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taxation on ETFs

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  • 13-08-2017 2:50pm
    #1
    cdlmarie
    Registered Users Posts: 30 ✭


    I apologized, I know that there are many threads on this already but I can't find the answer for my specific question.
    What kind of taxation if I buy a couple of ETF and then add to them every month or 3 months without ever selling them?
    Do I start paying tax on them(41%) in 8 years?
    Will I have file the tax paper every year starting in 8 years?
    Let's say I buy one in september 2017 and then every month after that.
    I'll start paying tax on capital gain and dividend in september 2025 and every year after that?(since I've added every month).
    Is it better to buy US based ETFS as you pay taxes every year, as opposed to every 8 years on more CG?
    It does seem super complicated.
    Should I get an accountant to do that for me?
    thanks
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    #2
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    cdlmarie wrote: »
    What kind of taxation if I buy a couple of ETF and then add to them every month or 3 months without ever selling them?
    Do I start paying tax on them(41%) in 8 years?
    Will I have file the tax paper every year starting in 8 years?
    Assuming you mean UCIT ETFs here, so yes exactly, you will pay deemed "disposal exit tax" after 8 years on all the purchases you made in 2017. You then pay tax on the purchases you made in 2018 etc. So basically after year 8, you will pay tax every single year. The above is only for capital gains. However, if the ETF is distributing (it pays annual dividend, you must pay tax on this every year).
    cdlmarie wrote: »
    Let's say I buy one in september 2017 and then every month after that. I'll start paying tax on capital gain and dividend in september 2025 and every year after that?(since I've added every month).
    Is it better to buy US based ETFS as you pay taxes every year, as opposed to every 8 years on more CG?
    It does seem super complicated.
    Should I get an accountant to do that for me?
    thanks
    You dont pay capital gains tax on US ETFs every year - you pay tax on the dividend, the same as with distributing UCIT ETFs. I think you are confusing dividend tax with capital gains. All US ETFs (by law) must pay a dividend.

    cdlmarie wrote: »
    It does seem super complicated.
    Should I get an accountant to do that for me?
    thanks
    It is super complicated. Revenue treats every UCIT purchase individually so you cant off set the purchase from month 1 against the buy from month 10, meaning you could have to pay tax, even if you have actually not made a nett profit. This is why UCIT sucks.

    If you are buying ETFs, I would recommend to avoid UCIT like the plague.


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    #3
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    So for europeean etfs we pay capital tax gain evey year at our tax rate i imagine plus every 8 years 40% on dividends?
    it does not seem advantageous at all.
    Us based etfs seems to be more straight forward! Just dividend tax at my tax rate and prsi and usc?
    Im not a math genius but it looks like the us based ones are cheaper and easier to buy!(if i hold them for ever).


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    #4
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    cdlmarie wrote: »
    So for europeean etfs we pay capital tax gain evey year at our tax rate i imagine plus every 8 years 40% on dividends?
    it does not seem advantageous at all.
    Us based etfs seems to be more straight forward! Just dividend tax at my tax rate and prsi and usc?
    Im not a math genius but it looks like the us based ones are cheaper and easier to buy!(if i hold them for ever).

    No.
    For accumulating UCIT you pay on the 8th anniversary of the purchase date. This would be once every 8 years if you bought a single batch worth E100K. However, if you made a buy every month for a number of years, it becomes much more complex with payments (possibly) every year, after the 8th anniversary.

    For distributing UCITs its the same except you must also pay dividend tax every year.

    For US ETFs you pay dividend tax every year (plus PRSI/USC). You pay CGT when you sell them only. There is no 8 year nonsense.

    There is also the concept of US death tax, if you hold more than 60K in US equities. Canadian ETFs dont have the issue of the death tax. Again askaboutmoney has discussed this to infinitum.


