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Tax on "extras"

  • 18-04-2020 12:47pm
    #1
    Registered Users Posts: 447 ✭✭ iAcesHigh


    I am quite new in the world of Irish tax system, and even investing/extra income one, so I hope my questions don't sound silly, but I am still in process of understanding how things work in reality. While thinking how to ask this without sounding too generic, I'll simply lay out three examples and hope there are some good, knowledgeable souls out there who could help.
    1. First, the easy one - Germany and many other countries allow for tax-free investments in Gold (physical) - is that possible in Ireland and where do you apply for Tax deduction/return?
    2. Let's assume I work for a company where I get €3k gross salary and I get a freelance offer to build websites for extra €1k a month (based on work that would be an average). What would be the tax (roughly) for that type of extra income, how do I report it (is there simply a form and they "believe" that amount declared is the full money I got in that time period?) and pay taxes for it? Also, is there any amount up until you don't have to pay tax?
    3. Lastly, let's assume I have Degiro account and want to invest €5k in various ETFs. I presume I have to pay only tax on the gains, but when do I do that - when I withdraw money from the platform to my bank account or whenever I sell any ETF shares within the platform? Also, is there any amount up until you don't have to pay tax on this type of investments?

    Again, sorry for the silly questions and if you have any suggestions on where to read a bit more about things mentioned above or who could I contact for this type of advice (I would be willing to pay consultation fee, of course) do please share...


Comments

  • Registered Users Posts: 3,030 ✭✭✭ Browney7


    To address point three - think carefully on several ETFs for 5 grand. These are treated differently for taxation purposes compared to shares directly. You'd potentially be better served looking at investment trusts.

    All gains on ETFs are not subject to CGT and you pay tax at your marginal rate on all gains realised with no tax free allowance and you also have to pay deemed disposal tax after 8 years of purchasing the ETF so if you are purchasing several ones at different times it gets messy.


  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    I am quite new in the world of Irish tax system, and even investing/extra income one, so I hope my questions don't sound silly, but I am still in process of understanding how things work in reality. While thinking how to ask this without sounding too generic, I'll simply lay out three examples and hope there are some good, knowledgeable souls out there who could help.
    1. First, the easy one - Germany and many other countries allow for tax-free investments in Gold (physical) - is that possible in Ireland and where do you apply for Tax deduction/return?
    2. Let's assume I work for a company where I get €3k gross salary and I get a freelance offer to build websites for extra €1k a month (based on work that would be an average). What would be the tax (roughly) for that type of extra income, how do I report it (is there simply a form and they "believe" that amount declared is the full money I got in that time period?) and pay taxes for it? Also, is there any amount up until you don't have to pay tax?
    3. Lastly, let's assume I have Degiro account and want to invest €5k in various ETFs. I presume I have to pay only tax on the gains, but when do I do that - when I withdraw money from the platform to my bank account or whenever I sell any ETF shares within the platform? Also, is there any amount up until you don't have to pay tax on this type of investments?

    Again, sorry for the silly questions and if you have any suggestions on where to read a bit more about things mentioned above or who could I contact for this type of advice (I would be willing to pay consultation fee, of course) do please share...

    Hi, tax can be fairly complex so no harm seeking a detailed response from an accountant / tax advisor. In summary,

    1. There are no tax deductions for gold and the likes. The closest scheme in Ireland is the EIIS. At a high level, you invest in certain specified companies and you get Income Tax relief on your investment. Google EIIS and you'll see specific companies who act as a "link" between investors and businesses.

    2. Your income from the company is taxed via PAYE, so no need to worry about that. If you're making circa €1k a month in side income, you will need to complete a form 11 each year declaring the income. You're going to be taxed at the higher rate of tax (40%) + USC / PRSI on this income as your yearly income is greater than €35,300.

    Preliminary tax will also need to be paid which is basically doubling your first years tax bill.

    Revenue will look at all your income as one, so you will be paying tax on pretty much any material side income, unfortunately.

    3. ETF taxation is annoyingly complicated in Ireland. Again, at a very high level:
    a. EU Based ETF - 41% tax on gains & divi's, no USC or PRSI. Form 11 reporting required on acquisition. If held for 8 years it's as if you sold it and taxed as such.
    b. US domiciled ETF :Revenue concession makes this a bit easier : CGT on gains and Income Tax on divi's.
    c. Other Based ETF : Depends on a variety of factors.

    Keep detailed records of ETF sales and purchases.

