Deemed disposal

S

settlement

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Hi all,

The deemed disposal tax every 8 years on UCITS ETFs is, in my opinion, a nightmare.

Has anyone done any maths on how much it would affect returns in the long run, eg over 16 years with 10% return on 100k?

In any case, are people selling their UCITS ETFs before the 8 years to avoid the tax? It's hard to find an appropriate ETF to buy to mimic them given issues with american taxes etc. What are your strategies?
 
If you sell after 6 or 7 years, you pay tax at that point.

Selling early doesn't avoid the tax.

If you never sell, you are deemed to have sold every 8 years, and pay tax then.
 
I have a related question.

With Irish managed funds, the 8 year tax is withheld at source.

So a 100 k fund that grows to 150k after 8 years, will be charged 20 k tax approx. The fund value drops to 130 k, okay.

But do Irish/European ETFs deduct at source?

Or must you declare the return after 8 years?
 
Protocol said:
If you sell after 6 or 7 years, you pay tax at that point.

Selling early doesn't avoid the tax.

If you never sell, you are deemed to have sold every 8 years, and pay tax then.
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Yes, I am aware of that. My point is that if you sell early you pay tax once, if you sell after 8 years you pay tax twice.

Does anyone know when the 'timer' for the 8 years starts? Eg what about Irish citizens who move abroad and return years later. Does the timer pause, restart, keep going etc.
 
Protocol said:
I have a related question.

With Irish managed funds, the 8 year tax is withheld at source.

So a 100 k fund that grows to 150k after 8 years, will be charged 20 k tax approx. The fund value drops to 130 k, okay.

But do Irish/European ETFs deduct at source?

Or must you declare the return after 8 years?
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Not all Irish funds deduct the tax.

European ones don't, and how could they? A fund administrator in Frankfurt hasn't a notion about the Byzantine world of Irish taxation.

The Irish system is farcical.
 
Gordon Gekko said:
Not all Irish funds deduct the tax.

European ones don't, and how could they? A fund administrator in Frankfurt hasn't a notion about the Byzantine world of Irish taxation.

The Irish system is farcical.
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Agreed. How did we come to have such a ridiculous system?
 
settlement said:
Agreed. How did we come to have such a ridiculous system?
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Because it's akin to an old IT system that has had bit and pieces tacked on to it over the years.

And because the people who make the rules are unfamiliar with how the real world works.
 
settlement said:
Agreed. How did we come to have such a ridiculous system?
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I wonder is it something got to do with the way that ireland is actually the domicile country for alot of these european etf funds. So obviously it is advantageous for these funds for taxation purposes to have ireland as their domicile. The quid pro quo of this strategy is that they shaft irish investors wishing to invest in these funds that are actually domiciled here.
 
joe sod said:
I wonder is it something got to do with the way that ireland is actually the domicile country for alot of these european etf funds. So obviously it is advantageous for these funds for taxation purposes to have ireland as their domicile. The quid pro quo of this strategy is that they shaft irish investors wishing to invest in these funds that are actually domiciled here.
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I doubt that is the reason. The exit tax applies to all UCITS ETFs, so it doesn't matter if it's domiciled here or somewhere else in the EU.
 
The reason for deemed disposal is Noonan saw the gross roll up structure of investments and how people would invest for decades without the Revenue getting a penny. He didn't like that. And as only rich people saved, he saw that he could force people to pay tax every 8 years. Afterall, we were in a recession, we'd bailed out the banks and the property developers, so why not raid the coffers of the savers; both investments and pension funds.

Deemed disposal is deducted automatically if you are invested with an insurance company. They will take the money from your fund and pay it to the Revenue. There is no need for you to make a return.

If you are invested elsewhere, you have to pay it over in your tax return the following year. The tax does not have to come from your investment, you may pay it as just another tax. Whoever holds you investment will not deduct anything from your fund. But remember, they all have reporting requirements to the Revenue and the Irish Revenue are one of the sharpest around, so they will be expecting a payment and if they don't get it, expect them to start asking where the money is.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Related question on detail of deemed disposal dates.
Is it 8 years from date purchased or date the deemed disposal rules were introduced 1/1/2007 (?)?

or 8 years since date of residency in ireland if bought earlier ?
 
SBarrett said:
The reason for deemed disposal is Noonan saw the gross roll up structure of investments and how people would invest for decades without the Revenue getting a penny. He didn't like that. And as only rich people saved, he saw that he could force people to pay tax every 8 years.
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Are you sure I thought he was in opposition at the time?

