# Deemed disposal



## settlement (2 Sep 2017)

Hi all,

The deemed disposal tax every 8 years on UCITS ETFs is, in my opinion, a nightmare.

Has anyone done any maths on how much it would affect returns in the long run, eg over 16 years with 10% return on 100k?

In any case, are people selling their UCITS ETFs before the 8 years to avoid the tax? It's hard to find an appropriate ETF to buy to mimic them given issues with american taxes etc. What are your strategies?


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## Protocol (2 Sep 2017)

If you sell after 6 or 7 years, you pay tax at that point.

Selling early doesn't avoid the tax.

If you never sell, you are deemed to have sold every 8 years, and pay tax then.


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## Protocol (2 Sep 2017)

I have a related question.

With Irish managed funds, the 8 year tax is withheld at source.

So a 100 k fund that grows to 150k after 8 years, will be charged 20 k tax approx. The fund value drops to 130 k, okay.

But do Irish/European ETFs deduct at source?

Or must you declare the return after 8 years?


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## settlement (2 Sep 2017)

Protocol said:


> If you sell after 6 or 7 years, you pay tax at that point.
> 
> Selling early doesn't avoid the tax.
> 
> If you never sell, you are deemed to have sold every 8 years, and pay tax then.



Yes, I am aware of that. My point is that if you sell early you pay tax once, if you sell after 8 years you pay tax twice.

Does anyone know when the 'timer' for the 8 years starts? Eg what about Irish citizens who move abroad and return years later. Does the timer pause, restart, keep going etc.


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## Gordon Gekko (2 Sep 2017)

Protocol said:


> I have a related question.
> 
> With Irish managed funds, the 8 year tax is withheld at source.
> 
> ...



Not all Irish funds deduct the tax.

European ones don't, and how could they? A fund administrator in Frankfurt hasn't a notion about the Byzantine world of Irish taxation.

The Irish system is farcical.


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## settlement (2 Sep 2017)

Gordon Gekko said:


> Not all Irish funds deduct the tax.
> 
> European ones don't, and how could they? A fund administrator in Frankfurt hasn't a notion about the Byzantine world of Irish taxation.
> 
> The Irish system is farcical.



Agreed. How did we come to have such a ridiculous system?


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## Gordon Gekko (2 Sep 2017)

settlement said:


> Agreed. How did we come to have such a ridiculous system?



Because it's akin to an old IT system that has had bit and pieces tacked on to it over the years.

And because the people who make the rules are unfamiliar with how the real world works.


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## settlement (2 Sep 2017)

Gordon Gekko said:


> Because it's akin to an old IT system that has had bit and pieces tacked on to it over the years.
> 
> And because the people who make the rules are unfamiliar with how the real world works.



Sounds like how the HSE is designed


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## joe sod (2 Sep 2017)

settlement said:


> Agreed. How did we come to have such a ridiculous system?



I wonder is it something got to do with the way that ireland is actually the domicile country for alot of these european etf funds. So obviously it is advantageous for these funds for taxation purposes to have ireland as their domicile. The quid pro quo of this strategy is that they shaft irish investors wishing to invest in these funds that are actually domiciled here.


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## Connard (5 Sep 2017)

joe sod said:


> I wonder is it something got to do with the way that ireland is actually the domicile country for alot of these european etf funds. So obviously it is advantageous for these funds for taxation purposes to have ireland as their domicile. The quid pro quo of this strategy is that they shaft irish investors wishing to invest in these funds that are actually domiciled here.



I doubt that is the reason. The exit tax applies to all UCITS ETFs, so it doesn't matter if it's domiciled here or somewhere else in the EU.


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## Steven Barrett (30 Sep 2017)

The reason for deemed disposal is Noonan saw the gross roll up structure of investments and how people would invest for decades without the Revenue getting a penny. He didn't like that. And as only rich people saved, he saw that he could force people to pay tax every 8 years. Afterall, we were in a recession, we'd bailed out the banks and the property developers, so why not raid the coffers of the savers; both investments and pension funds. 

Deemed disposal is deducted automatically if you are invested with an insurance company. They will take the money from your fund and pay it to the Revenue. There is no need for you to make a return. 

