ETF 8 year deemed disposal strategy

M

Minnow2

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Hi
I'd like to hear opinions on my plan to deal with the deemed disposal on ETFs.

I invested most of my savings in ETFs between 2018 and 2024, with a couple of large lump sum purchases and several smaller ones. The deemed disposal will start in 2026 (with a large chunk of portfolio) followed by smaller amounts every year until 2032. I plan to continue investing my money in ETFs going forward (current age 45) so expect to go through the deemed disposal a few times.

I find the system very confusing so am considering selling at/before 8 years, paying the tax and reinvesting, possibly in different ETFs

I would like to even out the deemed disposal value on an annual basis. What I'm considering is to sell some ETFs each year so that each year I have approximately the same level of income/profit. Deemed disposal wouldn't actually come into effect as the sales would stay just ahead of the 8 year rule.

This seems like a "clean" plan to me but would like other opinions.
 
Minnow2 said:
I find the system very confusing so am considering selling at/before 8 years, paying the tax and reinvesting, possibly in different ETFs
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Aren't you incurring avoidable transaction costs by doing this?
Minnow2 said:
I would like to even out the deemed disposal value on an annual basis.
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What does this mean?
Minnow2 said:
This seems like a "clean" plan to me but would like other opinions.
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Have you modelled illustrative numbers for this scenario versus a buy and hold scenario to sanity check your strategy?

Off topic, but you'd probably be better off from a tax point of view just buying shares all things being equal. (Shares here includes diversified conglomerates that may mimic mutual/unit linked funds without the tax/charges that they incur).
 
I don't see what is confusing about the first deemed disposal (year 16 is confusing!). It's the difference between what you bought it at and the price in year 8 * 41% (Assuming there's a gain).

Regular investing outside of a life company is an administrative pain. I always advice client to make an annual payment instead of monthly payments.

No one in the Revenue seems to have any idea about the payment of deemed disposal or even actual disposal that is made outside of the life company wrappers.
 
Steven Barrett said:
I don't see what is confusing about the first deemed disposal (year 16 is confusing!). It's the difference between what you bought it at and the price in year 8 * 41% (Assuming there's a gain).

Regular investing outside of a life company is an administrative pain. I always advice client to make an annual payment instead of monthly payments.

No one in the Revenue seems to have any idea about the payment of deemed disposal or even actual disposal that is made outside of the life company wrappers.
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I bought some Vanguard via eToro and am assuming they handle the deemed disposal side when time arrrives. Or that Revenue automatically applies it - is that not the case or is it only done inside life co wrappers as you say above?
 
No, you have to calculate your gain on the disposals and deemed disposals on all ETF investments held outside an Irish fund and report the figure to Revenue in your annual tax return

Luckily they will calculate the 41% of your gain, so you don't have to worry about that calculation
 
jpd said:
No, you have to calculate your gain on the disposals and deemed disposals on all ETF investments held outside an Irish fund and report the figure to Revenue in your annual tax return

Luckily they will calculate the 41% of your gain, so you don't have to worry about that calculation
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Got it, thank you, do it’s one for the Form11. In that regard could this particular ‘deemed’ gain be offset against an unrelated ‘actual’ loss?
 
No, you cannot set unrelated losses against deemed gains.

There is some confusion around the calculation of deemed gains from year 16 onwards

Some documents seem to indicate that you calculate the deemed gain in year 16 by reference to the original cost in year 0, calculate the exit tax at 41% and then deduct the tax paid on the deemed disposal in year 8. This could give rise to a tax refund if the value of the funds has decreased between year 8 and year 16

I got a reply from Revenue stating that the deemed gain in year 16 is based on the change in value from the year 8 deemed disposal and this is what I now use

I think this interpretation is incorrect, but that's what I got in black & white from Revenue
 
jpd said:
No, you cannot set unrelated losses against deemed gains.

