Draft 3 of my submission on Deemed Disposal and the proposed SIA

Brendan Burgess said:
as it has resulted in over 5,000 ISA millionaires.
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I disagree with this, you can get to 1 million on much less than 20k contribution p.a. and I would want the scheme to help create more 'millionaires next door'. The book of the same title shows many millionaires are 'just' ordinary earners who are frugal and persistent in savings.
 
SPC100 said:
I agree and I don't think our proposal should say first solve the existing regime.
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I understand the argument. But when they are proposing to introduce a product, it's a good time to fix what is broken.

One of the earliest responses to my first draft suggested - no need for a new product, just fix the current system.
 
Savers and investors want Maximum returns. Moralising about taxation is a different issue.If you doubt this, then try reducing Dirt to zero and suggest that savers pay what they feel appropriate.
A lot of airtime on this forum is devoted to minimising tax-exposure, there's no thread called "How can I pay more tax"
Just because it's called "unearned income" doesn't mean it's unwanted or undeserved.

How about just making , say, the first 3k of deposit interest Dirt-free. No new accounts or market risk needed. Of course ,this won't result in money leaving deposit accounts for investment, if that's the ministers aim. Nor will it result in more deposits but it would be a reasonable break for small risk-averse savers ( this includes people who may have got legacies, or small pension lump sums, etc. etc.)
In tandem ,abolish deemed disposal and reduce Exit tax to 10% and that'll get the investment money flowing with the risk-on investors.

Forget about ISA's.

Give savers a little breathing space
Give investors Oxygen.

I'm informed that most of my former employees are already lining up to leave MFF, I suspect that to continue. We have many immigrants living and working in this country who are not decided that they'll remain here long-term, and so, they're not committing to a financial future post-employment...But that's another story.
 
I don't find the German system complicated at all as retail investor (what goes on in the background is irrelevant to the investor, I just included it for clarity) but ok. Deposit interest and capital gains from shares are taxed the same way so the same tax free allowance covers both types of income. If I am risk averse I can stick all my money in a 2% account and I will pay no tax on the interest (as a single person) up to 50k, 100k for a couple. If I want to invest in shares or etfs I can do that too. If I use the same bank or broker to save/invest I don't even have to divide up the tax free allowance even. The bank works out the details for me. I'm currently with Trade Republic for my savings and my brokerage. I just gave them the full €1000 tax free allowance. If I exceed that by having more on deposit or more in ETFs or shares or whatever, Trade Republic will just deduct the CGT (in the case of the cash on deposit and any dividends from shares or funds) and forward it to the tax office on my behalf like DIRT. If I have accumulating ETFs the state takes a pre-payment of tax based on prevailing interest rates. This is deducted every January or February for the previous year and the tax free allowance covers this prepayment too. Again, if I exceed the tax free allowance, Trade Republic will deduct the correct tax from my account and forward it to the tax office. As a retail investor I have one task: Tell the bank how much of my TFA I wish to assign to them. That's it. If I forget to do that or assign it incorrectly, I can always get any overpayment of tax back by including it in my tax return. Most retail investors in Germany never need to include their gains from share dealing in their tax returns though, because of the flexible way the TFA works. Most banks and brokers allow you to assign the TFA in their apps or online. There is no paperwork required.

Edit: I am leaving TR because they won't accept a TFA allocation over 1k, ie for a single person but I'm married so I'm moving to Scalable Capital, where they will accept a TFA allocation up to 2k.
 
Thanks for doing this Brendan.
Brendan Burgess said:
Some argue that taxing accumulating funds on realised gains only would give such funds a big advantage as income would not be taxed annually and could be rolled up and eventually subject to CGT instead of Income Tax. This could be dealt with by applying the Income Tax and CGT regime to only those funds which distribute at least 85% of their income. A precedent exists for this in the REITS regime. Funds which accumulate income could remain subject to deemed disposal and Exit Tax. While this might be seen as more equitable, it would effectively restrict Irish investors to a limited range of distributing funds and maybe the level of inequity would not justify this restriction.
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I would remove this paragraph altogether. It just adds back comlexity. And it's unlikely that ETF providers will provide this information just for the tiny Irish market. Anyway the same argument could be made for a stock that doesn't pay a dividend, or property, or Gold, or collectables etc. etc. It's never made sense that we've singled out one type of investment for this treatment.

Brendan Burgess said:
Part 2 A Special Investment Account for smaller savers and investors
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This should be the same bold and font size that the Part 1 text is.

Brendan Burgess said:
The interaction with pensions needs to be considered

A pension fund should be the main vehicle for long term savings.

A younger person might see an SIA as more attractive as they could access the money earlier. Furthermore, if their marginal tax rate is 20%, they may be better off saving through an SIA and then withdrawing it when their tax rate rises to 40%.

