ETF Returns & Irish Taxation

I've spent the last two hours reading comments on here about the tax treatment of ETFs.

Set up a trade Republic account in last few months and have been throwing money into a range of ETFs regularly, using the "savings" feature to avoid transaction costs...

I'm no spring chicken, and not in any kind of debt, have house, pension etc all sorted but not disciplined with any spare money so was looking at this as a way to do something productive with a small amount of spare money that, if all lost, wouldn't really have an impact (so money that would otherwise go on unnecessary, impulse type purchases). It's been working and I bizarrely enjoy looking at the graphs and % changes in the different "investments".

I knew there'd be some tax implications and forms to fill in but by god did I underestimate it. At least I've twigged it early enough.

Having read everything on here, if continuing with the ETFs, I feel the best way forward is to minimise them down to one (currently have 4 which I picked for a variety of reasons including diversity, some more risky etc) and to save the money up and do one transaction a year. Almost certain I will instead buy something nice for myself when savings build up but that's a separate issue! I need to still consider the tax side of that and whether it's worth it, but I'm currently setting myself up for a real nightmare in 8 years as I'll be deemed disposing holdings in 4 different ETFs every few weeks indefinitely from that period onwards if I continue as is. I've seen a few different example spreadsheets but don't think this is really manageable, I guess by the time 8 years comes around I could do some kind of tax study!

Not sure what I'm here to say really, thanks I guess for all those who have taken the time to give opinions. I think I need to find an alternative which is a shame as quite like the low fee and simplicity of the trade Republic app, and the non commitment as opposed to investing with a more established company here.
 
Turniphead said:
as I'll be deemed disposing holdings in 4 different ETFs every few weeks indefinitely from that period onwards if I continue as is
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Maybe I’m misreading you here, but to be clear you will not be doing Deemed Disposals every few weeks. You will be doing a single tax return once per year where you will add up all the Deemed Disposals for the previous period. Ideally you’ll use a spreadsheet to do this so it will be a couple of clicks of a button to figure out the total, then fill it in to a box on your Tax Return. No rooting through piles of dividend slips figuring out income tax, no checking for dividends from other jurisdictions where some tax has already been withheld, no trying to sell a few quid here and there to harvest the CGT allowance and then do a CGT return etc etc.

I’m not saying the situation is ideal, but small investors should not throw out the baby with the bath water here, ETFs are still the best route for most unsophisticated retail investors in my option.
 
Thanks Zenith. Yes I phrased that badly but you indeed understood what I meant by my knowledge of the implications. So yes I had the same understanding as you set out in response.

So to be clear, in 8 years time, every few weeks for ever more, I will be hitting the 8 year mark and will need to file a return once per year. I would need to have a spreadsheet set up (which I'll need to start now anyway) which tracks every purchase, and then compare the value of the thing as against that, and tot up at end of year.


One question that occurs to me I suppose is the idea of deemed versus actual. So if on 7 years and 51 weeks I simply sell off the entire etf holdings, and just buy it back (would need to check any rules around minimum gap or whatever) I avoid the deemed part. I would need the same sort of spreadsheet tracking though to even work out any profits and liabilities on doing that right? I need to check if this App I'm using provides any kind of annual statements on profits etc. So there wouldn't be any great avoidance of homework in that approach either I suppose. Aside totally from actually understanding the merits of that approach (I mean is it foolish for financial reasons).
 
41% funds are to be avoided. The clincher is that you get taxed on death.

I stick €100,000 into a fund, it grows to €200,000, I get hit by a train, and my Mrs is hit with a €41,000 tax bill.

I stick €100,000 into a portfolio of shares, it grows to €200,000, I get hit by a train, and my Mrs has no tax to pay.

Game, set, and match.
 
There was another thread where this was discussed, cannot find it on my phone though sorry. What I understood though was that there was little difference between shares and ETFs in this regard because any Exit Tax paid can be used as a credit against CAT/inheritance tax? The fact that you mention your wife there, perhaps that’s a nuance we didn’t consider - there wouldn’t be any CAT to offset against?
 

