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

joe sod said:

Revolut now offering easy access to ETFs including Vanguard - pitfalls?

Looks like an easy way into ETFs but no info as to how the 7yr deemed disposal works - do investors normally need to handle/declare this themselves on Form 11? Want to put 10k or so in, though Revolut seems to change T&Cs a lot which gives me room for pause. Any thoughts?
www.askaboutmoney.com

more evidence that the deemed disposal rule regarding ETFs is now effectively unenforceable. If revolut are now offering a simple mechanism to buy shares and ETFs and if so many young people already have revolut banking it is beyond doubt that many will also dabble in buying shares and ETFs. Of course the wisdom of holding large portfolios on revolut is another argument.
However the authorities more than ever will now be relying on people to do their own self assesment tax returns as the likes of revolut and degiro will not be doing the complex deemed disposal returns and paying the tax over like the legacy irish brokers. Therefore it is actually in revenue's own interests to simplify this whole area or else they are like King Canute trying to hold back the tide
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I wonder if they are completing their Form 8d.

Fine is €1000 per transaction not reported.
 
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The article offers nothing new.

I reckon if they do change the fund rules, it will be a cut-off .... only new purchases are subject to the new regime.
 
AJAM said:
Good article, hinting that next year might be the year this God awful tax get the boot.
www.independent.ie

ETFs offer a low cost way to invest and Ireland’s a huge hub for these funds, but taxes for locals can be punitive

The young Irish investors signing up in their droves to DIY investing apps in a bid to build wealth are buying up exchange-traded funds (ETFs), their interest piqued by the way these funds are touted as a popular and inexpensive way of tracking global investment markets.
www.independent.ie www.independent.ie
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Yes good article and it makes the same arguments that have been highlighted in this thread
It is a legacy tax that is out of sync with the modern world
Young people much more interested in DIY investing are flabbergasted at this taxation when it doesn't apply to their peers in Europe.
Ireland went out of its way to attract these ETFs to Ireland and make Ireland their domicile. Now over a trillion dollars invested in irish domiciled ETFs but irish investors locked out because cumbersome and punitive taxation.
The government was happy traditionally to funnel investments into property, pensions and deposits but this model is totally out dated in the world of online trading accounts and execution trades

Also interesting that the mainstream media much more interested in this topic and are giving it exposure, it's no longer a niche discussion so it can't be just brushed under the carpet again
 
joe sod said:
It is a legacy tax that is out of sync with the modern world
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Is it really legacy and out-of-sync with the modern world, or are we just ahead of the curve a few years?

  • Ireland 2015 - Deemed disposal was introduced in 2006, the reasoning being that Revenue didn’t want to wait decades to get its share of investment profits
  • USA March 2022 - This week, President Biden introduced a new tax ...https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdfwould require wealthy households to remit taxes on unrealized capital gains from assets such as stocks, bonds, or privately held companies.
  • Norway July 2023 - The Norwegian government has decided to review the exit tax regime and introduce stricter rules to ensure that unrealised gains accrued in Norway are actually taxed in Norway
  • Australia October 2023 - This new tax captures unrealised gains from any rises in the value of shares or property or other assets every year, even if they are not sold
  • New Zealand - Above certain thresholds, such gains are taxable on an accrual (yield-to-maturity) basis, which may include unrealised gains
  • ....
That's not an exhaustive list obviously, and you can pick holes in the examples, but my point is that the taxation of unrealised gains is already in-place in some form in plenty of the 'modern world' and is being discussed in many more.

My concern is that much of the discussion around deemed disposal is now so shrill that it hinders actual discussion about how this tax could be reformed to satisfy both the requirement of taxing unrealised gains and that of making stockmarket investing safe and simple for the general public.
 
Zenith63 said:
Is it really legacy and out-of-sync with the modern world, or are we just ahead of the curve a few years?
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The US example is for people with net worth over $100 million, the Australian one for assets over $3 million, the NZ one seems similar.
Those are some pretty big holes in those examples.

Zenith63 said:
Ireland 2015 - Deemed disposal was introduced in 2006, the reasoning being that Revenue didn’t want to wait decades to get its share of investment profits
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Revenue will ultimately get a share of CGT and CGT for Irish investments in aggregate is going to be greater if they don't kill the power of compounding by removing money from investments with deemed disposals. So I'd be interested in seeing a full analysis of this reasoning and why Revenue are not willing to 'wait' - to get a higher CGT share on average. Particularly as we are currently in a period of budget surplus.
 
