Wolframius
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Depends on market performance and what will be the fee of the SIA providers.
Roadmap for the SIA - do not discuss other issues
- Thread starter smarts
- Start date
Don’t agree with this. If you assumed an average return of 7%. A 1% wealth tax is better than CGT over even a 30 year time horizon. It would be far far far better than DD.
The problem is if the wealth tax creeps much higher than 1% it becomes useless. So there is still a lot to play for in terms of the finer detail.
People moan you pay in years of losses. But you also only pay 1% in years of bumper gains. It’s a very competitive tax regime if calibrated properly. It forces you to invest aggressively though, which is a very much intended consequence.
They explicitly say in the document that the expect provider fees to be ‘minimal and competitive by international standards’
Great to see this acknowledged as it is crucial. If any of T212, Revolut, Degiro etc. get on board. It will be close to 0 fee.
RainyDayFund
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If the tax-free threshold does not scale aggressively alongside compound growth and annual contributions, the state will simply extract money from long-term savers through a different mechanism.
And whilst DD8 will not apply inside this account wrapper, I see this potentially as a trap rather than a win. I think it means DD8 will remain completely untouched for standard accounts/index funds.
I see this as a win only for institutional lobbying groups and legacy wealth managers. For them, a system where they manage the accounts and handle Revenue reporting represents a highly lucrative, captive market of Irish savers who have no choice but to pay their fees to avoid punitive standard taxes.
The state will always extract money. It’s the quantum that matters. Even with 0 tax free threshold. A 1% ‘wealth tax’ would be a super outcome imo. I would likely invest all money in this wrapper (unfortunately the cap won’t allow that though). If it is 1.3%, I’ll stay buying UK investment trusts and avoid this yolk altogether. If it’s 0.7% I’ll be sending Simon a Christmas card. The calibration is critical.
I do agree with this. They’ve used this new shiny thing to kick the can again on DD8 which is a real shame.
Im bitterly disappointed we haven’t just adopted either the ISK or the ISA. Taking the worst of both. But it’s too early to call conclusively until the rate and annual contribution limit are announced. The tax free threshold is not that important to me personally.
locknbarrel
Registered User
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Over 18s only? No Junior ISA type scheme then. Very disappointing.
RainyDayFund
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That's only true under certain assumptions.
If the wealth tax is a simple 1% of portfolio value every year and the alternative is 33% CGT only when you eventually sell, then the relative outcome is largey driven by investment return, time horizon, CGT rate and wealth tax rate.
Using 6% CAGR, 30 years, 33% CGT at end of year 30 and 1% wealth tax, and a starting pot of 10k, the 1% wealth tax annual ends up more than CGT at the end. But they are surprisingly close to each other...
The crossover point depends on return assumptions and holding period.
At lower CAGR (say 3% over 30 years), wealth tax is usually more punative than CGT - the wealth tax consumes a huge proportion of the return.
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State-backed investment account could be made available to children in future | BreakingNews
The tax-advantage scheme is designed to encourage people to move their savings into market investments.
www.breakingnews.ie
No, CGT is only more favourable (on a mean basis) over very long term horizons as the deferral benefit grows. Obviously if early returns are negative, CGT is better.
I know - I set them out. 30 years (very very long term to give CGT a chance to catch up). 7% CAGR (again conservative enough to give CGT a chance).
Lower returns and longer horizons benefit CGT.
For some (a lot of?) people a potentially small amount of additional tax might be a price worth paying for not having to do CGT filing etc.
RainyDayFund
Frequent Poster
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Yes, my apologies. I had that backwards - I didn't write what was in my head...
What struck me is that a 1% rate feels suspiciously "about right" if the objective is:
- keep Exchequer revenues broadly unchanged,
- remove the politically unpopular DD8 event,
- create a product that can be marketed as simpler,
- avoid a large fiscal cost.
If I were being cynical, I'd say if it does end up being 1% then it appears carefully calibrated to allow the Government to say "We've addressed investor concerns about deemed disposal" while potentially collecting roughly similar revenues through a different mechanism.
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I think this is the point. If you're trying to encourage people who haven't previously investing in anything more exciting than bank deposits into the market, a very simply tax regime with minimal admin is a must. "[1]% of fund value over €[100k]" is fairly easily understood, and the fact that the fund administrator calculates, deducts and remits it is part of the attraction. This is as straightforward as DIRT, as far as the taxpayer is concerned. This is probably also the reason behind the "one account per individual" rule; the fund administrator couldn't calculate the excess over the threshold if the investor might hold other account with other providers.
I don’t follow this. If it’s equivalent to CGT. How can it also be equivalent to the detested DD8, which we all agree is far worse than CGT?
I have 1% wealth tax broadly equivalent to CGT on an accumulating ETF (I.e. all return is capital, no dividend). So therefore 1% wealth tax is just about as favourable as the abolition of DD8 (assuming 7% CAGR)? Given most people don’t invest for 30+ years. And recent equity returns > 7%. I’d actively choose a 1% wealth tax over DD8 abolition, even with 0 disregarded amount for tax. Unfortunately the annual limit on this means we still need to tackle DD8 separately.
