Exit tax (before 8 year anniversary of 1st purchase) on monthly ETF purchases

jpd

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The question is can the loss on the month 2 be offset against the gains on months 1, 3 and 4
 

50andOut

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143
I'm operating on the basis that @ryaner means 100 units purchased at €1, 100 units purchased @ €2 etc. It would seem to tally with the gain figures stated.

What are you seeing?

ok - I had based this on the having a set €100 to invest per month (realistic view), so as you can see in the table above, gain is 250.

As JPD Points out the question is still the same should the loss be offset. - I did paste the revenue article in the prior post which specified Average cost basis. will need a read through again to check the total calc basis. I assume since I set up formula to ignore the loss, that I had read that it shouldn't be offset.
 

ryaner

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You would be extremely unlikely to find buying prices following that pattern - well, apart from Jan 2020 - May 2020and still be under water in 8 years time
Sure, this was overly simplified to make the figures round. A real work example from an ETF I had of Purchase 1: 36, Purchase 2: 37, Purchase 3: 40, Purchase 4: 42, Purchase 5: 40, Purchase 6: 37, Purchase 7: 34, Purchase 8: 32, Purchase 9, 30 and the current price of 36 is a whole lot more complex to get the point across.

I posted a spreadsheet I am using in in earlier thread:

ETF Tax Tracking SS | Askaboutmoney.com - the Irish consumer forum
Thanks for this. Based on your logic, the -100 gets treated as nil and the deemed disposal is 300 for tax purposes in year 8. The example was based on 100 units in each purchase to simply things down for the loss relief part.

I've found an old post from 2015 (https://www.askaboutmoney.com/threa...-year-roll-up-tax-on-efts.194566/post-1435906) which has similar logic which has an except from a mail from the Revenue "If there is a loss in any of the ETFs, it is treated as a Nil gain and you cannot reduce any gains by such a loss."

If this is really the case where someone can't offset losses in ETFs, even in the same ETF across multiple investments, I expect we'll see a lot of very angry people in the coming years as the likes of DeGiro have made ETF investing a whole lot more common with their very low entry point.
Then again given how this is very similar to how Revenue have been treating peer to peer lending and loss relief there, this is very likely the case.
 

jpd

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DeGiro are not responsible for the tax laws in Ireland

They have a business, albeit with low fees, and are in the business of making money. If investors are not aware of the tax issues, that is not their problem.

There has been a lot of informed comment on the taxation of ETF's across different media over the years and it is incumbent on the individual to inform themselves of the tax regime - if this is too complicated for them, then they should use an advisor or avoid firms like DeGiro

Of course, the best solution would be to treat ETF as ordinary shares, which in fact is what they actually are and not treat as life insurance type products. But the life insurers cabal have fought this right from the start of the Exit Tax regime - after all they don't want anyone looking after their own investments
 

fistophobia

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Its real simple - dont invest in ETFs if you want tax efficient investment solutions,
otherwise stick to pension contributions.
Each purchase is treated separately for the 8 year rule. No averaging prices, no offsetting losses. 41% tax on exit and income.
Govt / Revenue tax position is not going to change. These products are perceived as being for wealthy investors.
They dont want the Insurance / pension industry harmed.
I am in a position that I can influence and lobby on such matters. I worked the Irish Funds Industry Association.
Its a waste of time.
 

jpd

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The power goes to the strongest, not the most deserving :mad:

They dont want the insurance / pension industry harmed

and when the say "insurance / pension industry" they don't mean the customers
 

Younginvestor93

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131
Its real simple - dont invest in ETFs if you want tax efficient investment solutions,
otherwise stick to pension contributions.
Each purchase is treated separately for the 8 year rule. No averaging prices, no offsetting losses. 41% tax on exit and income.
Govt / Revenue tax position is not going to change. These products are perceived as being for wealthy investors.
They dont want the Insurance / pension industry harmed.
I am in a position that I can influence and lobby on such matters. I worked the Irish Funds Industry Association.
Its a waste of time.
After you max your pension, and mortgage interest is so low, what else are you going to do?
Even with tax, its still a good gain?
 

Nermal

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100
After you max your pension, and mortgage interest is so low, what else are you going to do?

Go all equity in your pension and try to achieve a reasonable AA outside it.
Deposits.
ETCs, shares that have a bit less risk than average, BRK or something like that - somewhat more favourable tax treatment.
EIIS schemes.
Over-contribute in a PRSA, accepting the long lock-in period in return for tax sheltering.
Property.
 

ryaner

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372
Has anyone actually found where Revenue docs/tax code say you are not allow offset losses? 27-01a-02 doesn't mention anything about losses or counting them as nil, it only deals with deemed disposal using the average cost method. Only places are comments talking about Revenue replies or news articles.
 

jpd

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AAAContributor

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Will this do?

jpd -

Have you encountered the same situation (that ryaner was talking about in post #28) in your own personal investing and have you paid a tax rate greater than 41% on the monetary gain on disposal of an ETF? Or worse, made a loss on an ETF and still end up paying tax?

