ETFs taxation in ireland

cnocbui

https://www.boards.ie/discussion/comment/121293815#Comment_121293815

Do you mean does Revenue have the balls to try and shag an investment company the way it does individual investors? My bet is that they don't, and that a company can invest in and own ETF's no differently than individual shares and would pay normal CGT on disposal and normal company tax rates on dividend income from them, less costs.

I have come to the conclusion that Revenue have a policy of preventing individuals from benefiting from investment. They want you to spend all that you earn. They rendered interest from savings irrelevant with DIRT and persisted with this inexplicable tax even when bank accounts essentially stopped paying any interest.

This attitude to ETF taxation is yet another incredibly heavy handed way of preventing Irish individual investors from doing things which are perfectly normal throughout the OECD.

Take Australia as an example. Any interest you earn on a bank account is treated as income and you just pay tax on it at your marginal rate. ETF's are treated the same as shares. You pay CGT on disposal and any dividend income is taxed at your marginal rate.

For shares and ETF's there is even a significant fair-mindedness sweetener of franking. Australia does not consider double taxation to be fair, so if a company pays tax on it's profit and then distributes some of that profit to shareholders as a dividend, those shareholders do not then have to pay tax on those dividends. This is a mechanism that is a great incentive for investment in the share market.

Revenue don't want individuals profiting by investment and have come up with a range of taxation measures unique to Ireland to ensure they can't.

PietroM

Hi guys, I have more questions on ETF investing in Ireland and taxation if you don't mind.

As an example, Imagine an investment of 100K on an ETF:

1. At year 8 I register a gain of 10K, I pay 4.1K tax on unrealized gain.
   1. At year 9 the ETF falls at 90K and I am forced to sell. Can I ask the reimbursement of the 4.1K paid?
   2. Would anyone know how much I need to sell if I decide to pay the 4.1K taking money directly from the ETF? Do I pay taxes on the money I am taking to pay taxes? How would that work?
2. At year 8 I register a loss of 50K, I pay no taxes on the unrealized gain.
   1. At year 9 ETF raises again at 100K and I am forced to sell. Will Revenue consider this as a gain of 50K since year 8 or no gain considering the original investment?
3. Did anyone make simulations of the real impact of deemed disposal rule on ETF investing? I suspect the ETF must generate very high yield (i.e. very high risk) to provide reasonable returns (considering hyperinflation)
4. I understand losses on one ETF cannot be used to offsets gains in stocks, but what about other ETF?
5. At year 6 I decide to leave Ireland permanently for another European country. Do I need to pay any tax in Ireland before leaving? Am I forced to sell my positions? If this happens at year 10, the other European country will ask me Capital gain on the total gain, will I be able to deduct the taxes I already paid in Ireland at year 8 (assuming double taxation agreement) or ask Revenue for reimbursement?

Frankly it is inconceivable that citizens are forced to either buy an overvalued house or invest all in ridiculous actively managed pension funds.

No other country I lived in has this insane punishing blinded taxation regime :(

Shedite27

https://www.boards.ie/discussion/comment/121310737#Comment_121310737

Wouldn't "bank interest taxed at marginal rate" (40%) be worse than Irish DIRT (33%)?

cnocbui

https://www.boards.ie/discussion/comment/121318577#Comment_121318577

They have reduced it since interest rates went to 0%. Back when bank accounts actually paid interest, it was more like 41%. I recall paying DIRT that was at 41%, which was higher than my marginal rate at the time. Since in my case the source of the interest was foreign, the lovely little gnomes then went and lumped that interest in with taxable income and so then charged PRSI and USC on top, despite the rationale of the Irish DIRT being so high because it essentially incorporated those. Double taxation, FTW.

cnocbui

https://www.boards.ie/discussion/comment/121315953#Comment_121315953

Complicated, isn't it? Suffice it to assume it's not worth investing in ETFs if you are tax resident in this country. You would be far better off to mirror an ETF and buy the individual shares it comprises in the same ratio, and regularly check back with the ETF provider to re-check the holdings so as to then mirror any changes to the holdings with appropriate buys or disposals.

You will love this: If you acquire assets while in Ireland and then leave the country and then sell those assets within 3 years of departure, you are 'supposed' to then pay CGT on any gain to Revenue.

Of course this is unenforceable unless you return to Ireland and you are not subject to Irish law once you are in and subject to another legal jurisdiction.

KingPanko

https://www.boards.ie/discussion/comment/121320469#Comment_121320469

On picking stocks to mirror ETF rather than the actual ETF, that is an option and that is what the tax rules drives you towards. But you need to factor in the extra transaction costs, the hassle, the fact that will have to do some stock picking which most people are shite at (as many ETFs contain 1000s of stocks while to keep transaction costs down you will probably buy 20-25 stocks at most)

KingPanko

https://www.boards.ie/discussion/comment/121315953#Comment_121315953

1.a. No

1.b. You would have to sell €4.1k worth of the investment to pay the tax, tax is the same if you dispose of it or it is a deemed disposal so no issue there.