    Hope the above helps,

    My-Tax Ireland


  • Registered Users Posts: 3,054 ✭✭✭ Static M.e.


    1. There are no tax deductions for gold and the likes. The closest scheme in Ireland is the EIIS. At a high level, you invest in certain specified companies and you get Income Tax relief on your investment. Google EIIS and you'll see specific companies who act as a "link" between investors and businesses.
    b. US domiciled ETF :Revenue concession makes this a bit easier : CGT on gains and Income Tax on divi's.

    My-Tax Ireland

    Hi My-Tax Ireland,

    Do you think the EIIS schemes are worth it for a high tax payer?

    It is difficult to access US - ETFs without going through a broker. who wil charge you a percentage. Another thing to consider is the Distributing versus Accumulating ETFs - Acc EFTs are easier to manage becuase of the deemed disposal rule.

    This is a great article worth reading
    https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331


  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    Hi My-Tax Ireland,

    Do you think the EIIS schemes are worth it for a high tax payer?

    It is difficult to access US - ETFs without going through a broker. who wil charge you a percentage. Another thing to consider is the Distributing versus Accumulating ETFs - Acc EFTs are easier to manage becuase of the deemed disposal rule.

    This is a great article worth reading
    https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

    Hi Static .M.e,

    From a tax point of view they are fantastic if you are high earner with free cash. It's one of the few remaining tax breaks for individuals. That said, would look at pension maximisation before this.

    From an investment perspective, they are naturally a high risk medium to long term investment, with no early exit mechanism. I don't know the average return the likes of Davy achieves on these to be honest. They've only been around for a relatively short period so I wouldn't even place much faith in hisorical returns.

    Thanks,
    My-Tax


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    @Static M.e. - thx for the info and super helpful article!!! I made few very basic calculations, probably quite inaccurate to be fair, and I would still think it's a bit more profitable to invest in ETFs with lower fees although that does bring quite a bit of paperwork (a bit weird as ETFs represent "simple" way for public to invest/save hence one would assume Gov should encourage it?)

    @MyTax Ireland - really appreciate your insight. Following advice from the two of you here are my notes/further questions of sorts:
    1. Fair enough, investing in Gold seems to be simply taxed with usual 33% then (if you're not going somewhere and buying it on the spot). Buying ETF that holds physical Gold means that one simply follows rules under no 3.... EIIS scheme - will need to invest more time to understand this one...
    2. This seems simple enough as well. The important bit for me is info that this income is simply "added" to your regular one hence taxed at 40% + I only care about that come end of the year (and first year you "double pay" which you probably get back as a deduction on the next year?)
    3. Annoyingly a lot of paperwork, but doesn't seem that complicated other than the fact you need to make sure to track when and how much you buy/sell. Few, probably silly, practical follow-up questions:
      • a) According to Revenue website EU based ETFs are actually taxed at 33% starting 2020 or am I reading that wrong?
      • b) US domiciled ETF - if above statement is correct gains have same 33% tax but div's are taxed as income+PRSI+USC which will be more especially if we add €>$ conversions needed to buy those ETFs...
    4. Form 11 reporting required on acquisition. If held for 8 years it's as if you sold it and taxed as such.
      • a) Let's assume that I pay the tax after 8 years - I presume that if I actually sell my ETFs after 10 years I will still need to pay tax difference between "starting" price that I used when calculating tax on year 8 and any gains when selling 2 years later? (or they don't care about it after 8 years in which case it would make all the sense to keep ETFs with you as long as possible)?
      • b) So if I buy ETFs today how long would I have to declare them through Form 11?
      • c) Also, once selling them I would need to simply fill another Form 11 and pay the tax on the gain between the two?
      • d) Example: I buy 10 shares of certain ETF today, then further 20 in 3 months just to decide to sell all 30 only 6 months later. If I got it correctly, I would fill Form 11 when I buy my first 10 shares, another when I bought another 20 shares 3 months later and then last, third one 6 months later where I would state I sold everything reported in the first 2 Form 11s?


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  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    @Static M.e. - thx for the info and super helpful article!!! I made few very basic calculations, probably quite inaccurate to be fair, and I would still think it's a bit more profitable to invest in ETFs with lower fees although that does bring quite a bit of paperwork (a bit weird as ETFs represent "simple" way for public to invest/save hence one would assume Gov should encourage it?)