If you are invested elsewhere, you have to pay it over in your tax return the following year. The tax does not have to come from your investment, you may pay it as just another tax. Whoever holds you investment will not deduct anything from your fund. But remember, they all have reporting requirements to the Revenue and the Irish Revenue are one of the sharpest around, so they will be expecting a payment and if they don't get it, expect them to start asking where the money is. 

Steven 
www.bluewaterfp.ie


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## mtk (2 Oct 2017)

Related question on detail of deemed disposal dates.
Is it  8 years from date purchased or date the deemed disposal rules were introduced 1/1/2007 (?)?

or 8 years since date of residency in ireland if bought earlier ?


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## Steven Barrett (2 Oct 2017)

8 years since the date the investment was made


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## ashambles (2 Oct 2017)

SBarrett said:


> The reason for deemed disposal is Noonan saw the gross roll up structure of investments and how people would invest for decades without the Revenue getting a penny. He didn't like that. And as only rich people saved, he saw that he could force people to pay tax every 8 years.


Are you sure I thought he was in opposition at the time?

I'd be inclined to blame the civil service in this case though as Revenue never seem happy with regular members of the public investing in the stock market, an easy attitude to have if neither saving or investing is needed personally due to having an unfunded guaranteed pension on the way. For example the chances of revenue copying ISA rules from the UK are zero, despite them routinely copying tax policies from the UK.

But leaving aside that speculation, I would have started a monthly investment with Rabo but decided not due to this tax.  It's one thing with a one off lump sum investment but a savings plan seemed to be creating a rolling monthly tax hassle once you got past 8 years from your first payment, and then worse again after 16, 24 years. Unsurprisingly Rabo now don't offer investments which is likely partly due to the overly complex taxation.

Also the initial description of the tax didn't consider what the procedure would be if there was a loss over the period (as it happened - a very likely outcome due to the crash the late 2000's. I think there was some clarifications added several years later but no doubt still utterly stupid.


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## Steven Barrett (2 Oct 2017)

ashambles said:


> Are you sure I thought he was in opposition at the time?



You're right. I googled it and my own blog on it was the top result!  It was introduced in 2006. 

If there is a loss, no tax is due so no tax is paid. If you pay the deemed disposal and subsequently cash it in at a lower price, you can claim a refund of the difference. 

I wouldn't let it stop you from investing though. People pay DIRT on deposit interest and that's paid every year!


Steven 
www.bluewaterfp.ie


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## joe sod (2 Oct 2017)

so the result is (thanks to the valuable information gleaned from this site) that many irish investors are investing in UK investment trusts or US domiciled ETFs in order to avoid this tax. Probably more people are ploughing all their money again like before into property.


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## ashambles (3 Oct 2017)

SBarrett said:


> I wouldn't let it stop you from investing though. People pay DIRT on deposit interest and that's paid every year!


DIRT is simple. The problem with deemed disposal was the complexity but this may have been simplified/clarified since I abandoned my interest in a regular investment plan with Rabo.

For example...
You don't have a lump sum and you want to make weekly investments into a regular investor plan. You're 30 and you don't want to sell these until you're 60. Rabo was for some reason weren't able to do the tax for you and left it to the investor.

So let's say it started in 2000-week-1.
In 2008-week-1 you've to work out the tax on the 2000-week-1 lodgement.
In 2008-week-2 you've to work out the tax on the 2000-week-2 lodgement etc..


In 2016-week-1 you've the tax on the both on 2008-week-1 and the second 8 year term for the 2000-week-1.
In 2024-week-1 you've the tax on the both on 2016-week-1 and the second 8 year term for the 2008-week-1 and the third 8 year term on 2000 week 1.

24 years in to a weekly investment and you'd have 52 * 3 separate tax calcs to work out every year.

Now I'd assume you'd do this with your end of year form 11/12 but it would take ages to manually go over the figures. And unlike what Revenue assumed some of these gains will be losses.

If you're in most funds it'll be the provider working out the tax, however Irish providers are so opaque on their charges you'd have zero way of knowing if they correctly handled the tax.


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## Duke of Marmalade (3 Oct 2017)

_ashambles _it doesn't work like that for Irish life regular plans.  In that case after 8 years from the beginning of the plan the whole plan is deemed sold, even the premium paid only last month.  Whilst this makes practical sense it always seemed to me to disadvantage regular investment under the one plan.  On the other hand a series of single premium plans suffers from the fact that losses on one plan can not be set against gains on the other.

