Legally avoiding tax on selling all holdings in an index fund

neiliog93

Is my understanding correct that one could legally pay zero exit tax by living in a tax haven (e.g Isle of Man) for 3 consecutive years before selling their holdings in a typical S&P 500 index fund? In that case, if you had accumulated a large holding in your 60s (say, €1 million +), could you not retire, move to a tax haven for 3 years and live frugally/live off savings and other investments, and then sell from the index fund and pay zero in exit tax?

AlexisM

Purely from a tax/legality point of view, this should be possible.  You would need to be out for 3 full tax years, sell your holdings in the 4th year - and stay out as long in the 4th year as required to not become resident again in that 4th year.
It would be quite a sacrifice to make at that stage of your life though - unless you actually like the idea of living (alone-ish) on a wind-swept island in the middle of the Irish sea.  You would be leaving family, friends and social life behind for the guts of 4 years in your 60s - you'd have to wonder whether it would be a decision you'd be happy about on your deathbed...
Other issues: you would be rejoining the Irish health insurance system when you came back so you'll have waiting periods/pre-existing conditions issues (you could take out VHI International cover but that's age-related so expensive in your 60s).  If you haven't accrued a full Irish contributory pension, retiring early and moving abroad will remove your possibility of adding to your entitlement.

neiliog93

Yes, I suppose if you chose a nicer/warmer tax haven destination than the Isle of Man, and viewed the 4 years as a post-retirement extended holiday of sorts, and also had reasonable other means to live off (or potentially better than reasonable), it would potentially be worth doing to save hundreds of thousands of euro in exit tax @41%;.

audi5

AlexisM wrote: »

Purely from a tax/legality point of view, this should be possible.  You would need to be out for 3 full tax years, sell your holdings in the 4th year - and stay out as long in the 4th year as required to not become resident again in that 4th year.
It would be quite a sacrifice to make at that stage of your life though - unless you actually like the idea of living (alone-ish) on a wind-swept island in the middle of the Irish sea.  You would be leaving family, friends and social life behind for the guts of 4 years in your 60s - you'd have to wonder whether it would be a decision you'd be happy about on your deathbed...
Other issues: you would be rejoining the Irish health insurance system when you came back so you'll have waiting periods/pre-existing conditions issues (you could take out VHI International cover but that's age-related so expensive in your 60s).  If you haven't accrued a full Irish contributory pension, retiring early and moving abroad will remove your possibility of adding to your entitlement.

Thats interesting. Anyone know the implications of doing this by moving to say Newry for three years, becoming UK resident, then selling your investments in fourth year and paying a CGT rate of just 10% if you are basic rate tax payer in UK?

nxbyveromdwjpg

It would work and you should go for it.