Deemed Exit Tax Calculation Formula

That is the tax due in addition to the DET already paid. See the "-" in the "-DET" line of the calculations you supplied.
 
The key is that you are “funding the tax bill and reinvesting the entire amount”. The €163,512 is in fact the return on the €123,000 for reinvesting in the fund.
 
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Gordon Gekko said:
Yes, harsh in a way, in that you could argue it’s a form of retrospective taxation if the rate has increased.
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It is as the Finance Act stipulated so not strictly retrospective.
DET is in effect a payment in advance of the eventual tax bill which will depend on the tax rate at the time of the actual chargeable event. As DC mentions if rates come down the opposite applies and you effectively get a rebate of the higher tax rate paid in advance.
Of course as it happened it would have been better encashing and reinvesting at the 8 year point. But this is true of every policy at the point in time that Exit Tax rate is increased, not just those on deemed disposal. Point is it is ”deemed” disposal not an actual chargeable event.
In a way all changes to Exit Tax are retrospective either for bad or good. How do changes in CGT work? Are they retrospective?
DC is confused on the origins of gross roll up. It was not as a result of lobbying by the industry. It was as a result of Brussels insisting that Charlie McCreevey bring the domestic situation in line with the offshore one.
 
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Duke of Marmalade said:
The key is that you are “funding the tax bill and reinvesting the entire amount”. The €163,512 is in fact the return on the €123,000 for reinvesting in the fund.
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Thanks Duke. The answer is obvious now!

As I have purchased the ETFs directly, and I intend to the pay the DET from my own funds, my approach will be simpler.
 
3CC said:
Thanks Duke. The answer is obvious now!

As I have purchased the ETFs directly, and I intend to the pay the DET from my own funds, my approach will be simpler.
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As long as you pay it as a DET and not an encash and re-entry as that way you wouldn't enjoy any rebate on any future reduction in the rate (surely can't go up, can it?).
 
I am still perplexed at some of the detail. When you say "current surrender breakdown" do you mean now or just after the withdrawal? I thought you meant just after withdrawal but if you meant now that could explain things.

Yes, I think that explains things. The way I work it out is that your policy before the withdrawal in 2020 was as follows:
GV €42,920.88
EP €30,725.08
DET €3,978.81
If you had encashed the whole policy then your gross profit since the beginning would be GV+DET-EP = €16,174.61
41% of this would be €6,631,59 but since you had already paid €3,978.81 the deduction would be €2,652.78
So full net encashment value = €42,920.88 - €2,652.78 = €40,268.10
You wanted €10k net so you were encashing 10,000/40268 = 24.834% of your policy. Your GV, EP and DET would be reduced by that proportion which were €10,658, €7,630 and €988 respectively.
Since your EP are now €28,058.80 that suggests that you have paid €4,964 (28,058 -30725.08+ 7,630) premiums since your withdrawal.
Your GV has increased by €9,949 (42,212 - 42,920 + 10,658).
So your gross profit has increased by €4,985 and your net profit by €2,941.
 
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Thanks @Duke of Marmalade. The Current Surrender Breakdown is a term used by the Fund Manager and refers to if I was to cash in everything now. So I'm getting €38,173.87 nett
 
@Trex210777
The Exit Tax calculation appears correct, you questioned this in OP.

On your further question, I would agree that the Exit Tax regime is not good. Much better would be a fund that would be subject to Income Tax/CGT. I think investment trusts achieve that though I doubt you would have the facility for regular contributions. Perhaps others can be more helpful on this.

However, a problem with you cashing in and moving to such a fund is that if there was a market setback and you found yourself selling at a loss, all you would have is CGT losses which can only be set against CGT gains and even then only at the CGT rate. On the other hand if you stick with your life policy and such a situation were to arise, losses up to €17,000 would be reduced by 41%. In fact, thoughts along these lines would incline me to stick with your life policy.
 
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I am close to my first 8-years deemed disposal and I never that could be the case...

