A look at posts on reddit about this show how big our financial literacy problems are. I know this kind of account is a big shift but there has been loads in the media about it. People don't understand the basics of how it works and many are still thinking there is exit tax when you encash it, or not really getting that 1% on total value is different to 1% on gains etc
Special Investment Accounts limits announced in Budget
- Thread starter Connard
- Start date
But it's neither in this case. It's 1% on any balance amount over €50K.
Sure, there is the tax free threshold, but the key concept to understand from a literacy perspective is that the tax is levied on the total value of the fund.
Details like tax-free allowance and caps may well change year to year, the principles likely won't.
It's not. It's on the amount over €50K.
I see it as a 1% flat tax on the value of the fund less the current tax free threshold (currently 50k, but could be 100k or 10k or 0k in the future, who knows!)
Imo this is functionally two separate products in one.
The value of every euro in the tax free portion is worth more than the value of the every euro above the threshold because of the tax free growth in the former.
Maybe you stick 40K in there and harvest the tax free growth as it approaches 50k. To go above the 50k limit you then have to make a separate call vs other investment options, like paying off debts etc.
IMO the proper order now is probably:
Reduce mortgage to comfortable level
Max Pension contributions
Max Simon Saver to 45k - harvest growth periodically once reaches 50k / top up if drops below this threshold
Pay off mortgage
Put money in Simon saver above 50k once you don’t have other outstanding debts
The value of every euro in the tax free portion is worth more than the value of the every euro above the threshold because of the tax free growth in the former.
Maybe you stick 40K in there and harvest the tax free growth as it approaches 50k. To go above the 50k limit you then have to make a separate call vs other investment options, like paying off debts etc.
IMO the proper order now is probably:
Reduce mortgage to comfortable level
Max Pension contributions
Max Simon Saver to 45k - harvest growth periodically once reaches 50k / top up if drops below this threshold
Pay off mortgage
Put money in Simon saver above 50k once you don’t have other outstanding debts
What do you mean by this, withdraw it? Then you’ll miss out on compounding so what’s the point?
You won't pay any tax if you withdraw anything over say 40-45k every year - the account is a no-brainer up to 50k. After that, it's a brainer
-)) and other potential options come more into play depending on circumstances (pay off mortgage etc).
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This illustrates well the difference between tax on value and tax on growth, although there's a 1% missing:
€100 invested
3% on bonds = 103
Tax = 1.03
Equivalent CGT = 1.03/3 = 34.3%
8% on equities = 108
Tax = 1.08
Equivalent CGT = 1.08/8 = 13.5%
CGT equivalent rate = (1%/rate of return) + 1%
Given a lot of people will be moving from traditIonal savings subject to DIRT and regardless of the stated aim, there will be a substantial offering of bonds, even Raisin pays about 3%, on aggregate. European bond fund could go to 5% and be tax free, conservative savers would flock to this?
Haha. If history is anything to go by we will still be talking about the 12k a year in 20 years.
It would have been nice if they index linked it but it’s not the Irish way.
Would make it a clear winner over paying down the mortgage.
Normally to beat mortgage interest rates you have to consider an element of risk.
Yep, fair call out.
Given it’s based on the average fund value based on daily NAV rather than end of year I think it’s actually 1%/Return + 0.5% (assuming evenly distributed returns), but your point stands.
Steven Barrett
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There is clearly going to be competition for these products. But the first to market may not be the best but will attract a lot of investors. If they all start at the same time, the competition for customers will be better.
I did some sums on a previous page above - basically the SIA makes sense in most circumstances even if you're contributing well above €50k, so long as returns are even moderately positive, vs the tax regimes for CGT, dividends, DIRT, and certainly DD. But I think a lot of people will psychologically anchor to €50k, kind of like how people anchor their pension contributions to an employer match, for example.You won't pay any tax if you withdraw anything over say 40-45k every year - the account is a no-brainer up to 50k. After that, it's a brainer
I think that financial literacy will be key over the long run here. People being actively taught about personal finance and actively engaging in investments via something like this scheme, to get them interested and savvy.
You would think so.
To be fair they have committed to indexing the SFT after it hits €2.8m, so maybe that worm is turning, slowly.
Now the initial reveal has happened, on to the next speculation!! Be interesting now to see the fees and what will be on offer (funds etc) from providers. Will we see a low fee entrant early on or will most land at the same level/offering and watch competition take a few years to happen.
But again you miss out on compounding so it’s a fairly pointless exercise all round?
Duke of Marmalade
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1% annual tax is better than Deemed Disposal at 35% Exit Tax for growth rates greater than 3.2% p.a. on a single investment above the threshold.
Yes he has done alot in the last year even just to shift the sclerotic narrative in this country on investing, its a major item on the news agenda which it never was before. Its hard to believe its only a year ago that pascal donohue delivered that budget that gave no reliefs to income tax payers in an era of high inflation and when he had a budget surplus. That was a contributing factor to the anger earlier this year with the fuel protests and the government have definitely changed tact significantly this year.
I heard barra roantree on newstalk yesterday with his usual schtik that these new investment accounts were tax breaks for the wealthy and he cherry picked aspects of it to paint it in that light. However he faced strong pushback from susan culliton of newstalk business who was also on who made the point that investors will lose out if stock markets fall and people still have to pay the 1% tax on falling investments. He wasn't too happy and kept interrupting her. He wasn't expecting it either as he is used to lecturing without debate and pushback when he is wrong.