Duke of Marmalade
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Please apologise. Do you realise the offence this causes to folk who have been murdered.
The Roadmap for Deemed Disposal
- Thread starter Brendan Burgess
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None if they're dead?
You'd better hope and pray there isn't an afterlife
Duke of Marmalade
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That’s the very clever take off of the Michael O’Leary storm in a tea cup. Ok not clever at all
Duke of Marmalade
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Are you aware of Michael’s apology?
Inflation was much higher in the 1980s, though. When indexation relief was abolished in 2003 McCreevy's justification was essentially (a) it was less important than formerly, because inflation was now conistently low, and (b) his priority was broadening the CGT base and lowering the CGT rate, and abolishing indexation relief served that purpose.
The inflation-adjusted equivalent today of €10k in 2018 is just above €8k.
If you invested €10k in a managed fund in 2018, and your investment today is worth €10k, you chose your fund very poorly! Don't look for tax breaks to subsidise and incentivise poor investment choices!
OK, I jest. Your example is unrealistic and your estimate of the effects of inflation is a bit off, but your basic point is correct; inflationary rises in asset values are subject to CGT. But we should note that one of the other justifications offered by McCreevy in 2003 was that this is the case is most countries.
DIRT isn't a tax on the increase in your deposit; it's a tax on the income you receive from your deposit.
There's a fundamental difference between income taxation - a tax on income you receive - and capital taxation - a tax on the value, or the growth in value, of your assets. In terms of investing to secure income, the inflation risk is your risk, not the taxpaying public's. I don't think there's any country in the world that only taxes interest income (or other investment income) to the extent that it exceeds inflation.
Because the managed fund is buying and selling shares all the time on your behalf. If you bought and sold shares directly yourself the gains and losses (and the dividentds, of course) would be taxable; there's no reason to exempt them merely because you're doing it indirectly, through a fund manager. That would give a huge tax incentive to invest via managed funds; there's no public polciy reason for such a tax incentive.
The DD regime is crude and somewhat broad-brush, but it's intended to have the result that people who invest indirectly, via managed funds, pay tax in respect of earnings and gains accruing in the fund that is broadly comparable with the tax they would pay if they invested directly, and received the earings and gains directly.
The anomaly that remains, that you can avoid CGT on shares held directly if you hold them until you die arises because we don't tax gains on death, as virtually every other country does. But that's an anomaly of the CGT regime, not of the deemed disposal regime. and it's maybe one we don't want to call too much attention to, or complain about.
Indeed it is, but to take a very simple and crude example
1. I place €1000 in the bank on 1 January 2026
2. Inflation during the year is 3%, so by the end of the year my capital is now worth in real terms €970
3. A 3% interest rate would very crudely maintain my purchasing purchasing power, however, I am taxed on the interest at 33%.
4. Hence, absent DIRT I would have maintained the real value of my capital, with DIRT it declines.
Indeed I did choose a very poor fund in my example! I must have misread the particular post. A poster was saying, I thought anything, that the DD was fine because it was really only an interest free loan to the government - you'd eventually get your DD tax back when your fund declined in value. I'm not arguing for tax breaks to subsidise poor investment choices. The question I asked was simply to understand where the poster was coming from and whether that was indeed what he or she was saying.
Are you saying that every other country in the world levies capital gains tax on death. I'm not sure that that is correct? I asked ChatGPT about CGT on death in the UK, the US, Germany and France. There is none. Per ChatGPT that is the common regime. The shares or EFT or whatever will be subject to inheritance tax of some sort on death and that will generally tax the entire capital value and not just the gain.
You get a credit for your DD when you finally exit the investment, which repays your loan.
The usual arrangements are (a) death is treated as a disposal, and the estate suffers CGT on any gains, or (b) death is not treated as a disposal, but the beneficiaries who acquire the assets are treated as having acquired them at the time, and at the cost, that the testator did, so the whole capital gain will eventually be brought to charge. Ireland is unusual in simply not charging CGT on gains accruing up do the date of death.
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So what? It's not the taxpayers' job to compensate you for, or insulate you from, the decline in the real value of your bank deposit.
It was your choice to invest in a bank deposit, the real capital value of which will almost invariably decline. If you want an asset whose value tends to (at least) keep pace with inflation choose a real asset, like shares or property. But if you do choose a bank deposit, don't expect an income tax exemption for doing so.
Apart from anything else, policy these days is to try to steer investment away from bank deposits and towards real assets — hence the SIA.
Duke of Marmalade
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How CGT works on death (UK)
1. No CGT arises on death
HMRC confirms that there is no deemed disposal on death, so no CGT is charged when a person dies.This applies to all assets the deceased was “competent to dispose of”.2. Market‑value uplift
Executors (personal representatives) are treated as acquiring the deceased’s assets at market value at the date of death.This market value becomes the CGT base cost for:- Executors, if they sell assets during administration
- Beneficiaries, if assets are transferred to them in specie
Not sure if this has already been mentioned but I had assumed that deemed disposal taxation of unrealised gains was a uniquely Irish thing but it seems not. E.g. Germany, Denmark and The Netherlands also do this but in different ways.
www.thejournal.ie
Deemed disposal investment tax sparks anger in Ireland, but is there similar anywhere else?
It’s rare, and places that have it usually have a lower rate.
www.thejournal.ie
OK, this suprises me slightly. Clearly practice is not as uniform as I thought.
A bit of further reading suggests there are three approaches, broadly speaking:
1. The gain isn't brought to charge on death, but rolls over to the estate administrators, and from their to the heirs. It will be taxed when the asset is eventually sold (which may be quite soon, if it's sold in the course of administering the estate.
