ETF - 8 year rule + CGT query

L

laila

Registered User
Messages
90
Have read all posts re ETF and eight year rule but am still uncertain that I understand it. Ronaldo's post of 29/6/07 seems to be concise but the subsequent posts on this thread challenges the scenario put forward and unless I am missing it (sorry if I am) the eight year rule is not clarified.

Have I got this right:
Tax on dividends - relvant tax rate 20-40%
No CGT in first eight years in year nine one would be liable for 23% CGT on gains made in year one and so on. Is the 23% taken at source or do I declare it?
If I dispose of ETF in year 10 to I have to pay exit CGT for years 3-8?

Another ETF v direct share query - I read somewhere in this forum that one of the advantages of direct share ownership over ETF is no CGT payable by the person inheriting the shares - would this not depend on the inheritance threshold or is CGT on ETF's liable irrespective of threshold?

Thanks for your consideration.
 
I think there is some confusion re: the 8 year rule. As far as I understand, there is a deemed disposal every 8 years - i.e. you pay your CGT on your total gain over the 8 year period. e.g. if you invest 10,000 euro and your investment is worth 20,000 euro after 8 years you must pay 2,300 euro in CGT. This may force you to dispose of a portion of your holding to pay the liability.

The suggestion that you have to pay for year 1 in year 9, year 2 in year 10 etc. seems, quite frankly, ridiculous. I have not checked this with the Revenue Commissioners but they (generally) try to avoid adding to complexity of tax returns.
 
The 23% is not CGT by the way, it is an exit tax. My understanding is after year 8, you pay 23% on any gain. Then after year 16% you pay 23% on any gain etc. If for example, you want to encash your ETF after 10 years, you calculate the tax liability as normal (i.e. 23% of the total gain) and you get credit for the tax you have already paid.

So for example, after year 8 you pay €1,000 in tax. You encash your ETF after 10 years; the value of your holding increased by €10,000 over the ten years so €2,300 is due in tax. You have already paid €1,000 however, so only an additional €1,300 is due.

I coulld be wrong though.
 
Thanks for replies.

If
i.e. you pay your CGT on your total gain over the 8 year period. e.g. if you invest 10,000 euro and your investment is worth 20,000 euro after 8 years you must pay 2,300 euro in CGT.

Would this mean that I would have no further liability for tax on the portion that I had paid the 8 year disposal rate on?

If the above is the case how will this rule be administered. Will it be up to me to delare at the end of eight years or will it be taken at source? I plan on keeping the ETF in Crest. Thanks again
 
You must log in or register to reply here.
Back
Top