APSS for all?

There's an attractive tax-advantaged share purchase scheme which has run for many years, APSS (Approved Profit Sharing Scheme). In basic terms you buy up to €12,700 in company shares through your bonus and salary-sacrifice, free from PAYE/Income tax. Providing you don't touch these shares for 3 years, they're yours to keep thereafter.

Many of us would like to see ISA-like schemes setup in Ireland, however as is often the case in life, it's easier to build upon something which already exists, than to try to try to start from scratch with something new. As there is precedence for this type of share purchase scheme, why not expand it so that all tax payers can avail?

The existing approach has a few issues which would need to be worked out - the burden on employers to pay for its admin, the limitation on individual company shares which can be purchased, the complex calculations for the percentage bonus / salary that can be used etc. Simplification would be key, for employees, anyone can salary-sacrifice up the revenue limit to buy any shares they so choose. For the employer, to limit their obligation to the facilitation of payroll deduction, in a similar manner to existing pension arrangements, the bike-to-work scheme, travel-saver tickets etc. Anyone selling the shares before 3 years had elapsed would owe the income tax back, along with any CGT.

At the core of this is the principle of fairness, allowing a select number of workers be take part in a tax advantaged share scheme, and not others, is exclusionary. The outcomes would be better too, as individuals would avoid concentration risk in having both their employment and wealth tied to one company. There would be reduced admin costs for employers compared to today's scheme, and it would promote investing / wealth creation which can reduce dependence on the state for individuals later in their life.

nest egg said:

For the employer, to limit their obligation to the facilitation of payroll deduction, in a similar manner to existing pension arrangements, the bike-to-work scheme, travel-saver tickets etc.

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My experience of the bike to work scheme is that the employer purchases the bike and then it's cost is deducted from the employee's salary. I couldn't see this working with share purchases. Overall though, I like your idea but would doubt whether any government would implement it in the near future.

llgon said:

My experience of the bike to work scheme is that the employer purchases the bike and then it's cost is deducted from the employee's salary. I couldn't see this working with share purchases. Overall though, I like your idea but would doubt whether any government would implement it in the near future.

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It needs some finessing, the only reason I mentioned bike-to-work was because employers / payroll providers are familiar and able to make such deductions already, i.e. it's nothing new for them. If you're making AVCs in similar manner, the employer isn't purchasing units of a fund and holding them for you, they're yours from the get-go, and it would be no different with an APSS for all.

From the State's perspective, offering a tax-advantaged share purchasing scheme to one cohort of PAYE tax payers, and not to another, solely on that basis that one employer has the resources to set an APSS up, and another doesn't, is highly questionable. Schemes like this should be universally available.

nest egg said:

From the State's perspective, offering a tax-advantaged share purchasing scheme to one cohort of PAYE tax payers, and not to another, solely on that basis that one employer has the resources to set an APSS up, and another doesn't, is highly questionable. Schemes like this should be universally available.

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Universally available only to employees?

ClubMan said:

Universally available only to employees?

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PAYE tax payers, I don't see why it should be limited to employees. The existing scheme is obviously tied to an employer, but it doesn't mean the revised one would have to be.

Not to lose sight of the reason I suggested this in the first place, it's to provide an incentive to invest. The Funds Sector 2030 Report called out the fact that Ireland was falling behind its peers when it comes to investing, as fewer people do it here than would be expected. Incentives are an excellent way of nudging people, we do it elsewhere in the tax system with plastic bag levies, bike-to-work schemes, sugar taxes, and the like. It doesn't have to be APSS, but given we already have a tax-advantaged share purchase scheme, it would seem a reasonable starting position to level the playing field and allow everyone to receive the same incentive.

I would agree with bring in a ISA type product into Ireland. If i recall the recent report on funds this was looked into but I think they want to sort out the taxation first. So lets get rid of the 8 year rule and different tax rates for ETF's then we can look at ISA type accounts for the general public. If they do come in a hope it is well done and not hijacked and results in most losing out.

Philip S said:

So lets get rid of the 8 year rule and different tax rates for ETF's then we can look at ISA type accounts for the general public

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If we had an ISA account, the question is, would the specific tax rules on ETFs/open ended funds even be an issue?

Involving employers at all, or doing this by way of payroll deduction, is a needless complication. These things are features of the current APSS scheme, but it makes sense for the employer to support a scheme for investing in the employer's own shares. Once the scheme is broadened to allow investment in other shares or other assets, there is no reason why employers would want any involvement in it at all, and no obvious advantage comes from involving them.

A better model might be the Special Savings Investment Accounts that operated in the early 2000s. The taxpayer made a commitment to regular savings (to a max of €254/month) for at least one year, but could contribute for up to five years; the money was to be left untouched for five years; each contribution attracted a tax credit (from memory, of 25%) which was added directly to the investment account; the account provider handled the administration. All the taxpayer had to do was sign the application form and set up a standing order for the regular contributions. If you withdrew your funds in less than five years, the tax credit was clawed back.

The investment could be a deposit account, or it could be in managed equity funds.

Wouldn't be difficult to recreate this with a few tweaks — not allow investment in deposits; allow investments in indivudual shares as well as in mangaged funds.

Note that earnings in the account were taxed at 23% (then the DIRT rate) whether you withdrew early or left the funds till maturity. The tax uplift came at the beginning, in the form of the tax credit received when the contribution was made. This made the scheme quite simple to administer and quite easy for taxpayers to understand.