In January 2028, you calculate deemed disposal exit tax on the first €500 purchase. In February 2028, you calculate deemed disposal exit tax on the second €500 purchase. And so on.
In January 2028, you calculate deemed disposal exit tax on the first €500 purchase. In February 2028, you calculate deemed disposal exit tax on the second €500 purchase. And so on.Let's say from Jan 2020 onwards I buy 500 euro every month of the same diversified ETF on a stockbroker platform like DeGiro.
12 purchases per year * 500 euro each time. I do this for eight years, 96 months. I have spent 48,000.
Let's assume the fund is worth 60k at the end of eight years.
In theory, what should happen?
DeGiro don't report anything, or apply any tax, so I declare a 12k gain to the Revenue, and prepare to be asked for 41% exit tax on the 12k gain.
Is that correct?
I read somewhere else that exit tax should be applied to the gain from each of the 96 puchases. That means 96 calculations. Is that correct?
It was originally standard rate of income tax plus 3%. Then they started increasing the 3%, then they removed the link to income tax. It moved in line with DIRT, untill that was reduced (a cynical move when no interest was paid, but the government could say they were looking after the interests of pensioners, despite the fact that they have large amounts of life savings subject to exit tax).It needs to be at least as high as CGT otherwise no one would invest in anything else. And it should be 1-2% higher than regular CGT to compensate for the deferral of dividend tax under gross roll-up.
Bear in mind many countries do tax the dividends in an ETF, including the UK and US.
Because they have been unsuccessful in lobbying the government against deemed disposal and the higher rate of exit tax (as well as the 1% life assurance levy).You have to ask the Life Assurance industry why
The linked document only applies to funds that deduct the tax and remit to Revenue. Choosing the value at June or December isn't an option.You can use either the unit price on the actual anniversary (1st Jan 2028, 1st Feb 2028, 1st Mar 2028...)
Or to simplify you can choose to use the unit price on the previous mid- or end-year (31st Dec 2027 is the easiest).
4.3.1 What gain is taxed?
Where the chargeable event is the ending of an 8-year period, the value of the units at the time less their cost of acquisition (if the investment undertaking so elects, the value of the units at 30 June or 31 December prior to the date of the chargeable event).
There is no specific document for ETFs, that section describes the tax calculation for funds domiciled in Ireland.The linked document only applies to funds that deduct the tax and remit to Revenue. Choosing the value at June or December isn't an option.
How certain can we be that the simplification is applied to individuals - section 4 seems to be targeted at fund companies - we know they can use it. Where the fund company doesn't pay the tax - then "an Irish resident unit holder will be subject to tax on income (taxable under Case III) and gains (taxable under Case IV)". Are we now falling outside the scope of this document's simplification.You can use either the unit price on the actual anniversary (1st Jan 2028, 1st Feb 2028, 1st Mar 2028...)
Or to simplify you can choose to use the unit price on the previous mid- or end-year (31st Dec 2027 is the easiest).
4.3.1 What gain is taxed?
Where the chargeable event is the ending of an 8-year period, the value of the units at the time less their cost of acquisition (if the investment undertaking so elects, the value of the units at 30 June or 31 December prior to the date of the chargeable event).
The provisions and example calculations set out in this document apply to Irish funds in general, of which Irish-domiciled ETFs are a subset. The Revenue note on ETFs simply refers you back to this document for the tax calculation and the Offshore Funds document for the treatment of the payment in your tax return.How certain can we be that the simplification is applied to individuals - section 4 seems to be targeted at fund companies - we know they can use it.
You can use average cost or FIFO as long as you use it consistently for each subsequent disposal.If it does apply, unless you can use the average purchase price (?) you're going to have to make sure you have the correct growth amount for each individual purchase up to whichever anniversary date you chose. I.E for weekly purchases in year 8 you'll need week1 -> anniversary, week2-> anniversary...
The simplification is however more useful for the 8 yr -> 16 yr -> 24 yr ... anniversaries. As for them it is a single date in a year based calculation.
Thanks for that @Corola. That is clear in respect of the position on exit tax. Slightly off topic but do you know is it the same with dividend income?
4.1.4 Tax arising
The gain on a disposal of a material interest is taxed at 41%. USC and PRSI do not apply.
I'm a bit confused. Can you provide a simple example showing how it makes a difference? Thanks.That's easier to manage but you're losing the full benefit of gross roll-up by doing it this way. Your investment is allowed to grow tax-free for 8 years but you are realising gains on the majority of the portfolio earlier than that if you sell everything.
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.
Let's say from Jan 2020 onwards I buy 500 euro every month of the same diversified ETF on a stockbroker platform like DeGiro.
12 purchases per year * 500 euro each time. I do this for eight years, 96 months. I have spent 48,000.
| Tranche | Person A | Person B |
|---|---|---|
| 2020 | 12 x 35% | (8 x 41%) + (4 x 35%) |
| 2021 | 11 x 35% | (7 x 41%) + (4 x 35%) |
| ... | ... | ... |
| 2027 | 5 x 35% | (1 x 41%) + (4 x 35%) |
You don't pay any tax, and all the tranches revert to year 0.At the point when your investment is break-even. It may make sense to try and trigger the DD event, to reset the clock, so your funds have full 8 years to grow again before the next event.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?