Tax Rules Investing Funds Stocks Ireland
Okay, here’s a breakdown of the key points from the provided text, focusing on the Irish tax regime for investments and the author’s assessment of the investor’s portfolio:
1. The Problem: Irish Investment Tax is Complex & Discouraging
* “Deemed Disposal“: This is a uniquely Irish tax rule where the Revenue (tax authority) treats you as if you’ve sold your investment every eight years, even if you haven’t. You pay tax on any gains at that point.
* High Exit Tax Rate: The “deemed disposal” tax (called “exit tax”) is currently 41%,substantially higher than the standard Capital Gains Tax (CGT) rate. It was originally intended to be only 3% above CGT to compensate for not taxing gains annually, but has increased.
* No Loss Offsetting (Generally): Unlike CGT, you can’t offset losses from one fund against gains in another fund when it comes to exit tax.(There’s an adjustment if a fund loses value below a previously taxed level).
* Budget 2024’s Limited Change: The recent budget only reduced the exit tax to 38%, still higher than CGT.
* Funds Sector 2030 Report: A report outlining issues with the Irish funds industry and ways to encourage investment has been sitting with the Minister for Finance for almost a year, with only a “roadmap” for future changes announced.
* Not Intuitive: The author emphasizes the system is neither consistent nor intuitive.
2.What This Means for the Investor (and Doesn’t Mean)
* Direct Share Investment is Fine: The investor’s direct purchases of shares in individual companies (through Davy) are not subject to the ”deemed disposal” / exit tax. They fall under the standard CGT rules.
* ETFs are Problematic: Exchange Traded Funds (ETFs),even though traded on the stock exchange,are subject to the exit tax.The investor needs to check if their Davy holdings include ETFs.
* CGT on Direct Shares: When the investor sells their direct shares, they’ll pay CGT on the profit, minus a €1,270 annual allowance. Losses can be offset against gains. The current CGT rate is 33% (but could change).
3. Portfolio Performance Assessment
* Poor Returns: The author bluntly states the investor’s portfolio performance is “miserable.”
* Limited growth: A gain of 13.6% over seven years (from €22,000 to €25,000) is considered very low.
In essence, the article highlights a frustrating situation for investors in Ireland, particularly those using funds. The tax system is seen as a barrier to investment, and while the investor’s current direct share holdings aren’t immediately affected by the worst of the tax issues, their portfolio isn’t performing well.