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

That is the vision we want to reflect in Ireland’s approach. 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.


(1) is copying the ISK, okay
(2) I don't understand this, what other taxes is he referring to?
(3) so the vehicle/wrapper will be agnostic to the asset within?
(4) I wonder will "administer" the tax include deduction?
 
This does not help people already invested in ETFs.

It will be interesting to see what brokers get involved, range of funds available.
I doubt the wealth management forms will take on such clients.
 
Protocol said:
€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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You can bet that's coming up at the industry engagement level! In Sweden the banks rely more on covered bonds than deposits to fund mortgage lending, so it's structurally quite different.

First defense is just the size of deposits. A lot could move to ISK style accounts before the ability to lend is severely impaired. You could see a phased implementation and a change to the structural way Irish banks fund mortgages. You could see banks used as the primary route for ISK style accounts (good luck to us all on fees...) and at least some of the money remaining in cash. You are also seeing reforms at the EU level around how these accounts are treated in liquidity regulation (complex minefield).
 
I am assuming that people won’t just be able to open multiple ISK accounts of (say) €30k each to minimise the portion of the account being taxed, right? But in that case how can providers feasibly administer the tax, it’s not like they’d know if someone has another ISK somewhere else?
 
C_Pike said:
First defense is just the size of deposits. A lot could move to ISK style accounts before the ability to lend is severely impaired. You could see a phased implementation and a change to the structural way Irish banks fund mortgages. You could see banks used as the primary route for ISK style accounts (good luck to us all on fees...) and at least some of the money remaining in cash. You are also seeing reforms at the EU level around how these accounts are treated in liquidity regulation (complex minefield).
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Yes. The Irish banks have loads on deposit with the ECB, so they should be able to withdraw their deposits from there also.
 
Protocol said:
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.
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Thanks. Simple to understand. But the savings aren't deposits (I had gathered that much!), so they are "investments" - so they can theoretically lose value, so it's not all about 'only taxing a small amount of the gains over a certain €'.

Personally, I don't and wouldn't call any of my future day fund that wasn't in deposits or State Savings as "Savings", as they aren't guaranteed and can lose value. Unless I am still misunderstanding, why is this being called a savings scheme, should it not be called a low tax investment scheme?

If I sound like I am being pedantic, maybe I am. Too many regular people will see the word "saving" and assume it's safer than it perhaps is.
 
podgerodge said:
Thanks. Simple to understand. But the savings aren't deposits (I had gathered that much!), so they are "investments" - so they can theoretically lose value, so it's not all about 'only taxing a small amount of the gains over a certain €'.
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Nobody has said yet what assets can, or can't, be held within this tax-free / low-tax wrapper.

I presume the idea is to encourage the holding of assets other than cash deposits.

Saving refers to income that is not spent.

Savings can be held in four broad types of assets:

(1) deposits
(2) bonds
(3) shares
(4) property

I presume the idea is to make it simpler to hold savings in assets (2) and (3), by reducing the tax on the returns from assets (2) and (3)
 
podgerodge said:
Personally, I don't and wouldn't call any of my future day fund that wasn't in deposits or State Savings as "Savings", as they aren't guaranteed and can lose value. Unless I am still misunderstanding, why is this being called a savings scheme, should it not be called a low tax investment scheme?
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The general public tend to use these terms (I don't):

Saving = holding a cash deposit
Investing = holding bonds and/or shares

I don't use those terms, but I see your point.
 
Protocol said:
I don't use those terms, but I see your point.
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Here's how Bank of Ireland explains it:

  • Back to basics: what does saving mean?​

    Saving means setting aside money for the future in a secure way, typically in a bank account, where it may earn some interest. While it won’t grow quickly, the primary goal is accessibility and security—for emergencies, planned expenses, like buying a car or a deposit for a house, or just peace of mind.

  • So, what’s investing about?​

    Investing aims to earn higher returns than savings. While investing offers the potential for returns, its important to remember that they are not guaranteed and there is a risk you could lose some or all of the money you put in.

Morgan Stanley put it like this (my underline): "Bonds and property are typically classified as investments rather than pure savings. Savings refer to low-risk, liquid options like bank accounts with guaranteed principal and minimal returns, while these assets involve market risk and potential for higher growth."


Here's the Irish Times this morning - I think it's bonkers and goes against my definition of savings, but anyway !