Over 30 years. I have 1% wealth tax at 7% CAGR leaving a net fund 42% higher than DD8. DD8 is god awful for long term investing.
Expiration of CGT on death remains a big plus for it to be fair but that’s my kids problem.
Brendan Burgess
Founder
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Folks. Read the heading - this thread is about the SIA
Discuss deemed disposal in the other thread
Discuss deemed disposal in the other thread
RainyDayFund
Frequent Poster
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Broadly fair in that its probably true as an observation about public awareness.
But does DD8 discourage the behaviour policymakers say they want to encourage? Historically Irish households have allocated a very large proportion of wealth to principal residences, buy-to-let property, cash deposits. It is difficult to prove causation, but it is hard to argue that a tax regime which taxes ETFs at 38% with periodic deemed disposals makes diversified investing more attractive than it otherwise would be.
So, I suspect both things can be true. Indeed most Irish people have probably never heard of deemed disposal. Equally, among the subset of people who actively invest outside pensions, it may materially influence behaviour. Anecdotally, many investors appear to favour property, investment trusts, Berkshire Hathaway or individual shares because they prefer CGT treatment to the ETF regime. Whether that effect is large enough to matter at a national level is an empirical question, but the existence of the behavioural distortion seems difficult to deny.
Your current age will be the biggest factor here.
If you are young and just starting out working and being able to save a low limit is grand. If you are older have have a lump some the need to feed it in slowly over years may make the account less useful.
I would take accept a 1% annual tax over CGT even if in the long term I could lose out.
If you buy shares - you need your own independent system to ensure that you record every purchase - and adjust for share splits etc. along the way. Over 10+ years you can't rely on the broker being able to do it - if it's 20- 30 years you're likely on your own. E.G. anyone who bought shares using Danske - got moved into Goodbodys when Danske left Ireland - some information gets lost in those transitions.
Also if you look at your brokerage and see you've 100,000 euro worth of shares - you usually don't know how much you'll get into your pocket after CGT tax because it depends on do you sell them in one go, do you split them over 10 years and use more tax free allowances, which order you sell them in, how well you maximise your loss offsetting. Maybe you wait out the government to see if it increases the tax free allowance.
If you'd an ISK type account worth 100,000 - you know you've 100,000.
If you buy shares - you need your own independent system to ensure that you record every purchase - and adjust for share splits etc. along the way. Over 10+ years you can't rely on the broker being able to do it - if it's 20- 30 years you're likely on your own. E.G. anyone who bought shares using Danske - got moved into Goodbodys when Danske left Ireland - some information gets lost in those transitions.
Also if you look at your brokerage and see you've 100,000 euro worth of shares - you usually don't know how much you'll get into your pocket after CGT tax because it depends on do you sell them in one go, do you split them over 10 years and use more tax free allowances, which order you sell them in, how well you maximise your loss offsetting. Maybe you wait out the government to see if it increases the tax free allowance.
If you'd an ISK type account worth 100,000 - you know you've 100,000.
I think the call in the announcement for potential providers to engage with the Department suggests that there has been no meaningful engagement with industry to date.
My suspicion is that a lot of potential providers (DeGiro, Revolt, etc) will conclude that the level of assets that can raised do not justify the additional compliance costs and they will pass on this opportunity.
If I’m right in that regard, we may well be left with the usual banks and life companies being the only ISK providers.
If they charge in the region of 1% to provide the ISK wrapper (in addition to the wealth tax and underlying investment costs), then I think Simon’s SIA will be a failure.
My suspicion is that a lot of potential providers (DeGiro, Revolt, etc) will conclude that the level of assets that can raised do not justify the additional compliance costs and they will pass on this opportunity.
If I’m right in that regard, we may well be left with the usual banks and life companies being the only ISK providers.
If they charge in the region of 1% to provide the ISK wrapper (in addition to the wealth tax and underlying investment costs), then I think Simon’s SIA will be a failure.
I much prefer a tax I may never have to pay rather than one I'm guaranteed to have to pay.
At the stage of my life where I'm maxing pension contributions and trying to make overpayments on the mortgage.
This seems like a weird one for someone in my situation. Main advantage is the tax free growth. This ends once you hit threshold. Wondering whether this is the sort of thing where you would throw some money in (maybe 65% max threshold) then harvest gains once you hit the tax free threshold but otherwise focus on paying down other debts.
Obviously for normal non-form 11 folks it would probably make sense to exceed threshold as it would become main investment outlet if you didn't have mortgage .
This seems like a weird one for someone in my situation. Main advantage is the tax free growth. This ends once you hit threshold. Wondering whether this is the sort of thing where you would throw some money in (maybe 65% max threshold) then harvest gains once you hit the tax free threshold but otherwise focus on paying down other debts.
Obviously for normal non-form 11 folks it would probably make sense to exceed threshold as it would become main investment outlet if you didn't have mortgage .