The Swedish equivalent of an ISA as a model for Ireland?

While it would be nice if it’s simple to calculate and the financial institution take care the more reporting requirements for those institutions the less choice their will be.

How many non traditional Irish banks collect DIRT?

Revolut, MoCo and Monzo out of about 20 by my calcs.
 
faketales said:
While it would be nice if it’s simple to calculate and the financial institution take care the more reporting requirements for those institutions the less choice their will be.
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If they allow "manual" reporting too, then it would be better. It would mean that there is competition.

If they give a "tax-free" account that you can only access by paying fees, then the admin fees can eat up the benefit of the tax reduction.

If there is the option to do it yourself for 0 fees, then it is harder to push up fees.
 
Capital base (in Swedish model) is defined as average of account value at end of four quarters plus average of deposits over year.
 
www.rte.ie

Annual flat-rate tax among principles for savings scheme

An annual flat-rate tax is among the guiding principles for the planned State-backed savings scheme that is expected to be introduced in the next budget.
www.rte.ie www.rte.ie

Annual flat-rate tax among principles for savings scheme​


An annual flat-rate tax is among the guiding principles for the planned State-backed savings scheme that is expected to be introduced in the next budget.

Tánaiste and Minister for Finance Simon Harris will tell a savings and investment forum later today that plans include such a tax being applied to the value of assets held in the account above a tax-free threshold, while all investments made within the account would receive consistent tax treatment.

Also among the potential architecture for the savings scheme could be a requirement for account providers to administer the tax to help remove complexity for investors, according to the Tánaiste.

The additional detail follows reports at the weekend that there will be no capital gains tax applied to income earned under the new investment scheme, which is being developed by the Minister for Finance.
 
Should it be called a savings scheme? My head hurts just glancing over this thread and while I haven't spent a lot of time reading about it, I haven't deduced what the hell it all means to someone with a few grand to save. I'm guessing there are a significant % of the population that never will. What will take them away from a "safe" deposit (perhaps losing or keeping equal with inflation if rates stick at 2-3% and increase with ECB), versus technically "investing" (hence my 'why is it called a savings scheme) and potentially losing money?

And if the Tánaiste believes "that Ireland "still does not have a sufficiently diversified savings and investment culture" with "too much of people's hard-earned savings" remaining in "low-yield deposits, where inflation can erode value over time", why doesn't he just eliminate DIRT tomorrow and increase the return on State Savings? I guess that isn't diversified enough.
 
B042026 said:
Capital base (in Swedish model) is defined as average of account value at end of four quarters plus average of deposits over year.
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Thanks for that interesting bit of information.

So I lodge €100k on 1 January and take it out on 30 March to avoid this tax. Put it back in and take it out again each quarter.
For simplicity, assume no growth.

Average deposits = €100k
So capital base is €100k
Taking it out achieves nothing.
 
podgerodge said:
Should it be called a savings scheme? My head hurts just glancing over this thread and while I haven't spent a lot of time reading about it, I haven't deduced what the hell it all means to someone with a few grand to save. I'm guessing there are a significant % of the population that never will.
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If we copy the Swedish model, then it's fairly simple:
  • A new savings vehicle where the first €28,000 of stock of savings are free of any tax on the returns.
  • After that amount, the tax is approx. 1% each year on the stock of savings

That is fairly simple to understand.
 
B042026 said:
Capital base (in Swedish model) is defined as average of account value at end of four quarters plus average of deposits over year.
Click to expand...

So let's say I add nothing new this year but I had a balance of €100k at the start of the year.
End Q 1 €108k
End Q2 €110k
End Q3 €100k
End Q 4 €90k
Average: €102k ( €408k/4)
 
Now let's say I add €40k in Q3

End Q 1 €108k
End Q2 €110k
End Q3 €100k
Added €40k
End Q 4 €130k
Average: €97.6k ( €488k/5)
So that is not it.

B042026 said:
Capital base (in Swedish model) is defined as average of account value at end of four quarters plus average of deposits over year.
Click to expand...

End Q 1 €108k
End Q2 €110k
End Q3 €100k
End Q 4 €130k
Total: €448k
Average: €112k
+ average deposit per quarter: €10k
Average to be taxed: €122k

Not sure that is right either.
 
Nermal said:
I'm better off paying 33% CGT at the time of my choosing (ideally, never) rather than 1% every year.
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No you're not, you're just pretending.
You're pretending that the nominal value before tax, is the actual value. But as soon as you go to withdraw, it becomes the real after tax value.

The only exception to this, is if you consistently make losses. If you consistently make losses you would be better off with CGT. But you would, in this case, also be better off in a deposit account.
Note even with losses you would not neccesarily be better off with Exit Tax.
 
It’s been mentioned multiple times. But the importance of provider fees here really cannot be understated - so I really hope it gets sufficient scrutiny and consumer representation. Taking a 20 year time horizon. An initial investment of €100,000. An assumed return of 6%. Ignore the tax free amount in the ISK as it’s approximately equal in value to the CGT annual exemption. Assume I can access CGT eligible products at essentially 0 platform fee through various online platforms. Assume underlying product TERs same.