Examples of this approach — Australia, Germany
Drawback to this approach: the heirs will need information about when, and at what cost, the deceased acquired the asset. Requires good record-keeping by the deceased, plus his records get passed on to the heirs. There must be cases where heirs have some difficulty in establishing the base cost of the assets,when they eventually dispose of them.
2. The gain is brought to charge on death.
Examples - Canada, Denmark. I believe Canada has an exemption for assets inherited by a spouse — the spouse can opt to roll over the gain and defer tax on it until they dispose of the inherited asset, as in approach no. 1 above. I don't know if Denmark does the same.
3. The gain is not brought to charge at all.
Examples - UK, France., USA. This makes no sense, frankly, unless the country has a relatively signficant estate tax regime, so that applying CGT as well would be oppressive.
(It's off topic for this thread, but it occurs to me that anger at CAT being levied on the value of the family home, which in recent years has become a much more signficant issue due to the colossal rise in house values, could be addressed by reducing or abolishing CAT and instead treating death as a CGT event for the deceased. The family home would be exempt, because it was the deceased's PPR. Similarly the family farm would benefit from retirement relief, if inherited by a child or children of the deceased. And cash at bank, of course, doesn't have a gain to begin with.)
A bit of further reading suggests there are three approaches, broadly speaking:
1. The gain isn't brought to charge on death, but rolls over to the estate administrators, and from their to the heirs. It will be taxed when the asset is eventually sold (which may be quite soon, if it's sold in the course of administering the estate.
Examples of this approach — Australia, Germany
Drawback to this approach: the heirs will need information about when, and at what cost, the deceased acquired the asset. Requires good record-keeping by the deceased, plus his records get passed on to the heirs. There must be cases where heirs have some difficulty in establishing the base cost of the assets,when they eventually dispose of them.
2. The gain is brought to charge on death.
Examples - Canada, Denmark. I believe Canada has an exemption for assets inherited by a spouse — the spouse can opt to roll over the gain and defer tax on it until they dispose of the inherited asset, as in approach no. 1 above. I don't know if Denmark does the same.
3. The gain is not brought to charge at all.
Examples - UK, France., USA. This makes no sense, frankly, unless the country has a relatively signficant estate tax regime, so that applying CGT as well would be oppressive.
(It's off topic for this thread, but it occurs to me that anger at CAT being levied on the value of the family home, which in recent years has become a much more signficant issue due to the colossal rise in house values, could be addressed by reducing or abolishing CAT and instead treating death as a CGT event for the deceased. The family home would be exempt, because it was the deceased's PPR. Similarly the family farm would benefit from retirement relief, if inherited by a child or children of the deceased. And cash at bank, of course, doesn't have a gain to begin with.)
The government therefore has carte blanche to tax all inflationary gains and inflationary increases in wages etc. because otherwise taxpayers would end up compensating each other for that? I'm not sure I follow you. My overall point is that the government should try to ensure in so far as is possible that it taxes real and actual profits, real gains and real wage increases. Hence the current call to have the income tax bands increased by the inflation percentage each year so as to ensure that workers are only taxed on real increases in their wages.
We have the same exemption here. I think other countries like the UK and the US have the same approach per ChatGPT.
Actually, if you think about it, indexing the income tax bands doesn't result in workers only being taxed on real wage increases. If inflation is 5%, and my wage goes up by 5%, I will pay tax on that 5%. Indexing the tax bands just means that that 5% wage increase won't push me into a higher marginal rate.
Having said that, I'm fine with indexing the tax bands. I think it's a good idea.
But it's not at all the same thing as not taxing (in this example) the first 5% of interest income (or, presuambly, other investment income, since why would we single out bank deposits, from all other income-generating investments, for this special concession?). I don't think there's a country in the world that treats investment income, or interest income, in this way.
Think about it. If you did this, for consistency, where a business is claiming a deduction for interest costs, wouldn't you have to deny them a deduction for the first 5%? After all, on this reasoning it's not really a payment to the lender for lending the money, it's just a return of (the real value of) the capital he advanced you; he only gets paid to the extent that the interest exceeds 5%. And repayments of capital are not tax deductible. You can't argue that the payment of this element of interest is an income transaction for the payor but a capital transaction for the payee.
Bank deposits decline in real value. That should factor into the rate of interest you are willing to accept in return for depositing your money. But whatever rate of interest you do accept, that is income to you, and it will be taxed as such.
Duke of Marmalade
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I don't really get that. Recall the conversion from punts to euro. Everything in nominal terms including wages and tax bands and personal allowances were increased by c.26%. Everybody accepted that in real terms nothing had changed.
Likely not, but in an inflationary environment, it is an overall problem with the tax system and it affects the less well off much more than the better off. Well off people will have shares for example and can defer the tax on the inflation element, those with deposit accounts cannot.
Also take the following example of a worker ignoring bands and rates (rather crude again)
1. I earn 40k in 2026. I have 20k after tax.
2. By 1 January 2027, the 20k is only worth 18k in purchasing power due to inflation
3. My boss gives me a 2k pay increase in an attempt to compensate for the loss of purchasing power.
4. However I lose 1k of the 2k increase in tax meaning that my purchasing power is now 19k. Despite a pay increase, I'm worse off.
If I am trying to save for a house, the capital saved is declining as well and the interest which is taxed will not compensate.
Now, I don't know how a government would solve this. Indexing bands is only a small part of it, but it is the least a government should do. Possibly the personal and paye tax credits should be indexed as well?
This problem falls more on employees whose income in immediately taxed and benefits capital which can defer the CGT element of the charge. I think a guy called Pikkard or something wrote a book about this about 10 years ago. Tax I think was only a small part of what he was talking about though.