I am not sure whether the scenario you describe applies in those situations where the punter is left to do her own calculations, though I can see that you may be right, but I would presume that you could reach a pragmatic arrangement with the Revenue for implementing the regime.

The fact is that the exit tax regime is grossly distorted and for me rules out savings under that heading.  Far better to look for CGT based arrangements but these are hard to find.


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## mtk (4 Dec 2017)

Hi all
What happens If you have an lump sum invested in an eu ( non Irish ) fund bought before 1/1/2001 when the gross roll up started in Ireland ??
Deemed disposal rules were introduced 2006 I believe ....

eg so if purchase date was 1/1/97

For deemed disposal Is it  ;
A) 1997 plus 16 years (rule not applicable back in 1/1 2005) so 1/1/ 2013
Or
B) should it be 1/1/2001 (date all this gross roll up regime started in Ireland  )  plus 8 years so  1/1/2009 and then next 1/1/2017.
Or
C) not applicable atall as bought before 1/1/2001


Anyone know ?
Thanks
Mtk


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## jpd (4 Dec 2017)

Excellent question - I don't have any funds I purchased that long ago, so I never had to look into it, thank God!


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## Steven Barrett (4 Dec 2017)

As far as I am aware, it does not apply as they are net roll up investments where tax is deducted from the fund along the way. The purpose of deemed disposal is for the Revenue to get their hands on the tax take from savings that Irish savers were keeping for decades without the Revenue getting any of it. If they are getting the tax take from the net roll up policy, there is no need for a deemed disposal. 

Steven
www.bluewaterfp.ie


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## jpd (4 Dec 2017)

If it was an EU fund, then it is unlikely that tax is being deducted and passed on to the Irish Revenue.


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## mtk (5 Dec 2017)

jpd said:


> If it was an EU fund, then it is unlikely that tax is being deducted and passed on to the Irish Revenue.


Correct my question is in relation to what deemed disposal dates to use ( if atall) for non Irish but Eu regulated fund if the fund was bought before 1/1/2001. I amended wording below to make it clearer.


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## mtk (5 Dec 2017)

What happens If you have an lump sum invested in an eu regulated ( non Irish regulated ) fund bought before 1/1/2001 when the gross roll up started in Ireland ?

Deemed disposal rules were introduced 2006 I believe ....

eg so if purchase date was 1/1/97

For deemed disposal Is it  ;
A) 1997 plus 16 years (rule not applicable back in 1/1 2005) so 1/1/ 2013
Or
B) should it be 1/1/2001 (date all this gross roll up regime started in Ireland  )  plus 8 years so  1/1/2009 and then next 1/1/2017.
Or
C) not applicable atall as bought before 1/1/2001


Anyone know ? thanks
Thanks


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## settlement (14 Jan 2018)

If a UCITS ETF was purchased eg in 2014, and then the investor left Ireland and ceased to be resident or ordinarily resident, and then returned eg in 2025, would the clock 'freeze' and then restart for deemed disposal? Eg 2014 -> date of cessation of tax residence and then start again from zero or start again from however many years the person had been resident?


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## Gordon Gekko (14 Jan 2018)

No, the Irish tax system would “forget” the individual and the investment after three years of non-residence.

However, on the return of the individual, the Irish tax system would “remember” both.

The individual should therefore sell the investment prior to returning and reacquire if, mindful of the tax consequences in the other jurisdiction.

Say the timeline was thus:

- Buy UCITS ETF 2014
- Move to Geneva 2017
- Move back to Ireland 2025

A disposal in 2026 would lead to the full gain being taxable in Ireland in 2026. A full “8 year rule” deemed disposal would arise in 2030. The individual should therefore rebase the investment by selling and reacquiring in late 2024.


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## settlement (16 Jan 2018)

Gordon Gekko said:


> No, the Irish tax system would “forget” the individual and the investment after three years of non-residence.
> 
> However, on the return of the individual, the Irish tax system would “remember” both.
> 
> ...