0% provider fee
CGT value €247k
ISK value €265k

0.5% platform fee
ISK value €241k

0.75% platform fee (a typical fee for life products)
ISK value €229k


If the likes of Revolut, DEGIRO, T212, IBKR etc. do not service this - it will not be useful to financially literate individuals in my opinion. I understand in UK there are ISA providers who operate at close to 0 platform fees.
 
The more I read of this it would have been easier, simpler and quicker to remove the deemed disposal, reduce the CGT rate and increase the tax free CGT threshold to a meaningful level. All of which could have been done without much effort but with far less fanfare. But maybe that is the point.

The drip drip of information from the MoF about this strikes me as a marketing ploy and more for self promotion than societal benefit.
 
AJAM said:
No you're not, you're just pretending.
You're pretending that the nominal value before tax, is the actual value. But as soon as you go to withdraw, it becomes the real after tax value.
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Maybe I won't withdraw. Maybe I'll leave the country, or die, or I'll borrow against the value. Maybe the rate will change, or the allowance will increase, or indexation will be brought in, or there'll be some sort of amnesty or holiday.
 
The ISK is better than what we have today, particularly if you want to be invested in low cost, low friction ETF equity funds.

The issue I have as a reference point is that we started with "equivalent of an ISA" and the tax burden does fall materially differently.

This is a pretty effective way to both create a savings product and broaden the tax base. I'll be interested to see how the providers try and rinse us for fees compared to what people are paying in the likes of the UK. Hopefully as part of the strategy rollout the DoF is strong on "this stuff is cheap abroad, it should be cheap here" and encourage really transparent pricing so people can get the best deals, and the challenger brands for pension products push the legacies to do better.

In terms of size the scheme will reach and what success should look like from converting our €170bn of deposits to more productive use: I think this will come down to consumer education. Data from Sweden shows that (perhaps unsurprisingly) the rate of population holding an ISK rises with educational attainment alongside income.

1774949881787.webp


In 2023 about 36% of the Swedish population held an ISK and the median value was about €7.1k in today's euros. Mean is €40.1k. I'm sure the tax treatment changes are impacting that lately.

Just by way of comparison, about 42% of the UK population holds an ISA but the median account value is a lot higher - closer to €38k. Mean is €69.6k. You'd expect that perhaps with the annual limits and such.

So if Irish-ISK take up followed these patterns, you might expect to see about 2m to 2.3m people eventually hold an account, and a total value (Swedish mean and take up rate) of €80bn under management. Just for comparison to ISA (UK mean and take up rate) would come to €160bn, certainly an unrealistic sum.

You could credibly say that the Swedish take up rate, if the scheme is truly designed to follow the ISK, should be the target for success, and be about half the money sitting on deposit going to more productive use. Not to mention generating significant tax revenue every year, albeit with offsets from the TFA, DIRT etc.

www.gov.uk

Annual savings statistics 2024

HMRC statistics on Individual Savings Accounts, Child Trust Funds and Help to Save accounts.
www.gov.uk www.gov.uk
 
Banquo said:
remove the deemed disposal
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They repeatedly voiced concerns about indefinite deferral which is particularly valuable in estate planning for high wealth households
Banquo said:
reduce the CGT rate
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This would be untargeted, apply to a whole host of stuff they don’t want to encourage necessarily and therefore be more expensive/ less effective at mobilising savings into stock investments. Benefits (and exchequer costs) would disproportionately accrue to a small number of people.
Banquo said:
marketing ploy and more for self promotion than societal benefit
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To be fair to them - marketing is important. It may seem self serving and unbeffiting of public office, but if gets people investing, and I would wager this scheme absolutely will, then it is a massive societal benefit. There is no point in a fantastic product if nobody uses it.
 

Investment Accounts (IAs)​

The Government is developing an Investment Account for Ireland.
We want to make investing simpler, clearer, and more accessible for ordinary people, and help their hard-earned money work harder for them over time.
This will be a priority for Government.
Our aim is to legislate for the framework in 2026 and to allow accounts to be offered from 2027.

...............

Some key principles guiding our approach will be:

  • an annual flat-rate tax to the value of assets held in the account above a tax-free threshold;
  • this flat rate of tax could potentially serve as the sole form of taxation on investments made through the new account;
  • that all investments made within the account would receive consistent tax treatment;
  • account providers would be required to administer the tax to help remove complexity for investors.
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www.gov.ie

Speech by An Tánaiste and Minister for Finance, Simon Harris TD at the Annual Savings and Investment Forum

www.gov.ie www.gov.ie
 
C_Pike said:
So if Irish-ISK take up followed these patterns, you might expect to see about 2m to 2.3m people eventually hold an account, and a total value (Swedish mean and take up rate) of €80bn under management. Just for comparison to ISA (UK mean and take up rate) would come to €160bn, certainly an unrealistic sum.
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€80bn moving out of deposits - surely that would have substantial implications for comm bank balance sheets?

Or maybe much of this will remain as deposits, but within an ISK wrapper?
 
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