A friend asked me the other day about the tax implications on mutual fund investments which prompted to look into it. It seems that the tax treatment of funds is 33% on any gains with no exemption and losses cannot be used to offset gains. The confusion I now have is around the 8 year rule. As an example, my friend has been making regular payments into a couple of funds for the past 6 years or so, and so far has not sold any. When it comes to the end of the 8th year he would have to declare gains at that stage. Does he only declare gains he made on investments in the first year or on the entire investment in that particular fund over the full 8 years?
While losses in other funds cannot be used to reduce the tax liability I assume that if some of the fund contributions are up and some down, it could possibly make sense to sell out of a fund entirely to reduce a tax liability. Here an example: in year one 12 monthly investments of €100 were made that are on average up 50%; in year two the same monthly investments were made in the same fund but these are down an average of 10%. I'm now at year 8 and need to declare profit on year one which is €600. But as I have a €120 loss on my investment from year two, would I not be better off selling the whole lot and declaring a profit of €480?
While losses in other funds cannot be used to reduce the tax liability I assume that if some of the fund contributions are up and some down, it could possibly make sense to sell out of a fund entirely to reduce a tax liability. Here an example: in year one 12 monthly investments of €100 were made that are on average up 50%; in year two the same monthly investments were made in the same fund but these are down an average of 10%. I'm now at year 8 and need to declare profit on year one which is €600. But as I have a €120 loss on my investment from year two, would I not be better off selling the whole lot and declaring a profit of €480?