Protocol said:
Would simply reducing the exit tax rate from 41% to match the CGT rate 33% satisfy most people?
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The current regime will almost certainly be retained - the concept of a harmonised tax rate with final tax at source is just too good to abandon. ETFs which are offering the same proposition as life companies will have to be in the same tax regime but unlikely to want or be given the facility to account for the tax at source so the burden of compliance will remain with the punter.
The idea of allowing losses to be set against gains will not be attractive to life companies - who trades life policies?, so again life companies wagging the dog.
So we will be left with the current regime and the big question is what will be the harmonised Exit Tax rate. The CGT rate is not really the benchmark. The benchmark is the DIRT rate which also happens to be at 33%. ET started life as DIRT +3% because of gross roll-up. It went to the same austerity rate of 41% which is clearly way out of line and very inexplicably stayed there. I think it will come all the way down to the DIRT rate of 33%. There will need to be the same regime as applies to long term deposits. That is if there is a long term guarantee then the life company will have to pay ET on an accrual basis on the guarantee.
 
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Duke of Marmalade said:
ETFs which are offering the same proposition as life companies will have to be in the same tax regime but unlikely to want or be given the facility to account for the tax at source so the burden of compliance will remain with the punter.
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But that's a legacy issue linking etfs to life companies, you obviously have alot of knowledge in this area. You cannot buy a life policy on degiro but you can buy an ETF. ETFs trade the same as shares they have the same tickers etc ,that's the whole reason they were invented. Therefore ETFS are equivalent to shares not life policies

It's like the revenue have all the procedures for a horse and carriage that takes a few days to travel 200km and needs to stop for hay and water. They never foresaw the motor car and that all these procedures for horse and carriage were now irrelevant. But they don't want to disadvantage the remaining horses and carriages so they will force the motor car to travel at 10km an hour and stop for breaks just like the horse and carriage.
It's sort of typical irish establishment thinking remember aer lingus was forced to stop off at Shannon Airport decades after this was made irrelevant by long range jet engines
 
RonnieShinbal88 said:
The US example is for people with net worth over $100 million, the Australian one for assets over $3 million, the NZ one seems similar.
Those are some pretty big holes in those examples.
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Those are just implementation differences and I said I think ours needs reform, my point is that the concept of taxing unrealised capital gains is not 'out of sync' or a 'legacy' concept. Lots of countries have started to tax unrealised gains and one might argue we're the ones now out-of-sync by applying it so narrowly.

RonnieShinbal88 said:
So I'd be interested in seeing a full analysis of this reasoning and why Revenue are not willing to 'wait' - to get a higher CGT share on average.
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Two reasons that require no further analysis:
  1. Capital gains die with you, so they might be waiting indefinitely
  2. Revenue riding shotgun on your investments in the hope of earning more tax revenue at some future date is essentially a sovereign wealth fund administered by the general public. If we decide that money is collectable on behalf of the Irish people, then I would like it invested professionally, not by my neighbour who thinks HODL-ing GameStop is a sure thing.
 
joe sod said:
But that's a legacy issue linking etfs to life companies, you obviously have alot of knowledge in this area. You cannot buy a life policy on degiro but you can buy an ETF. ETFs trade the same as shares they have the same tickers etc ,that's the whole reason they were invented. Therefore ETFS are equivalent to shares not life policies

It's like the revenue have all the procedures for a horse and carriage that takes a few days to travel 200km and needs to stop for hay and water. They never foresaw the motor car and that all these procedures for horse and carriage were now irrelevant. But they don't want to disadvantage the remaining horses and carriages so they will force the motor car to travel at 10km an hour and stop for breaks just like the horse and carriage.
It's sort of typical irish establishment thinking remember aer lingus was forced to stop off at Shannon Airport decades after this was made irrelevant by long range jet engines
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I don't know why anybody would invest in a product with 41% exit tax.
The Funds 2030 consultation asks for views on reforming the tax landscape. It seems to me there will inevitably be two distinct regimes.
1) Individual taxation with annual self assessment at the marginal rate of income tax and USC on income and CGT on capital gains, or
2) Collective taxation at source and at a harmonised rate across income and gains, I think it will be 33%. Also deemed disposal.
Now it is up to each industry to make its case for which camp they want to be in. I know what the life industry will want - (2). I will be surprised if the ETF industry wish for (1).
The distortion that we currently have arises from the emergency/austerity ET rate of 41%. ETFs and life policies once lived happily side by side with the former in camp (1) which is their natural legal habitat, and the latter in (2). But when ET went to 41% the individual regime became easily the more attractive even if much more messy and something had to be done - I agree the solution was crude.
Anyway, which would you prefer for ETFs, income tax and USC on income and CGT on gains or a 33% exit tax with deemed disposal?
 
