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

Is it not that the world and their mother outside of Ireland aren't taxed like this on ETFs so are avoiding them. Myself and a few friends have a fair bit (for us) invested and avoid ETFs. The deemed disposal and the exit rate just make it unattractive to small investors. Probably discourages many people totally from investing as they would invest in ETFs and cant be bothered learning more about investing in individual stocks.
Investing in an ETF should be a no brainer. It's a baseline when you're starting out. But when you learn about deemed disposal and the tax rate it's not a no brainer anymore.
 
How can regular people (not professional traders or millionaires) invest in synthetic ETFs?
Marc said:
It’s exchange traded, yet because it’s a debt instrument and not a fund, it’s generally accepted, though not guaranteed, that it is taxed under general tax principles so CGT on gains.
Click to expand...
Not guaranteed? So depending on which Revenue official audits you, you might get hit with exit tax and DD after all?

Marc said:
... from a risk perspective, [it's] fully collateralised and the swap is with a highly reputable investment bank.
Click to expand...
If there's another great financial crises will peoples money really be safe?
 
When I lived in Australia and invested in ETFs they seemed to have a good system that encourages investment and wealth generation but also taxes wealth hoarding which seems to be Revenue's main concern. Basically any income earned by the EFT in a year is attributed across all investors and they have to report this in their tax return. You can decide whether you want the distribution or reinvest it but there will be a small tax charge either way. There are obviously a lot of complicated calculations in the background but the key thing is that every investor receives a report that shows them exactly what and how to enter it in their tax return and the tax return portal is so simple that a child could do it. Most of the time when you go to do your tax return the figures are already plugged into it due to data sharing between the providers and tax office. I think we're a long way off that here but we need to decide on an overarching strategy first and then amend rules as required rather than fixing bits here and there of the patchwork quilt we have at the moment. Hopefully this "roadmap" has something along those lines.
 
@Marc
Looked at the webinar. Good stuff. As a long retired member I miss these Society events.
I was amused by your example of the PRSI stamps on income. I know someone who worked in a bank and availed of their generous staff deposits. Until one day the Revenue claimed that because they were joint deposits his spouse was subject to PRSI on half of them, he himself was at the PRSI ceiling. He was not a happy camper until this year his wife turned 66 and got nearly a full State pension, having been an old fashioned type who left work to rear the kids (she got stamps for that too of course.)

I think the couple are a bit beyond the clever wheeze of giving a remainder interest in their home to their kids.

I digress. I share the reservations over the durability of the tax treatment of the swap contract. It will be 8 years before you feel the difference and by then Revenue may have caught up in what would essentially be a retrospective way. After all swaps by definition can turn a duck into a swan. But if it quacks like a duck...

Retail Structured Products are in essence swap products. Under the taxation section they invariably say "our understanding is that these are subject to CGT" and then follow up with a caveat which in effect says "but what do we know".
 
Last edited:
RainyDayFund said:
Both grew out of the Department of Finances defensive fiscal culture of tax now, control exposure, and avoid perceived generosity.
Click to expand...
This type of thinking is the tail wagging the dog.

No one elected the Department of Finance or Revenue, we elected a politician to run the department to act on the behalf of the electorate. The country is planning on spending €130bn next year. The amount raised by deemed disposal and the exit tax on ETF's is in the very low tens of millions. I see no need for more consultations and reports on the matter. Just abolish deemed disposal and equalize the rate of CGT to 33%. It might even turn out to be revenue positive for the government as they would end up with a much larger pool of investments to get CGT from.
 
Raskolnikov said:
This type of thinking is the tail wagging the dog.

No one elected the Department of Finance or Revenue, we elected a politician to run the department to act on the behalf of the electorate. The country is planning on spending €130bn next year. T
Click to expand...
Exactly pascal Donohue was elected and he has been a hugely disappointing minister. At last he is being found out. He used to just bamboozle with figures and financial jargon to prevent proper interrogation of his decisions in interviews.

There was a great skit on the "savage eye" back in 2010 I think about Irish people not understanding finances and figures, then when a minister in a questions and answers format was being questioned from an irate audience member he started reeling off financial jargon to bamboozle the audience member, the expression on his face was priceless, very funny and close to the bone. But that's what pascal Donohue has been doing for years
 
joe sod said:
There was a great skit on the "savage eye" back in 2010 I think about Irish people not understanding finances and figures, then when a minister in a questions and answers format was being questioned from an irate audience member he started reeling off financial jargon to bamboozle the audience member, the expression on his face was priceless, very funny and close to the bone.
Click to expand...
I'm guessing that you had to be there?
 
Raskolnikov said:
we elected a politician to run the department
Click to expand...
The Sec Gen runs the department. The politician does the PR, the policy, the pushing of the legislation through the Dail, and the budget approval at cabinet. Donohoe is well house trained at this point, and that's reflected in his stance on many topics, including this one. People forget that he was the Minister for Dept of Public Expenditure & Reform too. How much reform has there been since it was setup?

There's a lack of accountability within the CS/PS, and it's the reason our services are mediocre, especially when you look at what we spend on them. I'd vote for any politician who would drop the pretence that they run their department, and instead hold the Sec Gens publicly to account. We might have better services and outcomes as a result.
 
