UK ISA vs. Irish equivalent

De_Selbyy

Please can someone explain the differences that arise in the following two cases:

1. A UK resident investing 20k annually in Vanguard ETFs (ISA plan).

2. An Irish resident attempting to do the same, by investing 20k in Vanguard ETFs through irish domicile such as Degiro.

I assume that you will get taxed more over here, but how will this affect compound interest over, say, ten years? Can someone give me a simple example of the two scenareos over ten years?

Thanks in advance to anyone that replies, I'm very new to all of this!

TG860

Well the UK calculation is pretty straightforward, there is no tax charged on investment gains/dividends on shares invested in an ISA. So it goes without saying that this is the best option to go for if it's available to you.

An Irish domiciled ETF is subject to exit tax at 41%.
So your investments will compound free of tax until you exit the investment. After 7 years you have to pay the notional tax on your investment, which is called deemed disposal. You get a credit for this tax paid when you exit the investment. I am assuming you have liquid cash to pay that tax without liquidating part of your investments.

Assuming a 5% annual investment return, £20,000 invested annually over ten years would become £264,136.
Under a UK ISA, you can exit this investment and pocket the full amount tax free.
Under Irish rules, you would pay 41% tax on your gain of £64,136, which is £26,296. This means you pocket £237,840.

So on a basic level, you're approx. 41% worse off being an Irish investor compared to a UK investor with an ISA.

De_Selbyy

Thanks so much, this is exactly the response I was looking for.

'Exit tax' is a term I was unfamiliar with, it makes sense now.

I actually have a UK national insurance number and bank account from going to collage over there, so hopefully I can invest from there.

Any advice on investing money over the 20k ISA limit? Can I add that to the total investment and just pay exit tax on the additional?

..or maybe you may as well start an Irish degiro for any extra investments..?

TG860

No problem.
You need to be UK resident to open and use a UK ISA. Having a bank account and National insurance number would not be sufficient to meet the requirements. (https://www.gov.uk/individual-savings-accounts)

Taylor365

Move to NI, then you can use your ISA