That's what I thought but wasn't sure! Thanks for the clarification

Edit: would it differ with shares purchased while 'ordinarily resident' in ireland, but primarily tax resident in another country? Eg would they have to be disposed of also prior to returning for optimal gains (depending on rules in other tax jurisdiction etc)


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## mtk (16 Jan 2018)

mtk said:


> What happens If you have an lump sum invested in an eu regulated ( non Irish regulated ) fund bought before 1/1/2001 when the gross roll up started in Ireland ?
> 
> Deemed disposal rules were introduced 2006 I believe ....
> 
> ...


Anyone able to help here. ?thanks a million


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## alwaysonit (28 Mar 2020)

Gordon Gekko said:


> No, the Irish tax system would “forget” the individual and the investment after three years of non-residence.




So if an individual invested in equity not subject to deemed disposal that does not pay dividends (such as a USA domiciled accumulating ETF or directly in Berkshire Hathaway stock), they could 

- Let the value accumulate over 30+ years in Ireland
- Move to Geneva for 3 years 
- Sell it all paying no CGT while not an oridinary Irish tax resident
- Move back to Ireland

From my understanding this individual would end up paying no tax on any gains on the investment?


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## Gordon Gekko (28 Mar 2020)

alwaysonit said:


> So if an individual invested in equity not subject to deemed disposal that does not pay dividends (such as a USA domiciled accumulating ETF or directly in Berkshire Hathaway stock), they could
> 
> - Let the value accumulate over 30+ years in Ireland
> - Move to Geneva for 3 years
> ...



Yes. I’d need to double-check the ‘anti Denis O’Brien legislation (29A?) but broadly, yes.

I assume that the Geneva canton is similar to others such as Zug, i.e. no CGT.


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## Sarenco (28 Mar 2020)

alwaysonit said:


> USA domiciled accumulating ETF


There's no such thing.


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## settlement (29 Mar 2020)

alwaysonit said:


> So if an individual invested in equity not subject to deemed disposal that does not pay dividends (such as a USA domiciled accumulating ETF or directly in Berkshire Hathaway stock), they could
> 
> - Let the value accumulate over 30+ years in Ireland
> - Move to Geneva for 3 years
> ...



You would need to move to Geneva for 4 years as you would be 'ordinarily resident' in Ireland for 3 years after becoming non tax resident


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## alwaysonit (29 Mar 2020)

Gordon Gekko said:


> Yes. I’d need to double-check the ‘anti Denis O’Brien legislation (29A?) but broadly, yes.



I assume this link is what you refer to?

It refers to "shares in a company" that

is equal to, or greater than, 5% of the value of the issued share capital of the company, or
exceeds €500,000.
If an individual sells shares in 20 differrent companies, all less than 5% of the issued share capital and all valued at say €400,000 - do they avoid this legislation despite the total value of sales being far larger than a total of €500,000?


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## Marc (29 Mar 2020)

I've built a spreadsheet which compares the expected net of tax return for a pension, a "fund or portfolio" subject to CGT and a UCITs or Unit Linked Life Policy subject to exit tax.

I've published some of my findings in two case studies in the following guide which I have made available free on my website here





__





						Personal Savings Accounts - Everlake
					

This guide sets out how a Personal Retirement Savings account (PRSA) combined with an Approved Retirement Fund (ARF) can be used by any Irish Investor between the ages of 18 and 75 to invest personal savings in a tax efficient way




					globalwealth.ie
				




To aid readability click on the infopage link and open the document in the dedicated reader


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## Gordon Gekko (29 Mar 2020)

alwaysonit said:


> I assume this link is what you refer to?
> 
> It refers to "shares in a company" that
> 
> ...



Yes. That doesn’t apply where someone has any number of investments each worth less than €500k. It essentially doesn’t apply at all unless it’s your own company.


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## Sarenco (29 Mar 2020)

Thanks for posting that @Marc - interesting analysis.


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## trython (12 Apr 2020)

Was interested in this myself and did not see any obvious figures in thread so did some quick calulations using the original 100,000, 10% return, and a tax rate of 40% and got the following:

8 years - 214,358 without DD, 168,615 with DD (78%)
16 years - 459,497 without DD, 284,310 with DD (62%)
24 years -  984,973 without DD, 479,390 with DD (49%)

Loss of compounding is a killer, with the DD equivalent return dropping to around 6.7%.  The ETF is going to take a 33% hit on whatever you withdraw, but chances are you will not be withdrawing it all in a single lump sum.

Looking at that, I am wondering if anyone has had any success with US domiciled ETFs since 2018?


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