# RaboDirect funds and tax obligations?



## Del3D (17 Oct 2006)

Hi all,

I have been investing in Rabodirect funds regularly over the past year, buying different sets of funds every month, but I have been concerned from day 1 about the tax implications. RaboDirect have very recently published the following notice on their web site:




> *What are my tax obligations as a RaboDirect Investor?*
> RaboDirect will not be responsible for making any tax deductions on investments. All investors are solely responsible for submitting their tax returns in line with current revenue requirements. Growth Funds operate on a roll-up basis for tax purposes. By investing through these Funds, you only pay tax on the realisation of your investment. You also pay tax on the increase in the value of the fund on the expiry of a period of 8 years from the date of the initial investment, and for each subsequent 8 year period. This only applies where there has been no realisation of you investment prior to the 8 year period. Where there is a realisation of your investment after the expiry of an 8 year period, a credit is available for the tax you paid on the expiry of the 8 year period against the tax you pay on the total gain on the realisation of you investment. The tax rate applicable is the standard rate of tax (currently 20 per cent) plus 3 per cent on any gains made on units in the funds.
> 
> 
> ...


I would appreciate if this could be explained a little better by someone:

- To "include details of your gains correctly", does this mean that you must declare your *purchases* each year on your annual tax return?

"You also pay tax on the increase in the value of the fund on the expiry of a period of 8 years from the date of the initial investment" - I know it is seven years away! but the idea is as an education fund for my two toddlers in 15+ years:
- Is this a new rule? I never heard of this before.
- Assuming I do not sell - How do I know/remember when 8 years has elapsed - will Rabo be responsible for this? Especially where I am making 2-3  transactions per month. The Rabo interface does not give very good transaction information.
- do I have to do a very precise calculation? or does it balance out on eventual sale.
- Do you think that Rabo will have to deduct this automatically, by the time we get to 8 years?
- Should all Rabodirect customers be advised to keep very accurate records now? (especially the muppet with the boat?)

Thanks for any advice...


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## ClubMan (17 Oct 2006)

Normally _CGT _only applies on disposal of an asset. I never heard of this 8 year rule before requiring you to pay _CGT _even if you have not disposed of the assets. Is there any chance that this information refers to some other jurisdiction (e.g. _Netherlands _where _Rabo _come from) or something?

As far as I know _Rabo _don't do anything for you on the tax front and (as ever with tax) it's up to you to maintain adequate records and make sure that you keep _Revenue _informed as and when necessary.


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## jpd (17 Oct 2006)

No, the 8 year rule is new this year. Every 8th anniversary of buying into a fund, you are now liable to pay CGT on any gains made in the fund, whether you have realised them or not. For Irish Gross Roll-up funds (basically most of them), the provider will calculate the amount owed, deduct it from the funds and pay it the Revenue from Jan 2009.

For off-shore funds the individual taxpayer is responsable for making the returns - I'm not sure that will be as straight-forward as it sounds - what happens if you are buying small amounts regularly and/or disposing of them too. As the first payment is some years away, no doubt there's plenty of time to get around to it - just make sure you have all the paperwork safe.

If at a later date you encash your fund and make a realised gain then you will get a credit for the deemed gain and if the realised gain is less than the deemed gain, you will get a credit or refund.

There was not much fuss about it in the finance bill/budget - it was prabably too far in the future to worry most people - but it feels like it will be an adminstrative nightmare.


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## ClubMan (17 Oct 2006)

Thanks _jpd _- that sounds like a real pain alright. Part of the reason I try to avoid direct share investments and stick to unit linked funds which take care of tax is because of dividend/_CGT _tax issues with the former. This sort of stuff would put me off _Rabo's _funds too (if their charges hadn't already ). My past experience of dealing with these sorts of tax issues was enough to put me off having to do so again...


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## ixtlan (21 Oct 2006)

Hi guys,

Thanks for bringing this up. I was asking the same question in another thread, and was directed here.

This sounds like an important issue. So pay CGT every 8 years? OK... I suppose we will have to review when the funds were purchased each year. Then on sale pay 23% on the total gain and subtract whatever was paid already?

What about the comment "You should note that this rate will apply only if you have included details of your gains correctly in your return of income". Do they mean the year you pay the tax? or every year? Surely the gain every year is irrelevant?. 