For your further enlightenment:
1760290638613.webp

And the final resting place:
1760290702206.webp
 
Raskolnikov said:
No one elected the Department of Finance or Revenue, we elected a politician to run the department to act on the behalf of the electorate. The country is planning on spending €130bn next year. The amount raised by deemed disposal and the exit tax on ETF's is in the very low tens of millions. I see no need for more consultations and reports on the matter. Just abolish deemed disposal and equalize the rate of CGT to 33%. It might even turn out to be revenue positive for the government as they would end up with a much larger pool of investments to get CGT from.
Click to expand...
Expect in this particular case the Department of Finance has already deliberated that they are OK with scrapping deemed disposal and harmonize the exit tax with CGT (the Fund Review Report). The roadblock could be with politician and maybe (but we don't have any info on it) Revenue.
 
The SFT being resolved relatively quickly and robustly did show that issues most directly affecting civil and public servants tend to be resolved a great deal more quickly than issues that don’t. It affected a tiny proportion of the population compared to deemed disposal and exit tax (which is still small) but was kept at the top of the agenda in press and no doubt in private constantly over a number of years and then resolved pretty much overnight.
 
A look again at my Tables in post #93 and we see that in fact for the 40 year term (which is the same as the 8 year term) 38% Deemed every 8 years is similar to 33% annually. Does this suggest that the DOF think that DIRT and Exit Tax are already aligned?
 
Wolframius said:
Expect in this particular case the Department of Finance has already deliberated that they are OK with scrapping deemed disposal and harmonize the exit tax with CGT (the Fund Review Report). The roadblock could be with politician and maybe (but we don't have any info on it) Revenue.
Click to expand...
Oh, do you take it from the Fund Review Report that the Department of Finaice is okay with the recommendations? That's an interesting take I hadn't considered...

My view was that the roadblock is likely all three -- political ("no complicated stuff for fat cats" when the budget is puritanical), Revenue ("must avoid tax leakage at all costs!") and Department of Finance (fiscal Calvinism - tax immediately, not later, there might be a famine again in the morning, stock up now).

Duke of Marmalade said:
A look again at my Tables in post #93 and we see that in fact for the 40 year term (which is the same as the 8 year term) 38% Deemed every 8 years is similar to 33% annually. Does this suggest that the DOF think that DIRT and Exit Tax are already aligned?
Click to expand...
I think if that is actually the case, its a somewhat lazy DoF viewpoint that assumes for the sake of simplicity that the growth is linear. In practice, when is it ever? Because investment returns fluctuate, the deemed disposal can crystallise tax at an inopportune time... sequence-of-returns risk can make it a much bigger drag than DIRT.
 
Last edited:
RainyDayFund said:
Oh, do you take it from the Fund Review Report that the Department of Finaice is okay with the recommendations? That's an interesting take I hadn't considered...
Click to expand...
This is the review team that did the report (which is an official publication of the DoF):

"The Review was carried out by a multi-disciplinary team made up of Department of Finance staff and staff from the Central Bank of Ireland. In addition to the dedicated team, staff from across the Department of Finance (including Banking Division, Economics Division, Financial Services Division and Tax Division) and the Revenue Commissioners contributed to the Review. The Review Team reported directly to the Michael J. McGrath, Assistant Secretary of the Financial Services Division."

And this is the wording in the list of recommendations:
"The following reforms to the taxation of Irish-domiciled life products, with similar amendments made to the equivalent products in EU, EEA and OECD territories, to bring the regime into closer alignment with the taxation on other savings and investment products:
• Remove the eight-year deemed disposal requirement
• Align the IUT and LAET rate of tax with the CGT rate (currently 33%)
• Allow for a limited form of loss relief• Repeal the 1% Life Assurance Levy"

If the DoF mandarins were against it they could have put no recommendation at all. Revenue also contributed to the report, so it is possible that they are also onboard.
 
Wolframius said:
This is the review team that did the report (which is an official publication of the DoF):

"The Review was carried out by a multi-disciplinary team made up of Department of Finance staff and staff from the Central Bank of Ireland. In addition to the dedicated team, staff from across the Department of Finance (including Banking Division, Economics Division, Financial Services Division and Tax Division) and the Revenue Commissioners contributed to the Review. The Review Team reported directly to the Michael J. McGrath, Assistant Secretary of the Financial Services Division."

And this is the wording in the list of recommendations:
"The following reforms to the taxation of Irish-domiciled life products, with similar amendments made to the equivalent products in EU, EEA and OECD territories, to bring the regime into closer alignment with the taxation on other savings and investment products:
• Remove the eight-year deemed disposal requirement
• Align the IUT and LAET rate of tax with the CGT rate (currently 33%)
• Allow for a limited form of loss relief• Repeal the 1% Life Assurance Levy"

If the DoF mandarins were against it they could have put no recommendation at all. Revenue also contributed to the report, so it is possible that they are also onboard.
Click to expand...

Indeed, but a multi-disciplinary team of seven members is still a long way from representing the collective views of the DoF, the Central Bank, and Revenue.

Any mandarins who opposed the proposals could easily slow things down at any stage... and, in fairness, we’ve already seen that happen with other recommendations that have been “very complex” to implement.

Personally, I’m far from convinced that any of this is imminent. I thought there might have been some movement before the Budget, but the decision to limit change to the 38% rate sends a clear message. They could have gone further and faster if there were real political and organisational will behind it.

It’s therefore up to the relevant industry and consumer groups to keep lobbying and applying pressure. Otherwise, this once-in-a-generation opportunity for meaningful reform risks slipping quietly back into the long grass somewhere in the Leinster House wilderness.
 
You must log in or register to reply here.
Back
Top