Is the 41% Exit Tax Soon to be Scrapped? Michael McGrath to Review

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Always Learning

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I'm sure most of you have seen this, I know it popped up on another thread also, but maybe deserves it's own conversation.
I'd be intrigued to hear what the experts around here think, is this just all talk? Has it been discussed before and then ignored or is there a genuine possibility they could do away with it?

https://www.independent.ie/business...e-reviewed-says-michael-mcgrath-42337257.html

This would be great for people like me who want better access to simplified trading, people who might be a bit worried about picking individual stocks etc.
But from another viewpoint, could this be bad news for professionals who make a living from investing on behalf of lay people who may be encouraged to go themselves by a change like this?
 
This is from a talking shop/committee - it will take years to implement any changes, if at all

Talk is cheap and gets much needed publicity for a politician - actions are more difficult and require a lot of work
 
Big difference between Michael McGrath and Mattie McGrath.

When the finance minister says it's going to be reviewed I'd be a lot more confident it will be changed, it indicates to me he personally isn't a fan of the current implementation and has received complaints about it.

Now if Mattie was going to review it - that wouldn't be good news.
 
Whoops, you're right there. I'll change that!
 
In fairness to Mattie, he did write to Paschal about Life Assurance Exit Tax in 2018 and was told that that DoF officials were examining the tax treatment of Life Assurance Exit Tax and DIRT with a view to allowing Paschal to consider the issue in the context of Budget 2019.

It was Paschal that announced the review by a working group in Budget 2023.

Gerard

www.bond.ie
 
People don't talk to advisors for investments because of the tax treatment. They talk to advisors because they haven't a clue about investing and want to get advice from people who know all the products and funds available.

If there is lower tax on gains, I would imagine that more people will be encouraged to invest and that would mean more work for advisors.

DIY investors will continue to DIY. They never saw the need to use and advisor and that won't change.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Exit tax could hardly be abolished, leaving growth of unit-linked funds un-taxed?

I presume the suggestion is that managed funds would have an alternative taxation regime?

Wouldn't it be easier to simply reduce exit tax to 30%?

I believe DIRT is heading for 30%?

I believe DWT is being increased to 30%?

It would not be too difficult to move CGT / CAT / DIRT / exit tax all to 30%?
 

It won't make a difference purely for financial advice, but when it comes to investing, I've engaged a professional recently and a significant factor in this was that I wanted to avoid the deemed disposal rule but didn't have enough knowledge about investing to get into picking individual stocks. If the 41% tax wasn't there when investing in the likes of ETF's, I'm not sure that I would have engaged that person. I'd probably go it alone with a a few ETF's covering a wide range. Or more likely, I'd probably split my investments, still chase some returns with the expert but do a lot more of it myself in passive etf's.

I know others in the same boat.
 
As I have said on the other thread Exit Tax began life as DIRT + 3% (to allow for gross roll-up). Deemed Disposal reduces the advantage of gross roll up somewhat so a consistent approach might be to set Exit Tax equal to DIRT plus 2%. This can be done easily in the annual budget. A rather unexpected downside from the DOF's point of view is that quite a lot of ET was paid at Deemed Disposals during the post financial crisis stockmarket boom. A reduction of ET from say 41% to 33% would mean rebating about a quarter of that windfall at some stage.
 
You thread title is being very optimistic. It is reported as being under review. The Revenue were reviewing the tax treatment of ETFs last year and just removed the assumption that US domiciled ETFs are taxed under CGT.
 
Steven Barrett said:
You thread title is being very optimistic. It is reported as being under review. The Revenue were reviewing the tax treatment of ETFs last year and just removed the assumption that US domiciled ETFs are taxed under CGT.
Click to expand...
My thread title is a question, it can't be optimistic. I'm asking your opinion (plural).
 
Steven Barrett said:
You thread title is being very optimistic. It is reported as being under review.
Click to expand...
There will be clues to DoF thinking on this in the Tax Strategy Group papers in August I would expect.

Decisions (if any) will be on Budget day in October.