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Zenith63 said:
Revenue riding shotgun on your investments in the hope of earning more tax revenue at some future date is essentially a sovereign wealth fund administered by the general public. If we decide that money is collectable on behalf of the Irish people, then I would like it invested professionally, not by my neighbour who thinks HODL-ing GameStop is a sure thing.
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The money is collectable after the profits are realised. We clearly very much differ in our viewpoint, because this isn't revenue's 'investment', they have no investment. They should get a share of the gains after an investor realises those. If I have to change my investment strategy to pay capital gains in advance based on one strand of the multiverse (where I realise those gains in the future) then I find that bizarre. It's analagous to arresting people for crimes they will commit in the future as in the movie Minority Report. So my view is that the money is not collectable on behalf of the Irish people until the asset is sold as with shares, and if that isn't the case then let's be consistent and apply it to all capital gains.

The policy is set up so that people 'invest professionally', there is little to no evidence that professional investment out-performs BTW, which is why ETF's are such a threat to some.

If your neighbour makes money investing in Gamestop do you think CGT on that is fair game?
Or should we change the tax laws to have that exempt as a form of gambling?
 
RonnieShinbal88 said:
The money is collectable after the profits are realised. We clearly very much differ in our viewpoint, because this isn't revenue's 'investment', they have no investment. They should get a share of the gains after an investor realises those. If I have to change my investment strategy to pay capital gains in advance based on one strand of the multiverse (where I realise those gains in the future) then I find that bizarre. It's analagous to arresting people for crimes they will commit in the future as in the movie Minority Report. So my view is that the money is not collectable on behalf of the Irish people until the asset is sold as with shares, and if that isn't the case then let's be consistent and apply it to all capital gains.
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That's a fine view, I was just making the point that taxing unrealised gains is not 'legacy' or 'not modern' - it is done in more and more countries every year.
 
Zenith63 said:
That's a fine view, I was just making the point that taxing unrealised gains is not 'legacy' or 'not modern' - it is done in more and more countries every year.
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For billionaires and people with over $3million invested in the examples you gave, so 'done more and more' to a tiny proportion of investors. Alternative headline is that it's actually very niche/ isn't done widely at all.
 
Duke of Marmalade said:
Now it is up to each industry to make its case for which camp they want to be in. I know what the life industry will want - (2). I will be surprised if the ETF industry wish for (1).
The distortion that we currently have arises from the emergency/austerity ET rate of 41%. ETFs and life policies once lived happily side by side with the former in camp (1) which is their natural legal habitat, and the latter in (2). But when ET went to 41% the individual regime became easily the more attractive even if much more messy and something had to be done - I agree the solution was crude.
Anyway, which would you prefer for ETFs, income tax and USC on income and CGT on gains or a 33% exit tax with deemed disposal?
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According to Gerard Sheehy the public consultation resulted in circa 350 submissions, according to him all of these were from private investors and there were none from the financial industry. Obviously the vast majority of these would have called for the abolition of deemed disposal regarding ETfs. Are you saying that the department will canvass the financial industry in private behind closed doors and go with what they want and ignore the public consultation except superficially. That would be like something out of Fr Ted
 
joe sod said:
According to Gerard Sheehy the public consultation resulted in circa 350 submissions, according to him all of these were from private investors and there were none from the financial industry. Obviously the vast majority of these would have called for the abolition of deemed disposal regarding ETfs. Are you saying that the department will canvass the financial industry in private behind closed doors and go with what they want and ignore the public consultation except superficially. That would be like something out of Fr Ted
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I'm not sure where Gerard got his info from, I don't see anything on the website showing submissions.
My money would be on that (most) ETFs will be put back in their more natural habitat which is income tax + USC on (deemed if necessary) income and CGT on realisations. Life policies will stay on the exit tax/deemed disposal regime but with the ET rate levelled with DIRT (33%). Paradoxically this would point to ETFs for low/nil taxpayers and life policies for higher rate taxpayers.
 
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