2.a. No tax due. However if you sold year 9 for 110k there would be 41% of the 10k profit in tax. Deemed disposal is bringing forward the tax on capital gains rather than resetting the clock. Main disadvantage is is that it screws with long term compounding.

3 . People have, one is an Irish financial youtuber you could look up called Malone Financial. He didn't do a great job with it as he assumes the tax is paid from your bank account rather from selling some of your investment. Still worth watching.

Not sure what your point is with hyperinflation, we have had high inflation the last couple of years but this is not hyperinflation or anything close to it, read up on Zimbabwe inflation in early 2000s or Germany 1920s. Diversified stock market investment is the easiest and best passive long term protection against inflation, it wont beat inflation every year but it has over the long term for those that held their nerve through the ups and downs. High tax and deemed disposal does not change this but it does make it harder.

4 . No offsetting.

5 . I don't know

tesla_newbie

I own two reasonably well diversified investment trusts ( JP Morgan American investment Trust and Allianz Technology Fund ) , they may not perfectly match market gains but the avoidance of draconian tax treatment makes them the clear winner over ETF,s

cnocbui

https://www.boards.ie/discussion/comment/121322994#Comment_121322994

You are not doing any stock picking, the manager of the ETF is doing that, you are just copying their decisions.

ETFs are not free, you pay a small % as a management fee to the ETF provider. Not paying this fee would offset your transaction costs to some extent.

Oh yes, it would be a hassle, but the deemed disposal highway robbery might be a significant enough incentive for some.

KingPanko

https://www.boards.ie/discussion/comment/121327915#Comment_121327915

Which ETFs do you copy? How many stocks do you think one needs to own to have a globally diversified portfolio?

In my opinion the annual management cost of owning an ETF is not an issue, an ETF that owns 1000s of global stocks can cost less than 0.1% p.a. Totally agree that 41% of deemed disposal is huge.

Brian CivilEng

https://www.boards.ie/discussion/comment/121323051#Comment_121323051

Can you possibly clarify a couple of things? I see them repeated a lot, and I'm not sure I fully understand.

Are you forced to sell a portion of your ETF to pay the deemed disposal tax? On here and Reddit people keep correcting those who don't take this into account. Can you not cover the tax bill from other sources? I'm still in the early stages of investing, but my process is that I invest a certain amount per month, as tax bills arise I intend to pay out of the funds I would otherwise be using to invest.

Also, if I am paying taxes on deemed disposal in 2023, is it only on shares purchased in 2015 (and/or 2007 if any)? As I understand it, it's not on my total investment rolled up. So if I have 100 shares in an ETF, 10 of which I purchased in 2015, I look at the cost I paid for those 10 and compare it to the price today when calculating deemed disposal. The other 90 don't come into the calculation for 2023. In 2024 I look at shares bought in 2016, in 2025 those bought in 2017 etc. If this is not correct, and the bill owed in 2023 is for everything purchased 2015 to 2023 then I need to rethink my strategy.

I'd appreciate corrections if I have misunderstood.

KingPanko

https://www.boards.ie/discussion/comment/121328255#Comment_121328255

Your understanding is correct. You are not forced to sell for the deemed disposal, you can pay the tax from whatever source e.g. from your bank account. It is self declared so you work out what you owe and pay it however you wish. In the long term it is the same result on your net worth, the money you take from your cash to pay the tax instead of investing has an opportunity cost of what it would have earned in investment returns.

Your understanding is also correct with how the timing works, in 2023 deemed disposal is looking at investments bought in 2015 (and / or 2007) compared to their value in 2023 and in 2024 it is looking at investments bought in 2016 etc

Brian CivilEng

Very much appreciated. As someone who works in a discipline that requires a detailed understanding of mathematics, I have gotten myself into trouble in the past by assuming that I can understand a completely separate discipline also related to mathematics.

cnocbui

Name the western democracy where this headline is least likely to have come from:

Gen X overtake Millennials as the biggest buyers of ETFs

gendrol75

I invest in ETFs (US, Irish and otherwise) via my pension, and would not consider investing outside of said pension due to the expense and complication. If you do have a pension available with a provider that lets you buy stocks and ETFs, and not just actively managed funds, I'd go this route. Tax-free contributions and tax-free growth, and no admin to worry about until retirement.

kennedmc

https://www.boards.ie/discussion/comment/121511262#Comment_121511262

Thanks - interesting. My Irish pension provider does not let me do this. Who do you use?