How does switching between funds work with Rabo? Can that be done without paying CGT? Eddie Hobbs said in loot that you could "move between fund families without CGT". Is that relevant here? I suspect not? That these funds are all separate?

Ix.


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## MugsGame (28 Oct 2006)

The new Oppenheimer funds from Rabo are onshore and claim (in the prospectus) to look after Irish tax for you.


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## jp627 (15 Jul 2007)

Actually, from reading the Rabodirect site it would appear that we also have to calculate tax for onshore funds too:

*"Irish UCITS are usually taxed at source. This means that the fund administrator collects and pays over any tax liability to the Revenue on behalf of the investor. However there are a number of exceptions to this rule and one of these is where the funds are held in a recognised clearing system. The units in the Irish UCITS offered by RaboDirect are held in a recognised clearing system. In a clearing system the details of the underlying investor (customer) are not available to the administrators for the purpose of making tax deductions at source. As a result, the investor must again self-assess themselves for Irish tax in respect of any increase in value on the investment on the disposal of the investment or on the eighth anniversary of the investment. Each investor must make the necessary timely returns to the Revenue in order to avail of the necessary tax benefits as outlined above."*

In form 11 there is a section for taxation of offshore funds, however there isn't a specific section for onshore funds, so I would expect that we have to calculate tax for onshore funds (i.e. the Oppenheim ones) in either the foreign life policies section or the offshore funds section. Would this be a right assumption?


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## RaboDirect (17 Jul 2007)

We will be providing a Tax Aid to our investment fund customers by October. We will provide a statement that shows the profit made on all sales of units which you can then use to complete your tax return. We will also provide instruction on which part of the Revenue Form 11 you need to complete and how to do this. This should make submitting a tax return very straightforward. 

There has been quite a bit of comment about taxation of RaboDirect funds on AAM in past. We did put a call out to AAM members to come into our office to give us feedback on the Tax Aid before we finish developing it. Unfortunately we haven't received any responses on this. If anyone is interested in participating and has a genuine interest in investment funds please PM us (we'll make a donation of €100 to Barnardos for each participant).


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## John Walsh (21 Nov 2015)

Since January 2014, you must also report the purchase of units to revenue. This self assessment always has me wondering why call it self assessment . I assume that like the banks all purchases , sales of units and gains  are reported to revenue by Rabodirect anyhow.


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## Boyd (21 Nov 2015)

You don't need to report purchase of UCIT funds to revenue, only the non UCIT ones.


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## John Walsh (28 Nov 2015)

I am 60 and intend to invest in UCIT funds with Rabo. The end if the 8th year period I will be 68 and can I apply for the funds 
to be sold free of tax as I will then have a contributory pension. I assume by then this loophole might be closed and only interest after 67 years would be allowed free of tax.


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## Sarenco (28 Nov 2015)

John Walsh said:


> I am 60 and intend to invest in UCIT funds with Rabo. The end if the 8th year period I will be 68 and can I apply for the funds
> to be sold free of tax as I will then have a contributory pension. I assume by then this loophole might be closed and only interest after 67 years would be allowed free of tax.




Could you explain this loophole to us?  

Are you referring to the exemption from DIRT for over 65s that meet certain criteria?  I wasn't aware that there was a similar exemption from exit tax.


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## Boyd (28 Nov 2015)

Ditto, never heard of this and cant find any mention of it on any revenue website. Sounds like pie in the sky to me.


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## John Walsh (29 Nov 2015)

Yes the exemption from DIRT for over 65 at present . This may not be a loophole as I expect they would look at the interest for the years before you reached retirement age.
I cannot explain this any further maybe there is someone in a similar position who applied for the exemption.
I know if you have funds in Zurich where the tax is deducted at source .You send them notification that you are over 65 and have income below 18K the tax is exempt . I assume it applies to Rabo UCIT funds also.


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## Boyd (29 Nov 2015)

But DIRT and exit tax are two totally separate things. Rabo funds are not subject to DIRT, they are subject to exit tax, as they are fund (not deposits).
Why do you think over 65 rule applies to exit tax? It's not listed anywhere so I don't see any basis for your thinking about loopholes?


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## Gordon Gekko (29 Nov 2015)

Because the over 65s DIRT thing isn't about DIRT at all - It's about income generally.

If a 65 year old has rental income of €18k a year, it's exempt from income tax.


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