If so, what rate did you end up paying on the monetary gain as a matter of interest?

If I buy 1 share of an ETF @ €50 today, another share of the same ETF tomorrow at €75, and sell both shares the following day for €60 each, I've made a net monetary loss of €5. There can't be tax due on the share purchased at €50 to compound my woes!

It's absurd! It doesn't make any sense!

This document would suggest losses within in the same UCITS can be offset against gains:

 

jpd

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That is not a revenue document. I don't think they have it right but it written in such a general fashion that it doesn't really clarify matters.

It is true that if you in the case you quote, you have two lots of ETF shares

You made a gain of 10 on one and a loss of 15 on the other but you can not offset the loss against the gain, in my understanding of the EXIT tax regime. So you have to pay tax on the gain of 10.

I stopped buying ETFs years and years ago so the ones I still hold are all now well into positive territory.
 

ryaner

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372
Thanks for linking 27-04-01, I'm still going through in in combination with 27-01a-02. Clears up a few other related issues.

4.1.4 Tax arising [s.747D & s.747E]
"The total tax liability (between deemed and actual disposals) should not exceed the tax liability that arises on the actual disposal. The original cost of acquisition should be used in carrying out the calculation of the taxable gain in such circumstances i.e. where the disposal occurs after the deemed disposal."
Means that the cost basis doesn't change, so if the tax goes down in future, tax paid now would be credited back. Although at the same time, if it goes up, it'd be on the entire gain period like the previous tax increases.

Where I'm really doubting the loss relief parts is how they are referring to ucits funds.
2.1 ‘Equivalent funds [s.747B(2A)]
"b) A fund authorised as a UCITS (cross reference to paragraph (b) of the definition of ‘investment undertaking’ in s.739B for inclusion of domestic UCITS in the gross roll-up regime),"

then we have

4.1.5 Calculating an 8 year deemed disposal [s747E(6)]
"While an individual may receive increases in their unit holdings in the fund this will be reflected in the rolled up value of the fund on the 8 th anniversary."

This is suggesting that the entire investment in ucits type etfs would be treated as a fund, similar to how life companies do it. Although that would mean the 8 year return is on the average profits of the entire fund, not just year 1 if using the averaging method. Not that that method is overly easy for tracking either.
It would be clearer if 27-01a-02 had included a worked example of the FIFO method instead of just saying "Where the FIFO basis is being used such tracking is relatively simple.", sidestepping the entire issue for deemed disposal purposes.

I suppose it comes down to if the Revenue really are saying Month1 and Month2 are totally separate investments for tax purposes, and have no relief between them, then I must be able to sell Month2 separately from Month1.
 

NotMyRealName

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56
I opted for the lump sum approach to ETF's ( all accumulating ). Not concerned with dollar-cost- averaging, and I'll deal with the actual, or deemed, disposal at the end of the investment period......or earlier if I need to cash out....
However, if I bought monthly through a calender year and then liquidated all at one go at the end of the investment period ( say Dec. of year 8...to take possible advantage of seasonal Santa-claus-rally...) then I should be able to aggregate the purchase values and subtract from disposal value ( assuming SOME increase) to simply calculate taxable profit...
Or is this thinking very deeply flawed???
 

jpd

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2,524
if you dispose of all the shares at the same time, then the total gain will be the same as long as the selling price is above all of the purchase prices.

But if the purchase price of some of the monthly purchases is higher than the selling price, you have made a loss on the shares purchased in that month - and as I understand, this loss can not be offset against the gains made by the other purchases.

This would assume that the investment had made little gain over the period.
 

NotMyRealName

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if you dispose of all the shares at the same time, then the total gain will be the same as long as the selling price is above all of the purchase prices.

But if the purchase price of some of the monthly purchases is higher than the selling price, you have made a loss on the shares purchased in that month - and as I understand, this loss can not be offset against the gains made by the other purchases.

This would assume that the investment had made little gain over the period.
Yes.....I see what you mean in respect of monthly purchases. In theory, a loss would be concealed within an overall fund appreciation,( assuming same). But maybe if you're buying the same ETF over 12 months and letting it run for a number of years , say 8, an overall fund loss would be more likely than perhaps a negative return on a monthly purchase after 8 years.
......I'm trying to explore simplicity here.....as opposed to complicated spreadsheet tracking....and that's why I chose lump sum purchase
 
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