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

[Corola]

There used be 20% CGT tax and 23% tax on funds to account for rolled up dividends.

If we assume they didn't pull the 23% figure out of the air, then a proportional figure based on 33% CGT would be, if I've calculated correctly, 38%.

As the rate increased they kept the same +3% until they both were raised to 41%, so the equivalent now would be 36%.

But that's irrelevant - the report already recommends 33%, why propose a higher rate?

 

[3CC]

Fair enough then. How about this:

1) From 1/1/2026, there would be no more deemed disposal for ETFs.
2) From the same date on, all disposals of ETFs would fall subject to the CGT rules (with the e1270 per year allowance and offsetting allowed between investments).
3) The cost basis for these future ETF disposals would be the initial purchase price for ETFs which have been held for less than 8 years and for which no deemed disposal has yet fallen due. Otherwise, the cost basis would be the value of the ETF holding at the last deemed disposal.

 

[jpd]

3) would mean that you paid 41% on the deemed disposals

I would expect al the tax on the deemed disposal would be offset against the CGT due calculated from the original purchase cost and the disposal value

 

[Fortune]

Otherwise, the cost basis would be the value of the ETF holding at the last deemed disposal.

This part doesn't make any allowance for the tax that's already been paid.

 

[3CC]

I would expect al the tax on the deemed disposal would be offset against the CGT due calculated from the original purchase cost and the disposal value

I would prefer that also, but it would mean that ETFs disposed soon after the new regime could result in a rebate being due from Revenue as they would be subject to 33% CGT but would have to refund deemed disposals which were calculated at the higher 41% rate. I have read it suggested here on AAM that Revenue do not seem to have good data on ETF investment level and so they might be reluctant to buy into an unknown level of liability on the possible refunds.

Personally, I could live with the priciple of paying 41% on gains up to the date of any change. I bought into ETFs on that basis and a reduced rate going forward and a simplification would be great in my opinion even it locks in the deemed diposals paid to date at 41%.

But I would delighted if Revenue go with your idea and not mine!

 

[fistophobia]

Above ideas do not seem fair to people investing for income, who are basic rate taxpayers. ETFs are equities, in custody settlement world, and on traded exchanges,

 

[Fortune]

But I would delighted if Revenue go with your idea and not mine!

They already do go with that idea for life assurance investments with deemed exit tax already paid. I'm not well up on the subtleties of EFT taxation, but it's likely they're already operating on that basis

 

[yellowmoose]

Enterprise minister Peter Burke has said the government is examining how other jurisdictions handle taxation of exchange traded fund (ETF) returns and that there is a huge amount of competition for investment in the area.

Speaking to reporters on Thursday, Burke said he’d been “very much clear” in his budget submission that the government must look at the “value proposition” for investors in other jurisdictions.

“I think we need to make significant improvements in this budget because we need investment to come into our country,” he said.


The minister believed we need to remain competitive as an economy, relating to all elements of the tax system.

[..]

https://www.businesspost.ie/politic...ng-at-highly-competitive-etf-taxation-abroad/ [paywall]

 

[Protocol]

"I think we need to make significant improvements in this budget because we need investment to come into our country,” he said."

Ireland saves more than it invests, that's why we have a surplus on our balance of payments.

There is a vast pool of domestic savings.

This should be harnessed better, rather than calling for more flows of inward foreign investment (which is welcome, of course).

 

[Protocol]

There is an argument that there should be equal, or similar, tax treatment of the returns from various assets.

The 41% exit tax is above the 33% CGT rate, but it is below 48% / 52%, which is the marginal tax rate on dividends for many people.

How might this be reconciled?

 

[Corola]

For stocks, gains are taxed at 33% and dividends are taxed at 48%/52%.

For funds, gains and dividends (distributed or accumulated) are both taxed at 41%, somewhat of an average rate between the two.

 

[Protocol]

For funds, gains and dividends (paid out or accumulated) are both taxed at 41%, somewhat of an average rate between the two.

Yes, and my point is that although I think the 41% is too high, and should be cut, opponents will point out what you just stated, as a way to justify the 41% tax rate.

 

[Corola]

Yes, the proposed 33% rate would make an accumulating fund be taxed more favourably than the identical basket of shares. Not sure how to reconcile that.

 

[Zion2022]

Yes, the proposed 33% rate would make an accumulating fund be taxed more favourably than the identical basket of shares

Only for higher rate taxpayers. It would be less favourable for lower rate. You can’t reconcile this without more complexity.

 

[Fortune]

Not sure how to reconcile that.

Claim the tax differential is there to influence behaviour. If it's a life assurance fund, it's supporting Irish jobs. If it's an ETF, it's part of the governments strategy to encourage them to be domiciled in the country and also allow citizens to benefit. Shares get higher tax to steer investors towards diversified investments. All it takes is a bit of spin.

 

[nest egg]

I've no doubt people with existing ETF holdings (myself included) would love to see a situation where no DD is levied (if held under 8 years). Being realistic however, the easiest thing for Revenue to do is to draw a line in the sand. ETFs bought after X date are subject to CGT, any bought before then follow the rules that existed at the time.

 

[ClubMan]

a situation where no DD is levied (if held under 8 years).

Isn't that the case as things stand? ETF acquired, held for less than 8 years, and then sold => no DD, just exit tax?

 

[nest egg]

Isn't that the case as things stand? ETF acquired, held for less than 8 years, and then sold => no DD, just exit tax?

Poor phrasing on my part. What I meant by it is a situation whereby existing ETFs held for under 8 years would switch over to the CGT regime (thus incurring no DD). I don't think this is likely.

 

[Corola]

Being realistic however, the easiest thing for Revenue to do is to draw a line in the sand. ETFs bought after X date are subject to CGT, any bought before then follow the rules that existed at the time.

One of the fund report recommendations is to get rid of old basis life policies. They're not going to want to introduce another new/old basis were some life policies and ETFs are on one tax regime and some on another.

24. The Life Assurance – Old Basis Business regime should be wound down, following detailed consultation to mitigate risks for policyholders.

 

[Fortune]

Old Basis Business regime should be wound down, following detailed consultation to mitigate
risks for policyholders.

Seems a bit odd, telling people their investments must be closed out. There's plenty of old basis policies that cannot be replaced with a similar gross roll up product.