I'd be inclined to blame the civil service in this case though as Revenue never seem happy with regular members of the public investing in the stock market, an easy attitude to have if neither saving or investing is needed personally due to having an unfunded guaranteed pension on the way. For example the chances of revenue copying ISA rules from the UK are zero, despite them routinely copying tax policies from the UK.

But leaving aside that speculation, I would have started a monthly investment with Rabo but decided not due to this tax. It's one thing with a one off lump sum investment but a savings plan seemed to be creating a rolling monthly tax hassle once you got past 8 years from your first payment, and then worse again after 16, 24 years. Unsurprisingly Rabo now don't offer investments which is likely partly due to the overly complex taxation.

Also the initial description of the tax didn't consider what the procedure would be if there was a loss over the period (as it happened - a very likely outcome due to the crash the late 2000's. I think there was some clarifications added several years later but no doubt still utterly stupid.
 
ashambles said:
Are you sure I thought he was in opposition at the time?
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You're right. I googled it and my own blog on it was the top result! :p It was introduced in 2006.

If there is a loss, no tax is due so no tax is paid. If you pay the deemed disposal and subsequently cash it in at a lower price, you can claim a refund of the difference.

I wouldn't let it stop you from investing though. People pay DIRT on deposit interest and that's paid every year!


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
so the result is (thanks to the valuable information gleaned from this site) that many irish investors are investing in UK investment trusts or US domiciled ETFs in order to avoid this tax. Probably more people are ploughing all their money again like before into property.
 
SBarrett said:
I wouldn't let it stop you from investing though. People pay DIRT on deposit interest and that's paid every year!
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DIRT is simple. The problem with deemed disposal was the complexity but this may have been simplified/clarified since I abandoned my interest in a regular investment plan with Rabo.

For example...
You don't have a lump sum and you want to make weekly investments into a regular investor plan. You're 30 and you don't want to sell these until you're 60. Rabo was for some reason weren't able to do the tax for you and left it to the investor.

So let's say it started in 2000-week-1.
In 2008-week-1 you've to work out the tax on the 2000-week-1 lodgement.
In 2008-week-2 you've to work out the tax on the 2000-week-2 lodgement etc..


In 2016-week-1 you've the tax on the both on 2008-week-1 and the second 8 year term for the 2000-week-1.
In 2024-week-1 you've the tax on the both on 2016-week-1 and the second 8 year term for the 2008-week-1 and the third 8 year term on 2000 week 1.

24 years in to a weekly investment and you'd have 52 * 3 separate tax calcs to work out every year.

Now I'd assume you'd do this with your end of year form 11/12 but it would take ages to manually go over the figures. And unlike what Revenue assumed some of these gains will be losses.

If you're in most funds it'll be the provider working out the tax, however Irish providers are so opaque on their charges you'd have zero way of knowing if they correctly handled the tax.
 
ashambles it doesn't work like that for Irish life regular plans. In that case after 8 years from the beginning of the plan the whole plan is deemed sold, even the premium paid only last month. Whilst this makes practical sense it always seemed to me to disadvantage regular investment under the one plan. On the other hand a series of single premium plans suffers from the fact that losses on one plan can not be set against gains on the other.

I am not sure whether the scenario you describe applies in those situations where the punter is left to do her own calculations, though I can see that you may be right, but I would presume that you could reach a pragmatic arrangement with the Revenue for implementing the regime.

The fact is that the exit tax regime is grossly distorted and for me rules out savings under that heading. Far better to look for CGT based arrangements but these are hard to find.
 
Hi all
What happens If you have an lump sum invested in an eu ( non Irish ) fund bought before 1/1/2001 when the gross roll up started in Ireland ??
Deemed disposal rules were introduced 2006 I believe ....

eg so if purchase date was 1/1/97

For deemed disposal Is it ;
A) 1997 plus 16 years (rule not applicable back in 1/1 2005) so 1/1/ 2013
Or
B) should it be 1/1/2001 (date all this gross roll up regime started in Ireland ) plus 8 years so 1/1/2009 and then next 1/1/2017.
Or
C) not applicable atall as bought before 1/1/2001


Anyone know ?
Thanks
Mtk
 
Last edited:
Excellent question - I don't have any funds I purchased that long ago, so I never had to look into it, thank God!
 
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