Lower earners generally will favour the SIA over pensions, as they are more likely to need to access savings in an emergency.
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This should be removed. You have no conclusion, so it just slows down the decision making. Plus, if your wish list came through then there is a reasonable argument that the SIA actually should be the main, or at least the first choice, vehicle.
 
Thanks for your comments and suggestions.

AJAM said:
I would remove this paragraph altogether. It just adds back comlexity. And it's unlikely that ETF providers will provide this information just for the tiny Irish market. Anyway the same argument could be made for a stock that doesn't pay a dividend, or property, or Gold, or collectables etc. etc. It's never made sense that we've singled out one type of investment for this treatment.
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I think that it's worth anticipating the arguments put forward by people who object. And it's not an unreasonable objection that the taxpayer would lose out if we just taxed accumulating funds at CGT rates.

Presumably these funds already publish this information? That they accumulate the income or distribute it?

There is a big difference between gold and collectibles which don't generate an income and property or shares which pay rent or dividends. Although, there are a few companies like Berkshire Hathaway which don't pay dividends.
 
AJAM said:
This should be removed. You have no conclusion, so it just slows down the decision making. Plus, if your wish list came through then there is a reasonable argument that the SIA actually should be the main, or at least the first choice, vehicle.
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There is no conclusion because I have not reached a conclusion. The problem with public policy is that they often don't consider the unintended consequences. If the SIA is overly generous and much more flexible than pensions, then it will replace pensions for a lot of people and that is not a good idea.

At this stage in developing an SIA, the government needs to be mindful of this.
 
Brendan Burgess said:
If the SIA is overly generous and much more flexible than pensions, then it will replace pensions for a lot of people and that is not a good idea.
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That's an opinion. On the flip side, we have the fact that Ireland has autoenrollment for pensions (with reenrollment every 6 months). Evidence from other countries has shown people do not opt out of pensions where AE is in place.
 
Dunno if you have finalised the draft yet or made this submission Brendan, but I was just thinking in general terms of what are the the main barriers or reluctance to the majority of Irish with surplus funds towards investing or changing fiscal behaviour in general.

It occurred to me that (possibly due to our anti-establishment, colonial past) a huge amount of Irish people have an inbuilt aversion to and suspicion of officialdom and state apparatus, by extension in this context, the revenue and taxation system.


Therefore, a lot of Irish taxpayers are indifferently content or predisposed to having only a peripheral, almost invisible relationship with revenue (via the PAYE system and payment of VAT, DIRT and Property tax etc) rather than actively engaging with options to secure relief and benefits from revenue,such as submission of expenses, or filing an annual S12 tax return.

Of course there are failures on both sides, in that many people fail to educate or inform themselves on the process or their entitlements, whilst equally the revenue system could be justifiably deemed by some to run a daunting and not entirely easy to engage with system for the novice or the ill informed to engage with.

This reluctance to actively engage or venture from the norm extends into so many other aspects of Irish society such as procrastination on changing mortgage providers or service providers (electricity, gas, mobile, broadband, etc) because of the perceived hassle, or for example in transferring AVC's on the basis of the existing convenience of payroll deductions. That is also why huge numbers of us continue to leave our billions in minimal interest,inflation eroding deposit or current accounts. Equally, some of the most effective changes in Irish behaviour over the past decades have been achieved indirectly through the taxation system (Plastic bag littering, property tax collection and bottle refund scheme)


So, my belief is for any new investment incentive proposal to succeed, it must either continue with the fiscal status quo, whereby taxation is imposed automatically, transparently and at a remove, with minimal intervention by the taxpayer, or else the process for claiming relief is considerably simplified requiring, for example a simple annual return or else deducted at source in the same way as DIRT without any necessary intervention from the investor.

Given the choice, most novice investors will still opt to be passive rather than active, leaving the financial experts to manage their funds, albeit at a premium AMC and hoping the revenue can anaesthetically extract their proportionate (and hopefully fair) share, without the need to engage an accountant to administer same.
 
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Mayo1969 said:
So, my belief is for any new investment incentive proposal to succeed, it must either continue with the fiscal status quo, whereby taxation is imposed automatically, transparently and at a remove, with minimal intervention by the taxpayer,
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Agree fully. I have this in the summary


Brendan Burgess said:
Exemption from having to make a tax return
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But maybe I will flesh it out along the following lines

There should be either no taxation or if there is taxation, it should be paid within the fund. The investor should have no requirement to make a tax return.
Consumers are put off investments where they are required to make tax returns. Ideally there should be no Income Tax or Capital Gains Tax within the fund. If this is considered too generous, the fund should handle all the tax returns, so that there is no requirement on the individual to make a tax return.
 
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