TSW Commission: Tax deposit interest at marginal rate and review taxation of investment income

[AJAM]

The Commission on Taxation seem to be recommending the scrapping of Exit tax and replacing it with CGT.
Hopefully the government will take this recommendation onboard.


6.5 The Commission recommends that deposit interest income should be taxed at an individual’s marginal rate of Income Tax and Universal Social Charge. A system should be developed to facilitate the collection of these charges at source in real time by financial institutions.
6.6 The Commission recommends that a working group should be established to review and propose changes to the taxation of funds, life assurance policies and other investment products with the goals of simplification and harmonisation where possible. The working group should be established with a net revenue-raising or neutral mandate.

 

[ryaner]

Can't see this be adopted. Too many vested interests don't want the average joe investing themselves.

 

[Zenith63]

The Commission on Taxation seem to be recommending the scrapping of Exit tax and replacing it with CGT.
Hopefully the government will take this recommendation onboard.

6.6 The Commission recommends that a working group should be established to review and propose changes to the taxation of funds, life assurance policies and other investment products with the goals of simplification and harmonisation where possible. The working group should be established with a net revenue-raising or neutral mandate.

Are you coming to that conclusion based on just this the quoted text? Seems to me they’re not recommending anything more than reviewing how these things are taxed. But when so much of the report is about raising taxes and taxing wealth, with the suggestion on this point specifically that it might be revenue-raising, I cannot see why they would be advocating for a 33% rated tax over the current 41%. Are you sure they’re not thinking that exit tax and deemed disposal should actually be broadened out to other investments - not suggesting they are, but you could read it either way.

 

[joe sod]

Are you sure they’re not thinking that exit tax and deemed disposal should actually be broadened out to other investments - not suggesting they are, but you could read it either way.

thats why the whole exit tax regime was ridiculous and unfair because it differentiated between different assets for this type of tax. You had to pay a deemed disposal tax every 8 years if you owned a collective investment fund or an ETF but not if you owned a portfolio of shares, an investment property, your company shares, or bonds.
Therefore either have an exit tax on everything or CGT on everything. Nobody else In Europe has this tax not even the most socialist states therefore if Ireland was to introduce this for everything it would collapse the property market and all irish asset markets and result in a flight of capital and people and wealth out of this country. Therefore they are not going to move exit tax to other assets, it is at the limit of its credibilty as it is

 

[Zenith63]

Nobody else In Europe has this tax not even the most socialist states

The Netherlands is not a million miles from it I think? They have a deemed annual return every year on investments. They also tax the whole asset, not just the gain. Their rates etc are different go course.

I think there are problems with deemed disposal as it currently operates, it’s too complex and opaque for average investors. But just because Ireland was the first to have a tax like this doesn’t make it inherently bad or wrong. We were the first to ban smoking in public places, some other country was the first to tax capital gains, another was first to tax income - in all cases there were people complaining it was unfair etc. With the US now moving to tax unrealised gains, it’s probable we’ll look back on this in 10-20 years and realise we were nicely ahead of the curve.

 

[Steven Barrett]

Can't see this be adopted. Too many vested interests don't want the average joe investing themselves.

The average joe doesn't want to invest themselves because they don't have knowledge of investments and aren't overly interested in learning about it. How investments are taxed isn't stopping the average joe from investing. It is stopping the above average joe from investing but they are still capable of doing it themselves if they want to because they have an interest in it and are willing to spend the time learning how to do it.

 

[ashambles]

The average joe doesn't want to invest themselves because they don't have knowledge of investments and aren't overly interested in learning about it. How investments are taxed isn't stopping the average joe from investing. It is stopping the above average joe from investing but they are still capable of doing it themselves if they want to because they have an interest in it and are willing to spend the time learning how to do it.

ETFs and regular investing go to together - Irish investors are being put off regular investing in ETFs due to deemed disposal.

“I would generally recommend to clients, accumulate a larger lump sum in cash savings and put in a bigger amount once or twice a year,” says Barrett, as a way of cutting down on the administration."

Don’t invest in an ETF until you understand the tax

Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements

www.irishtimes.com

As mentioned in that article, taxation on ETFs has administration problems, so much so that financial advisors are saying to not use regular investing for ETFs.

Investing 100 euro a week and 5000 euro in one go once per year is different. With the one off investment the "average joe" is more likely to find a reason to not invest. Occupational pension contributions would collapse if it only made sense to contribute once or twice per year.

(Incidentally I think Denmark has worse tax on this than us also re deemed disposal - however they've the consolation that their taxes are spent better)

 

[ryaner]

The numbers that the likes of Degiro release suggest that people do want to invest themselves, at least a substantial enough proportion do. I'd say somewhere around 2027-2030 we will start to see things change as that will when a lot of newer ETF investors start getting hit by Revenue for lack of taxes paid via deemed disposal. The barrier to entry was high enough before Revolut/Degiro/etc that the numbers affected would have been small enough.

 

[Micks'r]

The Netherlands is not a million miles from it I think? They have a deemed annual return every year on investments. They also tax the whole asset, not just the gain. Their rates etc are different go course.

My understanding is that it's a type of wealth tax on investments. For example, you own an apartment valued at 200k with a mortgage of 100k. You are taxed on the net worth i.e. 100k. There would be a deemed return of say 4% and this is taxed at say 30% so effectively you would be taxed on 1.2% of the net worth of the asset, so €1200 per annum.
However, if you had the apartment rented and your net rental income was say €6000, you get to keep this, i.e. no other income tax levied on rents but no deductions allowed either (eg mortgage interest, repair & maintenance etc).
If you later sell the apartment for a gain, there is no CGT payable.