There is some confusion around the calculation of deemed gains from year 16 onwards

Some documents seem to indicate that you calculate the deemed gain in year 16 by reference to the original cost in year 0, calculate the exit tax at 41% and then deduct the tax paid on the deemed disposal in year 8. This could give rise to a tax refund if the value of the funds has decreased between year 8 and year 16

I got a reply from Revenue stating that the deemed gain in year 16 is based on the change in value from the year 8 deemed disposal and this is what I now use

I think this interpretation is incorrect, but that's what I got in black & white from Revenue
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The Revenue guidelines on Investment Undertakings states you add the deemed disposal already paid to the year 16 value and calculate the deemed disposal at that rate, then deduct the year 8 payment paid.

Yet, they tell you it's simply the difference between year 8 and year 16?

If you read the guidelines, it is extremely complex and I would say there is only a handful of people in the Revenue who understand them.

I blame gross roll up! Go back to either net roll up or pay tax on dividends each year and get rid of deemed disposal...and reduce the tax rate!!!
 
Steven Barrett said:
you read the guidelines, it is extremely complex and I would say there is only a handful of people in the Revenue who understand them.

I blame gross roll up! Go back to either net roll up or pay tax on dividends each year and get rid of deemed disposal...and reduce the tax rate!!!
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If revenue themselves find the whole thing is extremely complex and burdensome and would prefer a simpler system that is easier to administer, who is it that is keeping this exit tax regime in place?
 
It’s massively convoluted. Can see why so many run a mile at the idea which is a shame as it seems a non-brainer besides.
 
joe sod said:
If revenue themselves find the whole thing is extremely complex and burdensome and would prefer a simpler system that is easier to administer, who is it that is keeping this exit tax regime in place?
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The Government sets tax policy, not Revenue.
 
joe sod said:
If revenue themselves find the whole thing is extremely complex and burdensome and would prefer a simpler system that is easier to administer, who is it that is keeping this exit tax regime in place?
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It's a self-assessed tax so they probably don't care since burden of complexity falls on the punter.
 
Minnow2 said:
I find the system very confusing so am considering selling at/before 8 years, paying the tax and reinvesting, possibly in different ETFs
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You shouldn't realise gains unnecessarily.

If you didn't sell and the tax rate were to fall in the future you would pay tax on the whole gain since year 0 at the lower rate, with a credit for the tax already paid on the deemed disposal.

Whereas if you sell and rebuy you would pay tax at the lower rate only the gain since you sold and rebought at year 8, with no credit for the tax paid on this actual disposal.
 
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Related question. I hold a few ETFs myself. I sold one after one year, for valid reasons, and declared a minor gain which I paid 41% exit tax on. I haven’t paid prsi or USC and am starting to understand I should have.

How do you go about paying those? Tax is straightforward. I’m struggling to understand how you pay the prsi and USC in addition. All advices and experiences appreciated.

g
 
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Income tax rates are 0, 20, 40.

Exit tax at 41% is what is possible payable on gains made on managed funds and ETFs.

I don't think there is PRSI and USC on top, sure 41% is enough already!!!
 
If there was an option for the product provider to manage the taxation and pay it to Revenue, I wonder would customers pay for that and if so how much.
 
There is a tiny (but perhaps more than previous years) chance ETF taxation may change this budget, I'd hang on a couple weeks (Oct 1) before making decisions. Though if there is a change it could be to make things even worse.

I believe Revenue have no interest in making ETF taxation attractive, and are quite content to receive negligible returns from ETF deemed disposal rather than a simple taxation that might see several 100,000 people self-declaring ETF income.

Goverments decide the high level tax strategy - Revenue are the ones who do the details. Revenue could have decided ETFs are effectively shares but I think it was them rather than the government decided they weren't.
 
GSheehy said:
If there was an option for the product provider to manage the taxation and pay it to Revenue, I wonder would customers pay for that and if so how much.
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Could you see the like of DeGiro doing this, even with a fee? I can't.
 
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