxes on deposits (for some taxpayers).

With the 8 year lag for new investments an announcement to simplify the system over the next couple years isn't the worst that could be announced. Though they could "simplify" it into something worse.

 

[yellowmoose]

This is well discussed elsewhere but any replacement system will prevent rolling up dividend income tax free for life.

anyone know how this is this handled in other jurisdictions?

 

[Nermal]

This is well discussed elsewhere but any replacement system will prevent rolling up dividend income tax free for life.

Why? We're the outlier. Other countries allow it. Revenue get their cut from CAT.

 

[Duke of Marmalade]

Other countries allow it

Example please

UK examples
Life policies are taxed in the same way that they used to be in Ireland that is annually at the life company level.
Accumulation Units/Shares

• The fund doesn’t pay you cash income.
• Instead, the income is retained in the fund and reinvested.
• But for tax purposes, you’re treated as if you had received the distribution.
  
  Even though nothing hits your bank account, HMRC still regards it as income.

Of course the UK do have ISAs which are completely tax free but that is a separate issue.

 

[Duke of Marmalade]

The figures for deemed disposal Exit Tax are not separately available. But below we see estimates of what might be involved. A full reduction from 41% to 33% would rebate about 20% of this (if the policies are still in force) so of the order of €150m. Not a deal breaker.

 

[Corola]

41% to 38% seemed encouraging to me (when was the last positive change for investors?).

The reduction is of course welcome.

an announcement to simplify the system over the next couple years isn't the worst that could be announced. Though they could "simplify" it into something worse.

Although ironically, and until it is simplified, it is now a more complex calculation for people who have already had previous deemed disposals at 41%, having their next one at 38%.

 

[Fortune]

it is now a more complex calculation for people who have already had previous deemed disposals at 41%, having their next one at 38%.

It's not too much more complicated; it's similar to the calculations when the rates went up since their deemed disposal.

if the policies are still in force

It always seems prudent to leave the minimum amount in a policy, rather than cashing the whole thing in.

 

[smarts]

Funds Review Implementation Plan

 

[Corola]

it's similar to the calculations when the rates went up since their deemed disposal.

Which Revenue have struggled with according to @jpd !

 

[GSheehy]

Revenue don't have to calculate Life Assurance Exit Tax.

There are no immediate rebates from effective date. The rebate would come on encashment or next 8 year DD date. That's my understanding and pretty sure the product providers will work all that out for you.

It's a start.

Time to start piling on the pressure on the 1% Government Levy to level the playing field. Because the rest of it (further rate reductions and DD done away with) should fall into place.

LAET(the subject of the thread) is not 'complex' for the saver/investor. The product providers manage it.

 

[Corola]

LAET(the subject of the thread) is not 'complex' for the saver/investor.

The point made by Pascal Donoghue was not specific to life assurance. The thread title is paraphrasing.

today I am reducing the tax rate that applies to Irish, and equivalent offshore funds and foreign life assurance, products from 41% to 38%.

 

[GSheehy]

Well he still used the 'complex' card when he was replying to this PQ which was very specific to LAET.

He seems to be just using that line to not make the changes to Levy and DD on Life Assurance Products, which could be progressed separately.

 

[Corola]

He gives the same answer to every PQ on that topic. Even the answers in the implementation plan are identical for funds and life assurance (Reco 22 & 23).

 

[Fortune]

pretty sure the product providers will work all that out for you.

For them, the calculations are already set up and don't change. They just change the table of tax rates on their system so the correct rate is applied at any taxable event.