Supercell

I do this also through a Davy PRSA account. EQQQ and VUSA and done, it's so unfair on retail investors here that we are effectively punished for investing the safest way possible via ETF's (outside of a PRSA account).

ingeneer

The department of finance released a progress update on the review of the funds sector (including ETF taxation etc.) Link below and some quotes. Sounds like they know the issues with the current system - hopefully they can action some changes quickly :)

https://www.gov.ie/en/publication/22430-funds-sector-2030-a-framework-for-open-resilient-developing-markets-progress-update-responses-to-the-public-consultation/

"Many respondents also highlighted concerns that investment decisions by Irish investors are largely driven by tax considerationsrather than the individual needs of the investor. Others offered the view that the complexity of the taxation of investment income and gains in Ireland is likely to make compliance a significant challenge for retail investors"

"The submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. These views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds. In this context, many respondents noted that the Funds Review is taking place against the backdrop of the European Commission’s ‘Capital Markets Union’ (CMU) initiative and the ‘Retail Investment Strategy’. The Review Team is cognisant of the need to align domestic policy to support EU initiatives such as CMU and the RIS."

techman1

Interesting that the central bank itself would draw attention to the disconnect between ireland has a home for all these ETFs and then the taxation policy that discourages its own citizens from investing in those very ETFs. Are they really worried that this disconnect draws more attention to the narrative that Ireland is a tax haven but only if you are a huge fund or MNC but not if you are a little guy investor

antimatterx

Good to see this. I thought we would see more change during Paschal tenure as finance minister, but nothing changed. If McGrath sorts out the taxation on investments here, FF have my vote.

maninasia

Probably more concerned of lack of diversification amongst the general public i.e. too much money in property.

Supercell

https://www.boards.ie/discussion/comment/121577584#Comment_121577584

Good to see that this is getting senior eyes on it.

The line below makes me roll my eyes however...

While there was a consensus from those that responded to our public consultation that the taxation regime presented a significant barrier to retail investment, there was also broad recognition that addressing the tax issues would not, in and of itself, attract new retail investors.

Oh really??!!, that's the number one bloody thing that would in of itself help attract retail investors into ETF's!!! Whoever wrote this has an agenda. They are giving ETF's lip service but they have no intention of changing anything unless forced to, that's my take.

Then they follow up with the following patronising bullcrap, apparently retail is too stupid to understand ETF's without "education" and this is why they are not buying them, on what fcking planet is the author on?

The majority of respondents agreed that financial literacy and education would be fundamental to growing Ireland’s retail investor base, both from an investor protection perspective as well as raising awareness of savings and investment options.

techman1

Any updates on the department of finance review of ETFs taxation?

antimatterx

https://www.boards.ie/discussion/comment/121816197#Comment_121816197

Due in the summer

techman1

https://www.boards.ie/discussion/comment/121579096#Comment_121579096

thanks. I don't understand all the genuflecting to Pascal donoghue, i wouldn't regard him as a very good minister at all, when asked any question he merely repeats the question again and then says something inane at the end like "and that is why this government is in favour of ........" without actually saying anything, When asked about ETF taxation a question that actually came from his FF colleague Jim Callaghan he said incorrectly that the "deemed taxation" was there so that the government could collect taxation on funds where no income tax would otherwise be paid. However this is wrong as the "deemed disposal" also applies to ETfs that pay out dividends for which the government also collects tax every year. Of course none of the innumerate socialists in the dail pulled him up on it

antimatterx

https://www.boards.ie/discussion/comment/121816387#Comment_121816387

He's been a top finance minister. Very safe.

PapaBooje

Is it possible to buy them using single broker? Where are you getting them?

HGVRHKYY

https://www.boards.ie/discussion/comment/121816387#Comment_121816387

Agreed, I hate Paschal. How could FG possibly consider themselves the party for the middle class "people who get up early in the morning", only to have a finance minister who does absolutely nothing in terms of enabling individuals to have more liberty in growing their wealth with things like ETFs, which are commonplace in any other developed country. The government interference on investments in Ireland makes me hate the place, and this is all under FG and FF, parties you'd expect to have more right leaning policies for things like this. Cannot imagine how bad it could be under the even more left leaning idealistic parties.

techman1

The government interference on investments in Ireland makes me hate the place, and this is all under FG and FF, 

FF actually have a better record regarding giving tax breaks to working people than FG, they were the ones that reduced personal taxation and CGT tax rated in the late 90s and 2000s.

It was Jim O Callaghan of FF who asked pascal Donohoe the ETF question in the Dail, so obviously he understands the question. Pascal is just there to keep all the socialists in the government happy, there will always be plenty of money for social welfare, ngo wages and other talking shops. I heard they are going to employ 30 people to convert government jargon into plain English, but sure they probably have many more employed converting government output into US jargon tech speak. Pascal also there to provide cover for seriously incompetent and gaff prone ministers like Helen mcentee

Cookiepus

https://www.boards.ie/discussion/comment/121323755#Comment_121323755

Could you tell me specifically which one is the JP Morgan Investment Trust?

On Degiro search i'm getting 10 different options-all of which a categorized as ETF's not individual stocks.

for example - 'iShares JP Morgan $ EM Bond UCITS ETF USD Dis'

Thanks

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