Is there any guide that sets out how investment funds (via an insurance company) are taxed in Ireland?

[Smoneen]

Exit tax due on partial encashments is calculated on a proportionate basis. The gain is calculated by amount withdrawn - (amount invested x amount withdrawn) / policy value before encashment. For subsequent partial encashments this figure is then taken away from the original investment amount and so on.

I’ll do the workings on the example above over the weekend when i get some spare time

 

[JimmyB99]

Thanks @Smoneen - that would be really appreciated. That's exactly what I'd like to see and understand - particularly if money has been partially withdrawn at a loss previously.

 

[Smoneen]

Heres the heavy detail. Some examples at the end

https://www.taxfind.ie/binaryDocument//pdfs/http___www_revenue_ie_en_practitioner_tech_guide_joelife03_pdf.pdf

 

[JimmyB99]

If I invest in €100k of shares directly. I sell half realising a capital loss of €5k. I can carry that loss forward and use it against the subsequent gain of €5k.

Exactly Brendan - the tax on gains will be at least 38% but, effectively, it could be way higher. @Smoneen has kindly offered to help us understand this better.

Edit: I hadn't seen @Smoneen's latest post when I replied to Brendan - I'll look at that guide later. At first glance, it looks like it will be very helpful. Thanks again!

 

[Corola]

Is that correct?

Yes, no credits for previous losses or future gains following a partial encashment. Credits are only given for tax paid or losses incurred on previous deemed disposals.

 

[Fortune]

Heres the heavy detail. Some examples at the end

Thanks for the link. That file disappeared from revenue.ie a few years back. I'm saving a copy this time.

 

[Smoneen]

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[Smoneen]

I've included the calculations of the exit tax due on each €20,000 encashment in years 1- 9 and the 8 year deemed disposal in year 8.

You will see that you use up allowable premium (the propionate cost) of each partial encashment in the early years even where the gain is negative. Obviously taking encashments while the fund is in negative territory will also cause a drag on the fund trying to recover.

I'll include an interesting alternative strategy in the next post which looks at the impact of postponing the first two years encashments.

 

[Smoneen]

The below summary looks at postponing the first two €20,000 encashments in years one and two. While it saves wasting allowable cost (capital) for the purposes of calculating the gain in later years it increases the figure for the DD gain by 33K (223K vs 190K), meaning 12.5K extra in tax. However overall you will be better off by postponing the first two encashments:

Postion 1 - 160K of encashments (years 1-8) + 550769 FV at end of year 8 - 80092 tax = €630,677
Postion 2 - 120K of encashments (years 1-8) + 625175 FV at end of year 8 - 93166 tax = €652,008

Overall about 22K after tax (from a pure cashflow perspective) better off by delaying the encashments in the early years.

 

[Corola]

Could you explain what you mean by "using up allowable premium" and "wasting allowable cost (capital)"?

 

[JimmyB99]

Thanks @Smoneen for taking the time to prepare those spreadsheets - it's really very much appreciated and sorry for not replying earlier. Now, I just need to get my ahead around it all!!

When you get a chance, could you explain one thing to me please? If we take "your" spreadsheet in #28, can you explain why "Value before Encashment" in the final row (i.e. after the Deemed Distribution) does not seem to take into account the tax deducted in the Deemed Distribution?

Thanks again and apologies if I'm missing something obvious!