Considering you only get to have one and changing might not be that easy it probably makes sense to see what’s out there.
Absolutely. I assume they will need to be approved. Can’t just tell revenue we will get to it later.
limits announced in Budget
- Thread starter Connard
- Start date
Considering you only get to have one and changing might not be that easy it probably makes sense to see what’s out there.
Absolutely. I assume they will need to be approved. Can’t just tell revenue we will get to it later.
LarryScott
Frequent Poster
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Yeah.
The deemed disposal rule really kills the concept of monthly investing in ETFs. You need to be good with Excel
to track everything.That wouldn't be unusual for someone investing in an individual stock. Diversified funds wouldn't have such extremes.
It's certainly plausible that a random person investing in a random stock would have returns that are taxable in the first year.
They might just look at what taxes would be incurred over the year if that money was invested. Where the money comes from (savings, earnings, investment sales) might not form part of the estimate.
If someone today is contributing 12k a year to life funds, next year they'd be likely to switch that 12k to the tax free option. Revenue will expect to see an impact on their expected LAET returns going forward.
There's no DD on the new special savings/investment account.The deemed disposal rule really kills the concept of monthly investing in ETFs. You need to be good with Excel
Gives us something to debate on AAM in three years time once deemed disposal is gone.
"I have 55k in my SIA, should I leave it or reinvest the 5k outside?"
Duke of Marmalade
Registered User
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Yeah, going forward, but they would get a one off flip from the LAET triggered on the transfer. Anyway I guess it is a pretty rough and ready estimate. Might be worth a Parliamentary Question.
Did some calculations on a hypothetical SIA vs a CGT product (with and without annual harvesting, no dividends) vs an ETF exposed to DD. Ran it over 8 and 16 years to see the impact of DD in particular. Then had a look at pension.
Assumptions:
"Shortfall vs gross" is the gap between what you end up with and the untaxed pot. It is bigger than tax paid where tax is taken along the way, because that money stops compounding.
SIA is pretty advantageous. Its tax ramps up considerably after year 8 because the 1% applies to everything above a fixed €50k, and that slice quadruples between years 8 and 16 while the pot only triples.
So the next question would be, when does the SIA stop making sense in this scenario?
Against an ETF, basically never so long as DD exists.
Against a CGT product, not for a very long time. At 10% the CGT product doesn't overtake until around year 49. And 10% is not doing the heavy lifting: over 24 years the SIA wins at any return above roughly 3%. And in reality a lot of CGT-able products will come with dividends, and the swing will heavily favour the SIA then.
What about each extra euro above the threshold?
So above the threshold, low-return assets and money you won't touch for 35+ years are better off outside the SIA in a CGT product.
Again this assumes no dividends, which would markedly change the picture if they were part of the 10% annual returns assumed in the scenario.
Risk
The SIA charges 1% even in down years, while CGT only taxes gains. Take the same €12k a year over 24 years (€288k in). In a flat market you'd get your €288k back from the CGT product but only about €265k from the SIA, so about €23k worse off. At 5% a year you'd be about €25k better off in the SIA (€502k vs €477k), and at 10% about €127k better off (€1.02m vs €896k). So above the threshold it comes down to whether you expect better than about 3% a year.
Dividends
Of course, if you held a basket of shares that paid dividends, those would be exposed to your top marginal rate (call it 52% for anyone with money to invest) outside the SIA and to nothing inside it, which would swing things further to the SIA. Pick a % of gains from dividends and slice off 52% and run into the calcs to see the impact, but favourable to the SIA probably.
Pension
Same exercise: €12k a year of take-home pay for 16 years at 10%. A 40% taxpayer gets €20k a year into the pension for the same net cost, so the pension pot is €791k vs €442k in the SIA. The pension gets both upfront relief and tax-free growth; the SIA gets neither relief nor fully tax-free growth above €50k.
So if you get 40% relief, have lump sum allowances left and are below the SFT, the pension wins comfortably. A 20% taxpayer comes out ahead too: €15k a year gross gives about €491k net, roughly €49k ahead of the SIA. Although, not sure many 20% taxpayers have this kind of money to throw around annually.
The SIA only wins on the numbers where the favourable treatment is used up: your other pensions already take you past €500k of lump sums (a fund of about €2m) and your withdrawals are at the higher rate, or the extra money would land above the SFT, or you've maxed your age-related relief.