    @MyTax Ireland - really appreciate your insight. Following advice from the two of you here are my notes/further questions of sorts:
    1. Fair enough, investing in Gold seems to be simply taxed with usual 33% then (if you're not going somewhere and buying it on the spot). Buying ETF that holds physical Gold means that one simply follows rules under no 3.... EIIS scheme - will need to invest more time to understand this one...
    2. This seems simple enough as well. The important bit for me is info that this income is simply "added" to your regular one hence taxed at 40% + I only care about that come end of the year (and first year you "double pay" which you probably get back as a deduction on the next year?)
    3. Annoyingly a lot of paperwork, but doesn't seem that complicated other than the fact you need to make sure to track when and how much you buy/sell. Few, probably silly, practical follow-up questions:
      • a) According to Revenue website EU based ETFs are actually taxed at 33% starting 2020 or am I reading that wrong?
      • b) US domiciled ETF - if above statement is correct gains have same 33% tax but div's are taxed as income+PRSI+USC which will be more especially if we add €>$ conversions needed to buy those ETFs...
      • a) Let's assume that I pay the tax after 8 years - I presume that if I actually sell my ETFs after 10 years I will still need to pay tax difference between "starting" price that I used when calculating tax on year 8 and any gains when selling 2 years later? (or they don't care about it after 8 years in which case it would make all the sense to keep ETFs with you as long as possible)?
      • b) So if I buy ETFs today how long would I have to declare them through Form 11?
      • c) Also, once selling them I would need to simply fill another Form 11 and pay the tax on the gain between the two?
      • d) Example: I buy 10 shares of certain ETF today, then further 20 in 3 months just to decide to sell all 30 only 6 months later. If I got it correctly, I would fill Form 11 when I buy my first 10 shares, another when I bought another 20 shares 3 months later and then last, third one 6 months later where I would state I sold everything reported in the first 2 Form 11s?

    No problem,

    2. Your 2019 tax is due by 31 Oct this year. Your preliminary tax comes off your following tax year bill, but you will then have to pay prelim tax for 2021..and so on (until retirement or death..)

    3. You look to be looking at rates in relation to DIRT. That's a different taxation regime to ETF / Funds etc.

    4a. If sold after ten years, you'll pay tax on your full gain. You will be given a credit for tax already paid after year 8.

    4b. If bought in 2020, you would include in your Form 11 that is completed in 2021 (prior to 31 Oct 2021) for 2020.

    4c. Once sold, you include in that years Form 11 and pay tax as required.

    4d. It's one Form 11 per year that captures all transactions in that year (buying and selling). Doesn't really matter how many transactions. Keep some good records though!


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    No problem,

    2. Your 2019 tax is due by 31 Oct this year. Your preliminary tax comes off your following tax year bill, but you will then have to pay prelim tax for 2021..and so on (until retirement or death..)

    3. You look to be looking at rates in relation to DIRT. That's a different taxation regime to ETF / Funds etc.

    4a. If sold after ten years, you'll pay tax on your full gain. You will be given a credit for tax already paid after year 8.

    4b. If bought in 2020, you would include in your Form 11 that is completed in 2021 (prior to 31 Oct 2021) for 2020.

    4c. Once sold, you include in that years Form 11 and pay tax as required.

    4d. It's one Form 11 per year that captures all transactions in that year (buying and selling). Doesn't really matter how many transactions. Keep some good records though!

    2. aaaaaaaah, so I simply report it with next tax return form where I input not just the extra income, but also all ETFs bought/sold.... grand! To be fair, I don't understand why we need to report ETFs when bough while that's not needed for funds - should the approach be the same?

    3. would you have any revenue links with these lined-up as I can't find them :(

    4. (a, b, c, d) Ok, got it. I presume it's also first in, first out system. Let's say that in 2019 I first buy 10 shares of ETF for €20 and then later in the year extra 20 for €30. These go in Form 11 that I report in 2020. In 2020 I decide to sell 15 of my 30 shares for €40. In the Form 11 that I'll report in 2021 I would calculate my gain as €40-€20 for the first 10 of 15 shares sold and then €40-€30 for the remaining 5 for total gain of €250


  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    2. aaaaaaaah, so I simply report it with next tax return form where I input not just the extra income, but also all ETFs bought/sold.... grand! To be fair, I don't understand why we need to report ETFs when bough while that's not needed for funds - should the approach be the same?

