Irish Investors are taxed very heavily compared to other countries

[jokerini]

Being an Irish-resident investor in the stock market compares very unfavourably with other countries. It's ironic that so many ETFs are Irish-domiciled when its own residents are taxed to the hilt. Even countries like Spain, which is not renowned as a tax haven, has a more favourable regime for investors in shares.

The Irish approach:
1. The exit tax of 41% on ETFS/Index Funds is very high. Even worse, the arbitrary 8 year deemed disposal rule removes much of the advantage of compound interest.
2. CGT 33% is very high compared to other countries. Furthermore, there is no indexation i.e. the purchase price of the shares is not adjusted for inflation.
3. Dividend income is taxed at marginal income rates which can be as high as 50%. In other countries, passive income is taxed separately and the rate does not exceed 30%.
4. No tax-free investment accounts (outside the pension wrapper), such as UK ISAs.
5. Not restricted to Irish residents but Stamp Duty is 1% for shares purchased in Irish companies. The rate is 0.5% in the UK, 0% elsewhere.
6. High pension charges with no option to invest in cheap index trackers.
7. Speculation is tax-free (gambling and spread-betting) while investing is heavily taxed.

 

[Protocol]

Yes, we seem to be biased towards property investment.

 

[Sarenco]

Dividend income is taxed at marginal income rates which can be as high as 50%.

The marginal rate can actually be as high as 55% for the self-employed.

But you're right - high taxes mean that, IMO, it generally doesn't make sense to invest outside a pension wrapper while carrying a mortgage.

 

[Nicklesilver]

The marginal rate IS 55% on self employed income over 100k, Fact. Makes paying down debt on real estate investment almost impossible. So where is the bias towards property investment?

 

[Protocol]

What I mean is we don't have a history of a culture of direct share ownership, or of encouraging direct/indirect share ownership.

We do have a history of encouraging people to buy houses:

(1) no tax on imputed rental income
(2) FTB grant, ok, abolished now, but people still call for its return
(3) LPT only introduced in 2013
(4) No CGT on PPR
(5) No SD on new houses (ok, that may also be gone by now)
(6) Mortgage interest tax relief
(7) Help to Buy scheme
(8) No CGT on BTL for 7 years
(9) HAP for landlords

etc., etc.

 

[NoRegretsCoyote]

Furthermore, there is no indexation i.e. the purchase price of the shares is not adjusted for inflation.

This bit is not well appreciated. If your portfolio only keeps up with inflation of 2% over 30 years you will pay 26% tax at the end. This is functionally equivalent to a wealth tax of a little under 1% a year.

Politicians who want a wealth tax should be reminded that we already have one.

 

[Sarenco]

It's even worse than that when you allow for income tax, etc. on dividends.

Over the 17-year period to the end of 1982, the total return on the S&P 500 was pretty much bang in line with US inflation (CPI). However, on an after-tax basis an investor would have suffered a very substantial reduction in the real value of his capital.

 

[Brendan Burgess]

This bit is not well appreciated. If your portfolio only keeps up with inflation of 2% over 30 years you will pay 26% tax at the end.

I have always wondered about this.

So should we make deposit interest below the inflation rate exempt from tax?

If we were to allow for indexation of shares, we would also allow for indexation of property and other assets.

If I recall correctly, Charlie McCreevy abolished indexation when he reduced the CGT down to 20%.

Inflation was low at the time, so everyone was delighted.

The 33% would really bite if we had a spike in inflation.

Brendan

 

[NoRegretsCoyote]

It's even worse than that when you allow for income tax, etc. on dividends.

Indeed, but these are income taxes.

Non-indexation of CGT is a shadow tax on wealth .

 

[NoRegretsCoyote]

If I recall correctly, Charlie McCreevy abolished indexation when he reduced the CGT down to 20%.

The halving of CGT to 20% was 1999. The removal of indexation was 2003.

I suspect that indexation was nibbling away at the base by 2003, as CPI had averaged about 4 per cent in the previous five years.