The obvious non-financial point: the pension is locked until retirement and the SIA isn't. But you can try and calculate the cost of that flexibility.
(The tax rates are illustrative combined rates on withdrawals over retirement, with no PRSI and no further growth during drawdown. Actual rates depend on your income each year. And this post has gone on long enough, but you get the idea...)
Assumptions:
- €12,000 in at the start of each year, 10% annual gain straight line after fees (i.e., didn't bother to explore fees! If fees for the SIA are materially higher than other options, then the math will change).
- Budget 2027 rates in perpetuity: CGT 31% with the €1,270 exemption, DD/exit tax 35%, SIA 1% on the value above €50k
- Rates and the €50k threshold stay fixed
- SIA tax taken at year end from the account (the mechanics await the Finance Bill)
- Annual harvesting means selling enough to realise €1,270 of gain each year and buying straight back. The four-week rule only restricts losses, and this scenario is a highly realistic straight line gain
- No consideration of dividends or capital loss treatment, nothing to say on inflation. This is a straight arrow exercise.
- I'm assuming you live to enjoy the proceeds and aren't bothered about avoiding tax upon death. And we don't really know how the SIA will be handled in the event of death, anyway.
| SIA | CGT product | CGT product with annual harvesting | ETF (DD) | |
|---|---|---|---|---|
| 8 years (€96,000 in, €150,954 gross, €54,954 gain) | ||||
| Tax paid | €2,662 | €16,642 | €13,908 | €19,234 |
| Net proceeds | €147,957 | €134,312 | €137,046 | €131,720 |
| Shortfall vs gross, as % of gain | 5.5% | 30.3% | 25.3% | 35.0% |
| Behind SIA by | n/a | €13,645 | €10,911 | €16,237 |
| 16 years (€192,000 in, €474,536 gross, €282,536 gain) | ||||
| Tax paid | €22,614 | €87,193 | €81,309 | €91,189 |
| Net proceeds | €441,749 | €387,344 | €393,228 | €361,352 |
| Shortfall vs gross, as % of gain | 11.6% | 30.9% | 28.8% | 40.1% |
| Behind SIA by | n/a | €54,406 | €48,522 | €80,398 |
"Shortfall vs gross" is the gap between what you end up with and the untaxed pot. It is bigger than tax paid where tax is taken along the way, because that money stops compounding.
SIA is pretty advantageous. Its tax ramps up considerably after year 8 because the 1% applies to everything above a fixed €50k, and that slice quadruples between years 8 and 16 while the pot only triples.
So the next question would be, when does the SIA stop making sense in this scenario?
Against an ETF, basically never so long as DD exists.
Against a CGT product, not for a very long time. At 10% the CGT product doesn't overtake until around year 49. And 10% is not doing the heavy lifting: over 24 years the SIA wins at any return above roughly 3%. And in reality a lot of CGT-able products will come with dividends, and the swing will heavily favour the SIA then.
What about each extra euro above the threshold?
| Holding period | Annual return needed for SIA to win |
|---|---|
| 8 years | 3.7% |
| 16 years | 4.2% |
| 24 years | 5.0% |
| 32 years | 7.1% |
| 37+ years | CGT wins |
So above the threshold, low-return assets and money you won't touch for 35+ years are better off outside the SIA in a CGT product.
Again this assumes no dividends, which would markedly change the picture if they were part of the 10% annual returns assumed in the scenario.
Risk
The SIA charges 1% even in down years, while CGT only taxes gains. Take the same €12k a year over 24 years (€288k in). In a flat market you'd get your €288k back from the CGT product but only about €265k from the SIA, so about €23k worse off. At 5% a year you'd be about €25k better off in the SIA (€502k vs €477k), and at 10% about €127k better off (€1.02m vs €896k). So above the threshold it comes down to whether you expect better than about 3% a year.
Dividends
Of course, if you held a basket of shares that paid dividends, those would be exposed to your top marginal rate (call it 52% for anyone with money to invest) outside the SIA and to nothing inside it, which would swing things further to the SIA. Pick a % of gains from dividends and slice off 52% and run into the calcs to see the impact, but favourable to the SIA probably.
