Grossed Up State Savings Rates - Comparable Tax Rate

Discussion in 'Deposits' started by CiaranT, Nov 4, 2016.

  1. CiaranT

    CiaranT .

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    I'm trying to work out the updated grossed up comparable State Savings rates in light of the DIRT changes.

    The DIRT rate is currently 41%.
    The DIRT rate for 2017 will be 39%.
    The DIRT rate for 2018 has been pre-announced at 37%.
    The DIRT rate for 2019 has been pre-announced at 35%.
    The DIRT rate for 2020 has been pre-announced at 33%.
    (A small number of people pay PRSI on top of DIRT if they have unearned income of 5K+ per year).

    What is the correct tax rate to calculate grossed up State Savings rates against? i.e. What would a normal deposit account need to be paying to match State Savings rates?

    Most normal term deposit accounts pay interest on maturity date.

    Hence, would I would think that:
    The 3 year rate should be compared to a tax rate of 35%. Meaning a grossed up rate of aprox. 0.51%.
    The 4 year rate should be compared to a tax rate of 33%. Meaning a grossed up rate of aprox. 0.75%.
    The 5 year rate should be compared to a tax rate of 33%. Meaning a grossed up rate of aprox. 1.46%.
    The 10 year rate should be compared to a tax rate of 33%. Meaning a grossed up rate of aprox. 2.24%.

    Any thoughts on the above approach?
     
  2. Sarenco

    Sarenco Frequent Poster

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    Hi Ciaran

    I think that looks like a sensible approach.

    However, I think it would be helpful if you could continue to also give a grossed up rate that is inclusive of PRSI - I wouldn't be so sure that it's only a small number of people that have to pay PRSI on top of DIRT.
     
  3. CiaranT

    CiaranT .

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    Thanks. Fair point, I will continue to include a grossed up rate that is inclusive of a 4% PRSI rate. Cheers.
     
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  4. dub_nerd

    dub_nerd Frequent Poster

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    Looks right to me.
     
  5. CiaranT

    CiaranT .

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    Thanks. I have updated the grossed up rates in the best buy thread.
     
  6. Sarenco

    Sarenco Frequent Poster

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    Hi Ciaran

    The anticipated DIRT change for 2018 doesn't appear to have materialised today, which I guess mucks up your grossed up rates for State Savings products in the "Best Buys" section.

    Maybe it makes sense to wait to see if the pre-announced change makes it into the Finance Bill?
     
  7. RedOnion

    RedOnion Frequent Poster

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    Last edited: Oct 10, 2017
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  8. Sarenco

    Sarenco Frequent Poster

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    Ah, I relied on an IT report - I should have checked myself.:oops:
     
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  9. CiaranT

    CiaranT .

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    @RedOnion - Thanks for the confirmation.
     
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