The proposed ISA compared with the Income Tax/CGT regime

Appologies, I only ran the numbers out for 20 years.
If you go out further CGT does eventually break even and overtake.
38 years to break even at 5% growth
42 years to break even at 7% growth.

Personally, I'd rather be better off for the next 42 years vs the following 42 years.
 
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@AJAM Would you mind sharing your calculations for my learning? What charge are assuming for bank handling fee? The bank handling fees per year, speculatively stated to be 1% shifts this completely, even lower fees do
Assuming fees are the same for both ways to invest, my calculations now change to 29 years it takes for CGT ETF method to start winning
I just think we could have done a lot better given huge talk re "reforms"
 
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I consciously didn't want to post numbers until after we get the actual details. But attached here is my spreadsheet.*

I was assuming no handling fees. As stated earlier Degiro offers ISK accounts in Sweeden with no additional handling fees.

Updated Excel attached

Edit: I have edited the post to attach the latest version of the spreadsheet - Brendan
 

Attachments

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20 or 30 years is a long time to be modelling using assumptions although it obviously is the only way to attempt to analyse. I think an advantage of this (depending on how it is ultimately established) is that, say, after a market dip there is an opportunity to put cash in and likely make a decent gain with only limited tax liability as the money can be withdrawn in a short timescale
 
Fortune said:
Not quite as simple as that, since the balance of that €800 is subject to tax each subsequent year
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Yeah, but it's a good approximation - the true precise rate would be more complex to calculate but wouldn't vary meaningfully.

Using the same long term average return of 8%, that €800, and the initial €10,000, would be subject to the 'estimated' 1% tax the following year - but the €10,800 will also have achieved another 8% return. Therefore, year 2, and subsequent years, calculations are the same, but with higher amounts.

Of course, there'll be years with lower, and even negative, returns. However, there'll also be years with 20-30% returns. Using an 8% average return is overly optimistic for retirement planning due to the repurcussions if lower returns materialize - but it's an entirely reasonable assumption when assessing the value of this product.
 
AJAM said:
But attached here is my spreadsheet.
Click to expand...

I had a look at your spreadsheet. You have a CGT bill every year? But CGT is only paid on disposal.
And you have the entire gain subject to CGT whereas the dividends will be subject to the marginal rate of tax - in most cases 50%.

Am I missing something?

Not sure if you can factor in the annual CGT allowance.
 
Brendan Burgess said:
I had a look at your spreadsheet. You have a CGT bill every year? But CGT is only paid on disposal.
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No I calculated the CGT bill every year (so that you can see what your total is, IF you cash in that year). This allows you to directly compare to ISK balance.

But I didn't deduct the CGT, when calculating the fund size for the following year.
Brendan Burgess said:
And you have the entire gain subject to CGT whereas the dividends will be subject to the marginal rate of tax - in most cases 50%.
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Thats correct Brendan, I assumed no dividends. You're right you would be worse off if there were dividends. I personally avoid dividends in my portfolio because of this.

Brendan Burgess said:
Not sure if you can factor in the annual CGT allowance.
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I could. And if you come back to me when we have the actual Irish scheme details, I will. (Don't want to have to do it twice :))
 
Hi AJAM

The Duke has a calculator here where you can vary the assumptions.

Deep dive on ISK vs IT/CGT

I attach work in progress on this (usual caveats therefore). The below exhibits show the superiority/inferiority of a possible 1% ISK over IT/CGT assuming current rates and marginal income tax rate of 50% (all adjustable within the spreadsheet) ISK seems superior in most circumstances except in...
www.askaboutmoney.com
 
OK, you included the €30k tax free bit. Everyone should have this this bit anyway. Then compare the bit above it.

I can't figure out where your tax is coming from. It's increasing the the fund rather than reducing it.

But the CGT and DD agree with the Duke's.

1775062675394.webp
 
Brendan Burgess said:
I can't figure out where your tax is coming from. It's increasing the the fund rather than reducing it.
Click to expand...

Hi Brendan, The issue your running into there is that your opening balance is 1000, but the excel is subtracting the 30K tax free balance.
So the opening balance needed to be at least 30k for that tool to be accurate.

I've fixed that bug
 
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Got you.

So your fund has no tax on the first €30k.

While this is correct, it will lead to a false comparison.

The question is "Where is it best to invest my money?"

Answer: The first €30k should be put in the new fund as there will be no tax on it.

Where should I invest the balance?
I think that is the question that the spreadsheet should address.
 
Good Point.
OK this version includes the CGT and ISK tax free allowance.
You can set the ISK tax free allowance to 0, to allow you to compare which is better after 30k
I didn't have time to play around with it, but a very quick look, it seems that after 30K the difference between CGT and ISK is marginal.
It might skew more towards CGT for smaller sums and lower growth, and towards ISK for larger sums and higher growth. But don't quote me on that I didn't spend a lot of time looking at it.

Note in this version the CGT tax free allowance only applies once (in the year you cash in). I haven't simulated somebody harvesting the CGT every year. I might add this in when we get the full details.
 
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Of course you also have to take into account that ETF's currently will not be available under CGT.
So maybe fill up you ISK with ETF's (even beyond 30K). And put your single stocks in a CGT account.
 
As I said to the Duke, whatever way you look at it, the CGT and the ISK dominate the Deemed Disposal.

So the real question is - which is better CGT or ISK?

So for simplicity and usability , and these spreadsheets are complex, I would omit the Deemed Disposal from the comparison. Or maybe put them in a separate tab.
 
I had a look at your figures for 20 years

1,000 @ 6% compound is 3,207
1775126747166.webp

So shouldn't the net figure after 20 years be €2901

And you should specify that there is no dividend income

And isn't the ISK simply (1+.05)^20 = €2653
 
Not sure what the best way to incorporate the €1270 annual CGT exemption is.

It saves €419 a year before costs.

Very material for a €1,000 initial investment. Less material for a €100k initial investment.

If I am not otherwise selling shares, I don't bother with selling to use this. But maybe I should.
 
Brendan Burgess said:
If I am not otherwise selling shares, I don't bother with selling to use this. But maybe I should.
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An obvious statement to make: but it all adds up. If you haven't done it for 5 years then that's ~€2,000 you otherwise would've saved when you do sell.
 
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