"Simon Harris outlines new savings scheme to encourage Irish households to invest"
 
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qwerty-2023 said:
I am assuming that people won’t just be able to open multiple ISK accounts of (say) €30k each to minimise the portion of the account being taxed, right? But in that case how can providers feasibly administer the tax, it’s not like they’d know if someone has another ISK somewhere else?
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Same way you can’t claim 2x tax credits across two employments - a digitised tax system. The provider will fill in your tax details like an employer does for income, but revenue will tie it together on their side the same way (if it works the same as Sweden) and sort it out if you’ve over claimed.
podgerodge said:
If I sound like I am being pedantic, maybe I am. Too many regular people will see the word "saving" and assume it's safer than it perhaps is.
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In general consumer (and journalism!) financial education is very poor and I hope the introduction of this system will prompt a major education campaign across the state.
 
fistophobia said:
This does not help people already invested in ETFs.
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I think it would be worth immediately switching them to the new account.

This suggests that starting the account may result in a revenue getting a windfall in taxes due to switchers.

ETFs that have a loss should be kept as ETFs, since they have zero marginal tax. They could be swapped if/when they return to having a gain.

Assuming 6% per year return on an ETF and it was bought 4 years ago and the new account has a 1% wealth tax.

ETF bought: 1000
Current value: 1262

Option 1 - sell & switch

Disposal: 1262
Gain: 262
Tax: 100
Cash: 1162

ISA: 1162
Final (4 years @ 5%): 1412

Option 2 - keep it as an ETF until deemed disposal would kick in and then sell

Disposal: 1594
Gain: 594
Tax: 226
Cash: 1368

The first option is better. Selling immediately and moving it to the investment account gives better cash in the deemed disposal year.

These are the results depending on how old the ETF is. The numbers are the amount you would have when the ETF expires at the end of its 8 year cycle and €1000 as the initial investment in the ETF.

​
ETF Age​
Stay with ETF​
Sell & Switch​
0​
1368​
1477​
1​
1368​
1459​
2​
1368​
1443​
3​
1368​
1427​
4​
1368​
1413​
5​
1368​
1400​
6​
1368​
1389​
7​
1368​
1378​
8​
1368​
1368​

​
No matter the number of years until the ETF hits deemed disposal, it is better to switch immediately.

Though, like I said, that assumes a clean 6% per year return on the ETF.

If the ETF is operating on a loss, then it is better to keep it as an ETF (no tax, since no gain), rather than switching (1% wealth tax, no matter the gain).

An investor should make the decision on a per-ETF basis, since gains/losses don't transfer. I think you have to sell them in order though, so you may not be able to pick and choose.
 
I would need to see the finer details of the scheme. What funds will be available, is there an upper limit allowable?
 
Protocol said:
account providers would be required to administer the tax to help remove complexity for investors.
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Remove complexity but at what cost I wonder.

If I was a pillar bank I would want the admin to be complex so I could take care of it and keep others out…
 
While the Canadian system can keep cash its best use for investments but is called a Tax Free Savings Account.

I think it will have to allow deposits as it seems unfair to hit someone saving for a house with DIRT and not have 10k in investment etc tax free.

Can you buy an investment the is very low risk like a government bond?
 
Protocol said:
account providers would be required to administer the tax to help remove complexity for investors.
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Never underestimate the ability of the Department of Finance to take a good idea and make a mess of it.

If this comes about, we’re potentially looking at a closed shop of pillar banks and life companies charging annual fees of ~1% or more plus the tax on a very limited number of managed or index funds.

I imagine online brokers won’t want anything to do with it, and neither will any DIY investor with a calculator.
 
You can use either average cost or FIFO when selling an ETF

But you cannot change it once you have selected one or the other for your first disposal/sale
 
I think it’s a shame that the Minister’s head has been turned by the Swedish model.

I can certainly see why the DoF are enthusiastic but I think it’s a rotten deal for investors.

Sure, it looks good if you model returns based on some high average figure but markets don’t work like that.

Essentially you are introducing sequence of returns risk for investors. If the return on your portfolio is negative during the early years of your investment, then pulling a flat rate of tax from the portfolio leaves you with less assets that can benefit from any subsequent recovery.
 
I wonder is it also a back door method of introducing a wealth tax here.

Presumably in times of economic stress the 1% will be an easy target for the government to increase ...
 
Regardless of the system chosen the details are what will be important.

I don’t think UK ISA tax free levels were ever a runner in Ireland.

The Canadian TFSA at 4.5k per year is too small to start for the goal of a shift out of deposits but after say 20 years becomes too bit.

Just because it’s the Swedish system doesn’t mean they will match the Tax Free or percentage tax element.

Impossible to judge the system until we know those two and costs.
 
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