I might make a submission on a proposed investment product

Status
Not open for further replies.
Brendan Burgess

Brendan Burgess

Founder
Messages
58,388
The Minister for Finance is talking about getting money from deposits working better for customers.

I heard a spokesman for Financial Services Ireland saying she had a meeting to discuss it with the Minister.

There won't be anyone making submissions on behalf of consumers.

So I might make a submission in a personal capacity as a consumer campaigner.

I would ideally like it to be tax neutral - I won't argue that taxes are too high or too low - but just that there should not be inequality in the tax treatment of products.

I won't argue for tax incentives e.g. an ISA type product for deposits so that they are not taxed.

If there is general agreement on askaboutmoney, I could do it on behalf of Askaboutmoney, but I think it is unlikely to get general agreement.

But suggestions welcome.

First draft
 
Last edited:
A new investment product isn't needed. Index funds in an ETF are ready made diversified investment products. We need the burden of tax to be reduced on ETFs. No deemed disposal and tax at CGT rate only when you sell. Then educate the public on the value of investing. Nothing to administer. The incentive is the more favourable tax treatment than currently.
 
RTE reporting it as "strategy to help people get a greater return on their savings" not so encouraging, even the media buy in to the fear of investing

Why not advocate for something like the UK ISA? The cut off for tax could be set as appropriate and the other proposals kick in after that?

In the end of the day it seems anything like this in Ireland has to be packaged up in a shiny new understandable product like SSIA. Regardless of its quality it did achieve buy in.

And of course the ability of those who have investments to transition to whatever new product is developed to gain like benefits to newcomers
 
Last edited:
CharlieMac said:
A new investment product isn't needed. Index funds in an ETF are ready made diversified investment products. We need the burden of tax to be reduced on ETFs. No deemed disposal and tax at CGT rate only when you sell. Then educate the public on the value of investing. Nothing to administer. The incentive is the more favourable tax treatment than currently.
Click to expand...

Great point.

So is that a submission which the vast majority on askaboutmoney would agree with?

It is short, simple and to the point.

Brendan
 
Maybe in addition to the ETF proposal a proposal for a DIRT free regular Savings product if you save a fixed amount for x months and then leave it untouched for 3 or 4 years subsequently.

Both should cover all the bases in 2 relatively easy to understand products.
 
Brendan Burgess said:
So is that a submission which the vast majority on askaboutmoney would agree with?
Click to expand...
I have never seen such uniform support for anything across multiple platforms as ‘please just let us access cheap, diversified ETFs without insanely punitive and operationally burdernsome tax treatment’

They seem to have really honed in on the tax benefits of rolling up dividends. But when the MSCI world dividend yield is c1.5%, is just obliterating ETFs altogether a proportionate response? The amount of forums flooded with people investing all their money in Berkshire Hathaway or UK investment trusts to try to proxy an ETF, taking more risk (through active mgmt & less diversification) and higher fees, just to avoid the ETF tax regime is staggering

Would it be such a bad thing for globally diversified low fee indexes that the vast majority SHOULD be investing in to have a slightly favourable tax treatment when true equalisation is impossible?
They have taken Thor’s hammer to crack a nut.
 
Yes, I would add that as well as being at the CGT rate, it would be good to treat ETFs as you would shares in the broader sense of being able to carry forward losses for tax purposes and have them under the same €1270 capital gains exemption
 
VoiceofReason said:
Maybe in addition to the ETF proposal a proposal for a DIRT free regular Savings product if you save a fixed amount for x months and then leave it untouched for 3 or 4 years subsequently.
Click to expand...
This would be a good idea as well.

DIRT is a silly tax at this stage. If you have €10k on deposit, you may be only getting a 1% return ie. €100, a tiny amount, and you lose 1/3rd of that. You're €100 gross is only just about keeping up with inflation, so a 33% tax on top of that is very unfair.

People should be encouraged to keep money on deposit for an emergency or rainy day.
 
In previous discussions about this topic the government indicated they would be aligning with the EU's Savings and Investments Union and presumably introducing the Savings and Investments Accounts (SIAs) that this policy has recommended and are being implemented in other countries. Key features they recommend -
  • a variety of providers: a wide range of authorised financial services providers (banks, investment firms, neobrokers) to boost competition and innovation
  • simplicity: simple, reliable and easily accessible user experience for retail investors (online and offline) to make the buying and selling of assets seamless
  • flexibility: retail investors should be allowed to open multiple accounts with different providers, without excessive fees or cumbersome processes when transferring their portfolios
  • broad investment opportunities: in various products such as shares, bonds and investment funds, allowing citizens to diversify their portfolios across asset classes, issuers, manufacturers, geographies and risk profiles
  • tax incentives: well-targeted and simple to understand and apply
  • simplified taxation process: streamlined tax procedures, including relying on SIA providers for tax declarations

So I think any submission should start with a strong endorsement of Ireland introducing SIAs and any feedback should be on how SIAs should be best implemented?

FWIW another big part of the SIU is to put a focus on financial literacy across EU.

