The Roadmap for Deemed Disposal

[LarryScott]

I bought €1 of XYZ online with Revolut just as a trial 8 years ago but bought €100k of XYZ a year ago.

You could allow a person to "reset" their counter if they wish. You have to do a return at least once every 8 years, but can resync earlier if you want.

In that case, they could just do a return on the €1 for the year they bought the 100k.

Alternatively, there could be a threshold for minor shareholding. If you have less than €1270 of ETFs, then there is no tax.

This is all self assessment and I think you could actually agree with Revenue to accept this approach or similar as a matter of convenience.

You can pretty much do it yourself already.

Every 8 years, perform an actual disposal (and repurchase) of all ETFs that you bought since the last return. This aligns all purchases to that 8 year cycle. ETFs that were already aligned will always fall on the 8 year anniversary, so they don't need to be realigned.

This does mean that you lose out on any future drop in the ETF rate for the "short" period at the start of each holding.

 

[Corola]

That's simpler but not financially better. Your first DD will be larger since you're paying tax on the gain of all eight prior years of investment, instead of just the first year.

Since stocks generally rise in value it's better to defer paying tax for as long as possible.

 

[CharlieMac]

Isn't that why his lordship the Duke, in relation to scrapping DD, keeps telling us be careful what we ask for? If DD goes we might be required to pay tax on gains every year.

 

[Corola]

Not exactly. I would rather pay a small tax every year on income (rolled-up dividends), than a big tax from year 8 on unrealised gains.

Dividends are "real" cash in your hand, unrealised gains could evaporate.

 

[faketales]

I think the complexity of DD is more of a problem than the tax itself. I am still confused how it works in year 16, 24 etc. if there have been drops in value since the original deemed disposal.

It’s also not ideal for monthly buys and forget. Maybe not too bad for older settled people but 8 years is a lifetime of change at a younger age especially if you had lots of changes like pulling money out for a need etc.

 

[RedDevil]

I think the complexity of DD is more of a problem than the tax itself

Easiest option seems to be Sell Pay and move on

 

[LarryScott]

I think the complexity of DD is more of a problem than the tax itself. I am still confused how it works in year 16, 24 etc. if there have been drops in value since the original deemed disposal.

All deemed disposals are not really paying a tax. They are (zero interest) loans to the government.

Technically, the tax is payable when you actually dispose of the ETFs.

Eventual Loss

year 0: 50k

year 8: 75k
gain: 25k
loan @ 41%: 25k * 0.41 = 10.25k

year 16: 45k
gain: -5k
Owed: 0 (no tax on net losses)
Repaid: 10.25k (you get the 10.25k from the government)
Net: 10.25k received

This also means if the rate decreases, then you get your loan back too.

Rate Decreases

year 0: 50k

year 8: 75k
gain: 25k
loan @ 41% : 10.25k

year 16: 75k (no further gain)
gain: 25k (still)
loan @ 38%: 9.5k
repaid: 10.25k
Net: 0.75k received

 

[faketales]

All deemed disposals are not really paying a tax. They are (zero interest) loans to the government.

All makes sense until I start thinking about regular purchases, multiple ETFs, perhaps some selling.

 

[Duke of Marmalade]

They are (zero interest) loans to the government.

Exactly

This also means if the rate decreases, then you get your loan back too.

And this is nasty backfire on reducing the rate.

 

[Duke of Marmalade]

And another thing!
When DD was introduced it was done so retrospectively. So DD abolition is really only good for the next budget year.

 

[Wolframius]

That's what the Anti DD mob tend to forget. They think a regime with indefinite deferral of CGT until it disappears entirely on death will be applied to accumulator ETFs and most of the passive index trackers are accumulators.

I still don't understand why an investor can buy some shares, buy and hold for life and not have any CGT liability on death, while if you buy an accumulating equity-only ETF you need to be penalized at all steps of the process compared with the CGT regime.

 

[Greenbook]

Exactly

Just curious - does inflation come into it.

For example, if I paid €10k in DD in 2018 and get the 10k back now in 2026, €10k is now worth much less. The eurozone cumulative inflation rate over that period when you take into account 2022 and 2023 seems to have been in or around 25%.

 

[LarryScott]

Just curious - does inflation come into it.

No, there is no index linking. It is a zero interest loan to the government, so you lose money on the payment.

Assuming the rate stays the same, it works out as just paying tax on the gain since the last deemed disposal.

All makes sense until I start thinking about regular purchases, multiple ETFs, perhaps some selling.

Right, it would be great if all your ETFs just counted as 1 investment that you can add to weekly/monthly.

 

[jpd]

When I queried how the Deemed Disposal was calculated, I got a written answer back that it is calculated from the gain in value since the start for the first time ie the 8 years or since last deemed disposal after that.

I am pretty sure that this is incorrect but that's what I got in writing and I have been using this method ever since

Happily, I have never had a loss in any of the eight year period yet

 

[LarryScott]

I am pretty sure that this is incorrect but that's what I got in writing and I have been using this method ever since

It is sort of correct. It gives the right answer as long as the tax rate doesn't change. Also, you are entitled to a refund if the value of the ETF drops.

 

[joe sod]

Just curious - does inflation come into it.

For example, if I paid €10k in DD in 2018 and get the 10k back now in 2026, €10k is now worth much less

The government gets away with murder here by not allowing indexation, its actually daylight robbery. When ireland was very poor in the 1980s and our finances were under pressure they allowed for indexation. The system was more open and fair, now we have all these stealth taxes.

 

[Greenbook]

No, there is no index linking. It is a zero interest loan to the government, so you lose money on the payment.

So you are in effect paying €10k in tax in 2018 and getting an inflation adjusted equivalent of say €7k back in 2026 if the value of your fund falls to below its 2018 level? Is that correct or am I missing something?

 

[Greenbook]

The government gets away with murder here by not allowing indexation, its actually daylight robbery. When ireland was very poor in the 1980s and our finances were under pressure they allowed for indexation. The system was more open and fair, now we have all these stealth taxes.

I agree, especially with CGT. A lot of the gain now is just an inflationary increase, yet you are taxed on it.

 

[faketales]

I agree, especially with CGT. A lot of the gain now is just an inflationary increase, yet you are taxed on it.

Could the same not be said for DIRT? Except it’s a far below inflationary gain.

Similar to when PAYE when the bands don’t move and someone gets an inflationary increase and moves band.

 

[Greenbook]

Could the same not be said for DIRT? Except it’s a far below inflationary gain.

Same can be said for DIRT. To take a made up example, if inflation is 4%, and you earn 2% interest and pay DIRT of 33%, you've paid tax on an imaginary increase.

Income tax as well when the bands don't keep up with inflation or as you say somebody moves bands due to a pay increase that is only keeping up with inflation.

The government does this the whole time, the CGT annual allowance hasn't increased in decades, neither has the CAT small gifts exemption.