    3. would you have any revenue links with these lined-up as I can't find them :(

    4. (a, b, c, d) Ok, got it. I presume it's also first in, first out system. Let's say that in 2019 I first buy 10 shares of ETF for €20 and then later in the year extra 20 for €30. These go in Form 11 that I report in 2020. In 2020 I decide to sell 15 of my 30 shares for €40. In the Form 11 that I'll report in 2021 I would calculate my gain as €40-€20 for the first 10 of 15 shares sold and then €40-€30 for the remaining 5 for total gain of €250

    Will shoot you a PM with the link, not allowed to put one up here just yet,

    Thanks,


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    Great, thanks for that one. I think I'm getting there slowly :)

    Looking at ETFs that I'm actually interested in, all are UCITS meaning "simple" 41% tax on both gains and income which makes it a bit more expensive then I would have liked, but simple paperwork-wise.

    As always, I do have a follow-up question - when Tax and Duty manual states "EU domiciled ETFs" that in essence means on which exchange any given ETF is traded on, right? So, for example if I bought "S&P 500" ETF from "Euronext Amsterdam" that would be considered "EU domiciled ETFs", but if I bought it from NYSE that would be "ETFs domiciled in the USA"?

    And let me just thank you all for your extensive help, I'll for sure have a lot more questions down the line, but I'm nevertheless already very thankful for showing me this investment world in Ireland isn't science fiction (although not as straightforward as it probably could be)


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    iAcesHigh wrote: »
    As always, I do have a follow-up question - when Tax and Duty manual states "EU domiciled ETFs" that in essence means on which exchange any given ETF is traded on, right? So, for example if I bought "S&P 500" ETF from "Euronext Amsterdam" that would be considered "EU domiciled ETFs", but if I bought it from NYSE that would be "ETFs domiciled in the USA"?

    In addition to above question I had another one I forgot to write down:

    If I have encountered loss in Share "A" and ETF "B" can I use those against tax relief for any other share/ETF gain or I can only use loss in Share "A" against tax relief for tax on other shares, and loss in ETF "B" as tax relief for tax on other ETFs?


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  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    Great, thanks for that one. I think I'm getting there slowly :)

    Looking at ETFs that I'm actually interested in, all are UCITS meaning "simple" 41% tax on both gains and income which makes it a bit more expensive then I would have liked, but simple paperwork-wise.

    As always, I do have a follow-up question - when Tax and Duty manual states "EU domiciled ETFs" that in essence means on which exchange any given ETF is traded on, right? So, for example if I bought "S&P 500" ETF from "Euronext Amsterdam" that would be considered "EU domiciled ETFs", but if I bought it from NYSE that would be "ETFs domiciled in the USA"?

    And let me just thank you all for your extensive help, I'll for sure have a lot more questions down the line, but I'm nevertheless already very thankful for showing me this investment world in Ireland isn't science fiction (although not as straightforward as it probably could be)

    Sorry, just getting back to you now. A busy day or two.

    Yes, generally thats right. No harm going to the ETF's listing - it will tell you on its prospective or Factsheet where it is Domiciled.

    Example below of iShares Core S&P 500

    https://www.ishares.com/uk/individual/en/products/253743/ishares-sp-500-b-ucits-etf-acc-fund?switchLocale=y&siteEntryPassthrough=true


  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    In addition to above question I had another one I forgot to write down:

    If I have encountered loss in Share "A" and ETF "B" can I use those against tax relief for any other share/ETF gain or I can only use loss in Share "A" against tax relief for tax on other shares, and loss in ETF "B" as tax relief for tax on other ETFs?

    To summarise;`

    - You cannot use losses on shares to shelter gains on Irish or EU Domiciled ETF's as different tax regime, and vice versa.

    - You can use losses on shares against US, EEA & OECD domiciled ETF's as they flow through CGT regime (and you get an annual exempltion of €1,270 against gains)

    - EU ETF loss on EU ETF Gain : Complicated area ; Revenue treat as investment in "good offshore fund", so do not allow loss relief (S747E). This is open for a technical challenge, but has not taken place as of yet.