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    #5
    gavmcg92
    Registered Users Posts: 5,316 ✭✭✭gavmcg92


    topper_harley2 wrote: »
    For US ETFs you pay dividend tax every year (plus PRSI/USC). You pay CGT when you sell them only. There is no 8 year nonsense.
    .

    Quick follow up here. For dividends received each year there is not allowable threshold is there? So lets say I made €10 in dividends over the year on a small portfolio. This needs to be reported, correct?

    Also in a similar vein, if I was to sell my US ETF shares and the gain is below my €1,270 exemption, do I still need to report this to revenue or is it when it exceeds the limit that reporting needs to be done?


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    #6
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    1. There is no dividend threshold that I am aware of.
    2. No need report unless profit is over threshold. https://www.irishtimes.com/business/personal-finance/making-a-cgt-return-when-no-tax-is-due-1.2908799


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    #7
    Dardania
    Registered Users Posts: 3,612 ✭✭✭Dardania


    What's your purpose for buying these ETFs? If it's an option ongoing pension effort, from what I can discern, if it's bought within a PRSA account, you should be sheltered from these tax issues (and only pay income tax when you draw income from the pension)


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    #8
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    Dardania wrote: »
    What's your purpose for buying these ETFs? If it's an option ongoing pension effort, from what I can discern, if it's bought within a PRSA account, you should be sheltered from these tax issues (and only pay income tax when you draw income from the pension)

    Hi, it s not inside my pension it s just on degiro. Would you recommand opening a prsa .thing is i dont know when id need the money...i dont want to have to wait until im 60 or more to withdraw


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    #9
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    topper_harley2 wrote: »
    No.
    For accumulating UCIT you pay on the 8th anniversary of the purchase date. This would be once every 8 years if you bought a single batch worth E100K. However, if you made a buy every month for a number of years, it becomes much more complex with payments (possibly) every year, after the 8th anniversary.

    For distributing UCITs its the same except you must also pay dividend tax every year.

    For US ETFs you pay dividend tax every year (plus PRSI/USC). You pay CGT when you sell them only. There is no 8 year nonsense.

    There is also the concept of US death tax, if you hold more than 60K in US equities. Canadian ETFs dont have the issue of the death tax. Again askaboutmoney has discussed this to infinitum.

    Thanks so much !
    Is the rate for dividends 33 or 40%? Im seeing different numbers!


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    #10
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    There is no set rate. Its whatever your marginal tax rate is. Please read:

    https://www.paylesstax.ie/share-dividends/


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    #11
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    cdlmarie wrote: »
    Hi, it s not inside my pension it s just on degiro. Would you recommand opening a prsa .thing is i dont know when id need the money...i dont want to have to wait until im 60 or more to withdraw

    Based on this alone its clear you don't know what you want. I suggest to speak with a financial advisor to assess your needs, and have a read of the following post I made before, which details thing you should be asking before you even concern yourself with ETF taxation issues: http://www.boards.ie/vbulletin/showpost.php?p=102965097&postcount=4


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    #12
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    topper_harley2 wrote: »
    Based on this alone its clear you don't know what you want. I suggest to speak with a financial advisor to assess your needs, and have a read of the following post I made before, which details thing you should be asking before you even concern yourself with ETF taxation issues: http://www.boards.ie/vbulletin/showpost.php?p=102965097&postcount=4


    I know exactly what i want thanks


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    #13
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    topper_harley2 wrote: »
    There is no set rate. Its whatever your marginal tax rate is. Please read:

    https://www.paylesstax.ie/share-dividends/

    Thanks!
    This page gives opposite information though and mentions tax credit or even tax refun...
    I wonder what happens if your salary+ dividends makes you qualified for the next tax bracket!


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    #14
    gavmcg92
    Registered Users Posts: 5,316 ✭✭✭gavmcg92


    cdlmarie wrote: »
    Thanks!
    This page gives opposite information though and mentions tax credit or even tax refun...
    I wonder what happens if your salary+ dividends makes you qualified for the next tax bracket!