I would imagine any reforms will come in on a phased basis to avoid any windfall gains for investors.
 
But there won't be windfall gains as investors were simply avoiding all those investments that had this taxation issue anyway. Hence the review, all that will happen is that potentially etf investments will be open to irish investors once again just like their European contemporaries
 
There was a proposal put forward in the past to change the treatment of distributing vs rollup ETFs. Deemed disposal was to catch all those untax'd gains, and dividends from distributing ETFs already go in and get taxed at 41% (possibly higher if other taxes apply?)
 
I would encourage all of you to write to the minister and express your support for scrapping the exit tax, and replacing it with CGT.
michael.mcgrath@finance.gov.ie

The reasons articles like this come out are to gauge public response. MMcG is considering it and wants to take the publics temperature. If there's a lot of blowback he shelves it. If he gets a lot of positive responses he proceeds.
 
Very knowledgeable guy, his key points ,
end deemed disposal for etfs,
end gross roll up for etfs and tax all dividends at persons marginal rate including prsi and usc taxation.
Bring all investment taxation to 33% the same as shares and allow loss relief on etfs.

His big point which I hadn't considered before is that revenue is actually losing money because of the deemed disposal regime because it is keeping huge sums of money on deposit earning little dirt taxation because of ultra low deposit rates. It could be earning substantial dividend taxation every year from etfs if they taxed them normally like every other country does.

Deemed disposal is an anachronism that failed to account for the modern era of easily tradeable assets on low cost exchanges like degiro.
 
Yes, that video by Dan Malone is very good.

I presume the idea of reforming gross roll up and deemed disposal for ETFs would also apply to unit-linked managed funds?
 
My letter to the Minister

Dear Minister,

I am delighted to hear that you are considering scrapping the Exit tax and replacing it with the normal Capital Gains Tax.
I'm a keen DIY Investor and as I'm sure you know the general wisdom for most people is to invest in broadly diversified Index funds with low costs. In a tax free world, ETF's (Exchange Traded Funds) are by far the best investment choice for non professional investors looking to invest in the stock market and for this reason ETF's have exploded in popularity all round the world. However in Ireland, because of the cruel and unusual treatment that Exit Tax singles out ETF for, in my opinion ETF's are the least attractive investment choice for Irish people.

This is made all the more cruel and unusual, because the tax treatment of the ETF Funds themselves mean the ETF fund providers often choose Ireland as their Domicile. Today Ireland is home to almost 50% of all European ETF assets, significantly more than its nearest rival domicile at 18%. https://irishfunds-secure.s3.amazonaws.com/1525962383-IF_ETF_web.pdf
We are in the strange position that ETF Fund Companies love Ireland. Citizens from all over Europe and the world love Irish domiciled ETF's, but Irish citizens are avoiding them like the plague. In effect the government is giving favourable tax benefits to non citizens and the funds themselves, while saddling Irish residents with this punitive tax.

To add insult to injury, the overall extra tax collected by the 41% Exit tax is miniscule vs the reduction in returns that the Irish Investor sees.
Assuming initial 100K invested, 0% dividends a year and 7% annual returns - net of all charges.

After 8 years:
Deemed Disposal Fund – €142,373
CGT fund – €148,118

After 20 years:
Deemed Disposal Fund – €239,870
CGT fund – €292,269

You can see the CGT Fund outperforms the DD fund in all cases but the difference is huge after 20 years, almost 60K in the difference.

Compare this to the difference in tax take for the Revenue.
The DD fund over 20 years will pay a total of €97,198 in tax (at 41% at 3 occasions, year 8, 16 and 20).
The CGT fund will pay approx. €94,700 in tax (at 33% once at year 20).
So in my example (Assuming 0% dividends a year and 7% capital gains - net of all charges) the tax man collects a measly €2,498 extra in tax for the DD fund, but the punter ends up with €52,399 less! Please SCRAP this stupid tax!

Total Tax Paid After 20 years:
Deemed Disposal Fund – €97,198
CGT fund – €94,700

This applies to both top and bottom rate tax payers equally.
Best Regards,
 
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