But your calculations seem correct to me! You will just have to add the broker cost to buy the same ETF again, but it would be negligible compared to the tax you are saving by not doing deemed disposals

I still cannot believe that this is the case?
 
Following a query I had with Revenue, they confirmed that the tax due on the deemed disposal after 16 years is 41% x gain since 8 years so € 41,000 in this case

The tax due after the actual disposal = 41% x gain since original purchase less credit for tax already paid
= 41% x (€ 400,000 - € 100,000) - (€ 41,000+ € 41,000)
= € 123,000 - € 82,000
= € 41,000

so identical
 
It is identical if the rate doesn’t change. If an earlier rate was less than 41% you pay more than 41% on the latest 100k profit
 

Sorry, I missed this reply before posting the above question
Duke of Marmalade said:
The key is that you are “funding the tax bill and reinvesting the entire amount”. The €163,512 is in fact the return on the €123,000 for reinvesting in the fund.
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All clear now (I hope i did not confuse the thread)
thanks
 
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Duke of Marmalade said:
I think I would go for deemed rather than actual as rate more likely to fall than rise, I think
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What do you mean by this? that the 41% rate might fall ? But surely that would only happen after the potential rate change so 41% would still be payable on gains up to that date.

In any case I'm sure it is possible to do an actual disposal, pay the tax and straight away reinvest the residual money back into the fund. Currently the exit tax is the worst of both options due to the ridiculous calculations described above whereby you pay more tax via exit tax than by actual disposal. I know you also rule out the possibility of getting exit tax reimbursement if fund falls back but I doubt revenue have paid back much money due to people unwilling to liquidate a losing fund position
 
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joe sod said:
What do you mean by this? that the 41% rate might fall ? But surely that would only happen after the potential rate change so 41% would still be payable on gains up to that date.
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The point is that deemed disposal exit tax is just a down payment. The actual exit tax is calculated when encashment eventually happens. The downpayment is set against the final liability.
Example: deemed disposal after 8 years; profit 100, downpayment of exit tax 41
Actual disposal after 12 years, say, total profit since beginning 200; exit tax rate now 33%; overall tax 66 less 41 downpayment = 25 due; only 25% on the extra 100.
Of course it works the other way if exit tax rate goes up.
If the examples show actual disposal better than deemed disposal it is an illusion driven by investment cash flow.
 
Of course you could also try and time the actual disposal to coincide with big downturns in the market like possibly now, pay the tax on the temporarily low fund value ,then reinvest straight away back into the fund to benefit from the eventual uplift.
I presume there is nothing to stop investors doing that, there is no 28day bed and breakfast rule as in cgt investments, I presume?
 
You would miss out on a lot of time in the market. Redeeming an account and reinvesting can take time, especially if using a life company. Your money could be out of the market for a month or longer using this strategy.

As has been pointed out, you will be realising a "real" disposal every 8 years then instead of a "deemed" one.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Not a good idea. A really unsatisfactory aspect of the exit tax regime is that you get no credit for losses, except against future gains in the same product. Crystalizing and then reinvesting is simply resetting the bar below which you might finish up with unrelieved losses. But I don't even see you point if you were certain markets were in for a big rebound. You are simply paying your tax in advance - not a good idea, please give an example where this strategy results in less tax.
 
This thread raised a good topic on the 2 different tax calculating scenarios. I can't make out if one method was shown to be the correct method over the other though, do you add the already paid tax back onto the fund value before calculating the new tax amount or not?

Is the example in the bluewater link correct or incorrect?

Calculating Deemed Disposal on a long term investment - Bluewater Financial Planning

Deemed disposal is a pain for many investors. Having to pay tax on an investment that they have not cashed in. The issue is the whole “gross roll up” system where dividends and profits are reinvested tax free with no income to the Revenue. If the Irish Revenue allowed some alternatives where...
www.bluewaterfp.ie

Is there a difference method to use when calculating Deemed Disposal tax depending on if it's through a Life Insurance product or if bought directly via a trading platform yourself?
 
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