    I believe the credit on that page is referring to the dividend withholding tax charged in the US. You declare the full dividend amount to Revenue and they do the deducting as far as I am aware.


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    #15
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    gavmcg92 wrote: »
    I believe the credit on that page is referring to the dividend withholding tax charged in the US. You declare the full dividend amount to Revenue and they do the deducting as far as I am aware.


    Oh so you dont have to pay taxes in the us? Thanks.


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    #16
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    cdlmarie wrote: »
    Oh so you dont have to pay taxes in the us? Thanks.

    Yes you do. This page explains things fairly well.https://www.gillenmarkets.com/featured_articles/tax-issues-for-irish-residents.cfm
    Dividends on US Shares
    There is a 30% with-holding tax on US shares for non-US residents, but if you complete a W8-Ben form for your stockbroker, a lower 15% with-holding tax will apply. Your therefore receive 85% of the dividend. You are assessed on the full 100% and the 15% withheld by the US Revenue is deemed as tax already paid by you in accounting for tax due to the Irish Revenue, and for anyone on a marginal tax rate above 15%, then the balance is due to the Irish Revenue. The 15% US With-holding tax is non-refundable so pension accounts cannot reclaim it.


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    #17
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    topper_harley2 wrote: »
    Yes you do. This page explains things fairly well.https://www.gillenmarkets.com/featured_articles/tax-issues-for-irish-residents.cfm

    So if I fillup that form and that my tax rate is 20% ill only pay 5% and the usc abd prsi?
    Also i think de giro is asking me to confirm my adress so it s possibly the form you mentionned.


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    #18
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    Yes.


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    #19
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    topper_harley2 wrote: »
    Yes.

    thanks!
    one last questions.
    What if i earn so much dividends that my income added to them puts me in the next tax bracket?what happens them? thanks!


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    #20
    topper_harley2
    Registered Users Posts: 537 ✭✭✭topper_harley2


    You're very optimistic....!

    No idea - email revenue for clarification would be my advice.


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    #21
    Cute Hoor
    Registered Users Posts: 1,788 ✭✭✭Cute Hoor


    cdlmarie wrote: »
    What if i earn so much dividends that my income added to them puts me in the next tax bracket?what happens them? thanks!

    Very simple, dividend income is treated the exact same as any other income (salary etc), so if the total of your income puts you into the next tax bracket then you will pay tax at the higher rate on that portion of your income above the lower bracket. If you are doing your returns online (Form 11) then the tax is automatically calculated for you.


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    #22
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    Cute Hoor wrote: »
    Very simple, dividend income is treated the exact same as any other income (salary etc), so if the total of your income puts you into the next tax bracket then you will pay tax at the higher rate on that portion of your income above the lower bracket. If you are doing your returns online (Form 11) then the tax is automatically calculated for you.

    thanks! Im on PAYE but when i start investing and receive dividends ill use the 11 form!


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    #23
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    Is there a calculator where I could enter random numbers to calculate the income tax?


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    #24
    q85dw7osi4lebg
    Closed Accounts Posts: 3,502 ✭✭✭q85dw7osi4lebg


    cdlmarie wrote: »
    Is there a calculator where I could enter random numbers to calculate the income tax?

    http://services.deloitte.ie/tc/

    Include all incomes when calculating.


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    #25
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    thanks but there's no " dividend" category...


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    #26
    gavmcg92
    Registered Users Posts: 5,316 ✭✭✭gavmcg92


    cdlmarie wrote: »
    thanks but there's no " dividend" category...

    Add them in to income. Just take 85% of the expected dividend as Revenue deem the 15% paid to the US as tax already paid.


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    #27
    cdlmarie
    Registered Users Posts: 30 ✭cdlmarie


    gavmcg92 wrote: »
    Add them in to income. Just take 85% of the expected dividend as Revenue deem the 15% paid to the US as tax already paid.

    Im such a moron... thanks


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