ETF Returns & Irish Taxation

Personally I like the spirit of the Deemed Disposal rule. Gains/income that can go untaxxed until death only exacerbate the negative socioeconomic effects of generational wealth. Unfortunately the implementation of it pushes smaller investors into riskier assets or leaves them stuck with underperforming assets like bank savings accounts, while I'd guess not impacting wealthy individuals much at all.

Controversial opinion I'm sure, but I would like to see something similar applied to as many investment types as possible, certainly individual shares/investment funds. But it needs to be implemented in a way that it targets the right people. Small investors (like most people here I'd assume) should be encouraged to invest in ETFs cheaply and easily.
 
jpd said:
I don't like paying the Exit tax - it seems exorbitant to me compared to the taxes involved in direct investment in shares, etc
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Again, that's not necessarily true.

The S&P500 produced an annualized return, with all dividends reinvested, of around 4% over the last 20 years. The average dividend yield over this period was approximately 2%. In other words, reinvested dividends contributed very significantly to the total return.

Paying tax at a rate of 52% every year on those dividends would have reduced your total return to the extent that the exit tax regime would actually have produced a somewhat better return (net of taxes) over the last 20 years.
 
Fortunately, or, unfortunately, my marginal income tax rate was 20% over the last number of years
 
jpd said:
Fortunately, or, unfortunately, my marginal income tax rate was 20% over the last number of years
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Including USC & PRSI?

For investors with a low marginal tax rate and significant capital, I think investment trusts (something like F&C Investment Trust plc) represents a decent option.
 

The State takes 52% of my income. I’m left with 48% for myself. When I kick the bucket, the State takes another 16% leaving my kids with 32%. That’s 68% gone to the State. Isn’t that more than enough?
 
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Gordon Gekko said:
The State takes 52% of my income. I’m left with 48% for myself. When I kick the bucket, the State takes another 16% leaving my kids with 32%. That’s 68% gone to the State. Isn’t that more than enough?
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Think I made it pretty clear what I was saying shouldn’t apply to your average punter. Unless you’re revealing you’re the real Gordon Gekko!?
 
Gordon Gekko said:
It depends how you define an average punter.
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I’d leave that to better minds to figure out the exact numbers, but the UK’s ISA arrangement might be something to compare to? £20k per annum; if you started young enough you can see having £1m in there. So €1m in an ISA, €2m in a pension, no issues with that.

But €20/30m+ rolling from generation to generation is not healthy for society in my view.
 
Gordon Gekko said:
The State takes 52% of my income. I’m left with 48% for myself. When I kick the bucket, the State takes another 16% leaving my kids with 32%. That’s 68% gone to the State. Isn’t that more than enough?
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52% over €35,300, and after tax credits I'd assume? These have a significant effect, a single person earning 100k per annum pays 38.5% tax, and that's before allowances such as pension contributions, which lower it further.
 
mojoask said:
52% over €35,300, and after tax credits I'd assume? These have a significant effect, a single person earning 100k per annum pays 38.5% tax, and that's before allowances such as pension contributions, which lower it further.
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Correct. 52% of any marginal income over and above €70k.
 
If the original workings were incorrect, can somebody post a rough estimate of what the real returns would look like?
 
confused12 said:
If the original workings were incorrect, can somebody post a rough estimate of what the real returns would look like?
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Initial Investment: €100,000
Assumed 5% Gain Per Year.

Net Proceeds Year 24:
ETF: €193,569.28
Direct Share Ownership: €250,351.70



Assumptions:
41% exit tax on ETF & deemed disposal every 8 years.
33% CGT on direct share ownership & €1,270 annual allowance.
Investment Term: 24 Years.
No dividends.
Management charge on ETF not factored into this calculation.
Sell enough of the investment at each deemed disposal date to pay the tax liability.
No other fees taken into this calculation, e.g stamp duty or broker fees therefore this is just for illustrative purposes only as there is no one size fits all calculation.
 
KBIreland said:
That is not taking the CAT thresholds into account and the various related schemes so it sounds worse than it is in reality
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Well, firstly I was referring to myself and the treatment of my income; that’s marginal/extra wealth as it flows in with the CAT thresholds already used up with existing assets. On the basis I’m neither a farmer nor a business person, we won’t get any of those reliefs you refer to.
 
Hopefully we will all have that problem one day

Are you aware of any other schemes from tax advisors who are used to dealing with high net worth individuals and succession planning?
 
The Sarenco posted above has a fairly detailed answer, here are the two important charts -


6% Capital Gain & 2% Dividend Yield
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4% Capital Gain & 4% Dividend Yield
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