Pension Fund V Gross Roll Up Fund - Tax Treatment

[auburn]

Hi,

I am a bit confused about the following:

I am just trying to compare the tax treatment of monies held within two funds: Fund A and Fund B. Both funds have the same amount of money invested in the same assets producing the same rate of return. The only difference is Fund A is a pension fund and Fund B isn't.

It seems that one of the big advantages of investing in a pension fund is that within the fund your investments will be exempt from CGT, DIRT and income tax.

However, if you take a personal investment fund (that isn't a pension fund), e.g. a typical gross roll up fund (e.g the Freeway Investments products offered by Quinn Life), am I right in saying that no tax is payable within the fund either (you just pay tax of 23 % on exit)?

So where is the tax advantage of the pension fund in terms of how monies grow within it?

Many thanks,
Auburn

 

[daveccork]

well i suppose the first point is that you get income tax relief - i know it doesn't answer your question exactly but it is important in so far as you are getting tax (and possibly) PRSI relief. Therefore the net cost of the investment is a lot lower.

When you reach pension age you get some of the fund tax free and therefore avoid the 23% tax.

Also AFAIK within a fund there is a requirement that every 8 years there is a deemed disposal and tax is levied on the profits to date - this does not happen within a pension fund.

maybe some other more knowledgable people could speak about more of the specifics.

 

[auburn]

Thanks DAVECCORK.

Yeah, what happens at either end of the fund tends to be pretty well documented. It's a comparison of the tax treatment WITHIN both funds that leaves me a bit puzzled.

Auburn

 

[daveccork]

i think the differences are not huge apart from the 8 year deemed encashment within a fund

 

[auburn]

That seems to be the case.

So a gross roll up fund will deliver the same returns as a pension fund invested in the same assets for the same period.