    Hope that helps,


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    So to summarize:
    1. US/EEA ETFs are tax-wise better as it's 33% vs 41% against EU ETFs (in most cases, even after €>$ conversion as in normal circumstances you should be loosing less)
    2. You can also deduct losses in EU/EEA ETFs against other share losses and you can use €1270 cushion per year
    3. domiciled in practice is where certain ETF/Stock is traded, but to confirm KIID should be consulted
    4. Gov doesn't care how much money you upload/download from your brokerage account, just about your gains and div's
    5. You pay tax on the exit except with ETFs where you need to also report when you "entered"
    6. It's a first in, first out system - you calculate gain against ETF shares you bought first, not against "average" value of shares you own of that ETF (if bought in different times)
    7. After 8 years ETFs "restart" as theat's when you need to pay tax no matter if you sold any shares or not

      Lastly, if you have accumulated ETF/Share or in other words, ETF/stock that instead of paying out div's simply increases number of shares in that ETF/stock would you need to report that as new "buy" transaction in ETF world while in stock world you don't need to care until you exit when you calculate gain against buying price at the time you got those "extra" shares?

      Hope I got the above correctly?


  • Registered Users Posts: 2,092 ✭✭✭ Yellow_Fern


    Everyone every talks about about UCITS EU vs US ETFs. Are there not Asian ETFs outside UCITS?


  • Registered Users Posts: 30 ✭✭✭ MyTax Ireland


    iAcesHigh wrote: »
    So to summarize:
    1. US/EEA ETFs are tax-wise better as it's 33% vs 41% against EU ETFs (in most cases, even after €>$ conversion as in normal circumstances you should be loosing less)
    2. You can also deduct losses in EU/EEA ETFs against other share losses and you can use €1270 cushion per year
    3. domiciled in practice is where certain ETF/Stock is traded, but to confirm KIID should be consulted
    4. Gov doesn't care how much money you upload/download from your brokerage account, just about your gains and div's
    5. You pay tax on the exit except with ETFs where you need to also report when you "entered"
    6. It's a first in, first out system - you calculate gain against ETF shares you bought first, not against "average" value of shares you own of that ETF (if bought in different times)
    7. After 8 years ETFs "restart" as theat's when you need to pay tax no matter if you sold any shares or not

      Lastly, if you have accumulated ETF/Share or in other words, ETF/stock that instead of paying out div's simply increases number of shares in that ETF/stock would you need to report that as new "buy" transaction in ETF world while in stock world you don't need to care until you exit when you calculate gain against buying price at the time you got those "extra" shares?

      Hope I got the above correctly?

    Looks spot on except point 2. You can't deduct losses on EU ETF's and get €1,270. You can on US / EEA & OECD ones.

    Managed to dig out a good article on this a few years ago which might explain it better than me (I'm no writter!). Check it out:

    https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

    Thanks.


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    Looks spot on except point 2. You can't deduct losses on EU ETF's and get €1,270. You can on US / EEA & OECD ones.

    Managed to dig out a good article on this a few years ago which might explain it better than me (I'm no writter!). Check it out:

    https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

    Thanks.

    Great, thx. Yep, somebody already posted that article, great one. And don't kid yourself, you explain things quite nicely. What about the last bit in my last post:
    Lastly, if you have accumulated ETF/Share or in other words, ETF/stock that instead of paying out div's simply increases number of shares in that ETF/stock would you need to report that as new "buy" transaction in ETF world while in stock world you don't need to care until you exit when you calculate gain against buying price at the time you got those "extra" shares?


  • Registered Users Posts: 2,513 ✭✭✭ howiya


    iAcesHigh wrote: »
    Great, thx. Yep, somebody already posted that article, great one. And don't kid yourself, you explain things quite nicely. What about the last bit in my last post:

    Would an accumulating ETF not simply have a higher nav rather than creating new shares?


  • Registered Users Posts: 447 ✭✭ iAcesHigh


    howiya wrote: »
    Would an accumulating ETF not simply have a higher nav rather than creating new shares?

    Higher nav? Still trying to understand tax implication and if it's better (financially or paperwork-wise) to have each or the other

    EDIT: thinking about it, I presume when you get new shares through ACC scheme you probably just need to "declare" it as if you "bought" some new shares yourself which is easier then having Dist one where 1. you have to pay tax on the "income" and then reinvest it hence "declare" new shares
    Looks spot on except point 2. You can't deduct losses on EU ETF's and get €1,270. You can on US / EEA & OECD ones.

    Managed to dig out a good article on this a few years ago which might explain it better than me (I'm no writter!). Check it out:

    https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

    Thanks.

    Actually no 3 was incorrect as well - after checking justetf.com I found out that domicile country is country where ETF "owner" registered the fund, no matter which exchange it is being traded on (most funds traded on EU that I bought it's actually Ireland)


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