Pension
Same exercise: €12k a year of take-home pay for 16 years at 10%. A 40% taxpayer gets €20k a year into the pension for the same net cost, so the pension pot is €791k vs €442k in the SIA. The pension gets both upfront relief and tax-free growth; the SIA gets neither relief nor fully tax-free growth above €50k.
| Scenario | Net proceeds | vs SIA |
|---|---|---|
| SIA | €441,749 | n/a |
| Pension: 25% tax-free lump sum, rest at 23% (20% + 3% USC) | €654,465 | +€212,715 |
| Pension: 25% tax-free lump sum, rest at 48% (40% + 8% USC) | €506,172 | +€64,423 |
| Pension: €200k tax-free band already used, lump sum taxed at 20%, rest at 48% | €466,627 | +€24,878 |
| Pension: both lump sum bands (€500k) already used, everything at 48% | €411,265 | -€30,484 |
| Pension: all of the extra pot above the Standard Fund Threshold (40% excess tax, then 48%) | about €247,000 | about -€195,000 |
So if you get 40% relief, have lump sum allowances left and are below the SFT, the pension wins comfortably. A 20% taxpayer comes out ahead too: €15k a year gross gives about €491k net, roughly €49k ahead of the SIA. Although, not sure many 20% taxpayers have this kind of money to throw around annually.
The SIA only wins on the numbers where the favourable treatment is used up: your other pensions already take you past €500k of lump sums (a fund of about €2m) and your withdrawals are at the higher rate, or the extra money would land above the SFT, or you've maxed your age-related relief.
The obvious non-financial point: the pension is locked until retirement and the SIA isn't. But you can try and calculate the cost of that flexibility.
(The tax rates are illustrative combined rates on withdrawals over retirement, with no PRSI and no further growth during drawdown. Actual rates depend on your income each year. And this post has gone on long enough, but you get the idea...)
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I would say so. Though I think that was pretty clearly going to be the case even before we got these specifics, we've just added the figures now.
Yes, for most equity investors. The "hit even in a down year" is real but small: €10 a year per €1,000 above the threshold, so €500 on a €100k account.
What you get in exchange is no CGT. In a 10% year the 1% works out at about 11% of your gain, versus 31% outside. At 7% it's about 15%, at 5% about 21%. It only gets as bad as CGT when returns are down around 3%.
So it's not about guaranteed returns, it's about your average over the holding period. By my numbers, money above the threshold does better in the SIA if you average more than about 4% a year over 8 to 16 years, or 5% over 24. Bad years along the way are fine as long as the average clears that.
Where it doesn't make sense above €50k: low-return assets like bonds (cough, assuming they remain low return) or cash-like funds, and money you won't touch for 35+ years. Those are better outside.
If you are investing in high return assets. Yes.
The CGT equivalent rate is 1% divided by your rate of return, but akin to an ‘annual deemed disposal’
So if you’re getting 3% on bonds. It’s a 33% CGT taken annually - not worth it.
If you’re getting 8% return on equities it’s a 12.5% rate (taken annually). Almost definitely better than CGT unless you plan to die without ever selling.
People over-egg the negative years point. If you’re investing in equities it’s because you think they’ll deliver excess returns in the long term. If you don’t think equities will deliver 6%+ over the long term, don’t bother investing in them under any tax wrapper.
So the max 2027 annual contribution is 12k, possibly 6k as it does not come online until July next year.
If you have money to invest post maximizing your pension contributions, is the right course of action in 2027 now to?
1. Maximise your annual SIA contribution.
2. If you have anything left to invest, put it into individual shares or an ETF.
If you have money to invest post maximizing your pension contributions, is the right course of action in 2027 now to?
1. Maximise your annual SIA contribution.
2. If you have anything left to invest, put it into individual shares or an ETF.
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It’s a bit simplistic as time horizon in particular but multiple other factors impact the decision. But if I had to go for a simple rule to cover as many people as possible:
1. Maximise your annual SIA contribution
2. Anything left over, put into an ETF if you trust the gov commitment to deemed disposal abolition. Put it into a UK investment trust if you do not.
Investing in individual shares is bad advice for almost everyone.
Sadly (or happily for some), if you really want to optimise for tax and aren’t comfortable with these things yourself. You probably need tailored advice. The landscape just got more complicated.
The beauty of the ISK is it would have massively simplified everything as the one stop shop for retail investing - they took that beautiful feature and butchered it purely for political point scoring
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Every "simplification" just adds to the complexity and keeps advisors in a job
Was there any word on what the allowable investments would be? The EU probably wanted EU equity (and maybe Eurozone bonds), bit ik wondering if anything is off the table for the SimonSaver? Could a bank offer a deposit as a SimonSaver and there's be no DIRT?