Some reading on SIAs -
commission.europa.eu

EU to boost financial literacy and investment opportunities for citizens

The Commission has proposed two initiatives to improve financial literacy at all life stages and make investing simpler and more accessible for everyone.
commission.europa.eu commission.europa.eu
ec.europa.eu

Questions and answers on the Financial Literacy Strategy and the Savings and Investment Accounts

\n\nFinancial Literacy\nWhat is financial literacy and why is it important? \nFinancial literacy is an essential life skill that involves the combination of financial awareness, knowledge, attitudes and b
ec.europa.eu ec.europa.eu
 
So here is the very first draft of a proposed submission

Dear Minister



I note your recent comments on getting money to work for people and you are considering new products.

As we do not have a functioning advocacy body on behalf of savers or investors in Ireland, I would like to make a submission on behalf of savers and investors. I host the consumer forum Askaboutmoney.com where these issues are frequently discussed. The issue is also discussed by savers and investors on other forums and there is near unanimity on the best way forward.


In summary, no new product is needed – the products already exist, so all you have to do is equalise the tax treatment with direct investment in shares.

We are not calling for a lower or higher tax on investment products. The level of taxation is a matter for the Oireachtas. We are simply calling for an equalisation in the tax treatment of ETFs and direct investment in shares.

Passively managed Exchange Traded Funds , ETFs, are the ideal vehicle for both small and large investors.

  • They are low cost
  • They are simple products which are easy for investors to understand
  • They are easy to buy and sell
  • They invest in a diversified portfolio of shares and other assets which reduces the risks of investing in shares
But they are not attractive to Irish investors because of the unfavourable tax treatment over direct investment in shares and property.

Not only is it unfavourable, it is also complex and there are long, long discussions on Askaboutmoney about the tax treatment.

No new product is needed – simply change the tax treatment of ETFs so that they are the same as direct investments in shares.

  • ETFs should be gross products and subject to CGT only
  • There should be no deemed disposal after 8 years with all the complications that arise
  • Any losses arising on ETFs should be available for set off against capital gains on other investments and vice-versa.
This treatment would give investors in ETFs a small tax advantage over direct investors in shares in that they would be paying CGT on the realised gains instead of Income Tax on the dividends. But it would be in the public interest to encourage more Irish citizens to invest in the stock market and this small tax incentive would be tolerable.

If there are political objections to this slightly favourable treatment, the ETFs could be treated like REITs in that the dividend income would be paid out each year and subject to Income Tax in the hands of the investor. I am not advocating for this, but it would deal with any objection that the tax treatment was unfair.
 
Last edited:
Zion2022 said:
They seem to have really honed in on the tax benefits of rolling up dividends.
Click to expand...
Do ETFs roll up dividends. I have small holdings in a couple and I get dividends from them.

You do have near universal support on this. The deemed disposal rule is a crazy tax. Does any other country in the world have a similar treatment? I doubt it. Other countries see the huge benefits of ordinary people being able to access a cheap and, over the long term, relatively low risk investment to save long term for future costs ie. college fees, help children on the property ladder, additional funds for retirement which have more flexibility than a pension fund.
 
VoiceofReason said:
Maybe in addition to the ETF proposal a proposal for a DIRT free regular Savings product if you save a fixed amount for x months and then leave it untouched for 3 or 4 years subsequently.
Click to expand...

I certainly wouldn't advocate for such a product as I think that all savings should be flexible and people should not be putting their savings away in deposits which are untouchable.

But I would support a deposit account of up to [€20,000] per person which would be DIRT free. It wouldn't have to be regular savings. It could be one lump sum.
 
Greenbook said:
Do ETFs roll up dividends. I have small holdings in a couple and I get dividends from them.
Click to expand...

I just assumed that all ETFs roll up dividends.

But I see that many ETFs pay dividends.

So maybe amend the submission along the lines of

"ETFs which distribute all their income as dividends should be subject to Income Tax on the dividends and CGT on the capital gains or losses"
 
Zion2022 said:
I have never seen such uniform support for anything across multiple platforms as ‘please just let us access cheap, diversified ETFs without insanely punitive and operationally burdernsome tax treatment’
Click to expand...

A very good point.

I will amend to say that while this has universal support on askaboutmoney, it also seems to be the consensus on many other forums where investments are discussed.
 
ClubMan said:
Several other countries have regular taxation of unrealised gains.
Click to expand...
I don't know that much about this area. I have a couple of small ETF holdings myself which pay me dividends.

There are other countries out there which tax your bog standard EFT like the MCSI world index or SPY (tracks the S&P 500) on a annual basis? These just track an index so where are the unrealised gains. They also pay out dividends, SPY certainly does.
 
Zenith63 said:
I think any submission should start with a strong endorsement of Ireland introducing SIAs
Click to expand...

But I don't think that there is universal support for this. ETFs are fine products.

I would like to be as tax-neutral as possible and not be seen to be on the side of rich investors trying to pay less tax.
 
Status
Not open for further replies.
Back
Top