Precisely. There’s no CAT for it to go against when your spouse inherits it. And with a €335,000 tax-free threshold for each child, there’s little or no CAT for lots of children also.
 
Gordon Gekko said:
41% funds are to be avoided. The clincher is that you get taxed on death.
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Zenith63 said:
What I understood though was that there was little difference between shares and ETFs in this regard because any Exit Tax paid can be used as a credit against CAT/inheritance tax?
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Do any of the financial advisors here have a comment/clarification on this point? It seems like a big reason to avoid all funds not just ETFs.
 
Inheritance tax is calculated on the gross value of the fund at death. A tax credit is then allowed for the exit tax already deducted.


Don't let the tag wag the dog. We invest money now so we can use it in the future. So spend the money while you are living. Yes, people die prematurely, but that won't be the case for most people, so you have plenty of time to spend your money.
 
Hi all

Firstly an apology..
Although the response to my questions is rightly going to be Read-The-Thread, I'm a little confused. So I'd be very grateful if people could basically reply to the questions below.
Background
I moved back from the UK to Ireland last year, so my dealings with Revenue Commissioners to date have been fairly minimal.
Since the start of this year, I decided I had enough easily accessible savings for a Rainy Day fund, and instead started investing my surplus income in ETFs. Spread across a number of different markets and sectors. I've been dripping money in gradually, based on what was spare at the end of the month. I was thinking yeah, CGT when I sell, and Dividends when I get them, I can cope with that.

Then I started reading on how to return that at the end of the tax year. Uh oh.

1. Do I need to tell them about each individual purchase of each individual ETF? i.e., the monthly purchases..... Or just an annual summary per ETF.
2. If I do multiple purchases of an ETF in a given tax year, but then sell the whole lot before the end of the tax year - and make a loss - do I need to tell them about that specific ETF at all?
3. If I have an accumulating ETF (so as to avoid the complications of dividends) do I just need to pay the deemed disposal tax? As the dividends are accumulated in, they get counted that way? Or is there some other treatment of accumulating ETFs that means you have to pay tax on the dividends as they were distributed into the fund? (Hope that makes sense)
4. I'm registered with MyAccount. I cannot see where/how I can do any of this there. Do I need to register to a separate bit of Revenue?
5. And, for 8 years time - assuming this hasn't been changed by then, I will have one return that includes the per month deemed disposal gains for each and every ETF. And the same for each year after that (because monthly purchases). Is that correct? (Might sell everything in year 7 tbh, and re-buy the whole lot)


Relatively speaking we're not talking big amounts here, I feel Revenue are going to spend more time/money wading through a lot of noise to discover I owe them €12.50 The UK system of disregarding dividends/interest if it's less than £100 per year seems more cost-efficient

Thanks in advance
 
My views/experience. I am not a tax consultant, so do your own verification

1) In theory, I think you should. In practice, probably not required. I've a monthly plan set up with Trade Republic. I reported the first purchase date in the year and the full amount of all purchases in the year. I doubt Revenue really care (that was advice I got for the exact same question somewhere else on AAM).

2) I think you're still meant to inform them about the purchase. No need to inform them about the sale IMHO.

3) Just deemed disposal tax (assuming you don't sell within 8 years of purchase)

4) You should register with ROS for "income tax". You can fill in your ETF purchases and gains on Form 11 after the end of the tax year (and before mid November of the following tax year)

5) In Form 11, from what I remember, you just state the annual gains as a single figure. However, you will need to calculate the gains for each individual purchase to arrive at the overall figure. So, to calculate gains for each month, you'd need to know the market value of the fund on the anniversary of purchase for each month. Use a spreadsheet.
Rather than selling and re-buying the lot at the end of year 7, another option might be to sell, say, the first two months of purchases before year 8. So you pay tax at 41% on the actual disposal. Then use whatever is left over to pay the deemed disposal on the profits from purchases from month 3 to 12. You'd need to do the maths to work out how many months is optimum to sell if taking this approach.
 
Thanks for the guidance - that's helpful.
On Q1 - I'll have all the details anyway, so if they come back to me I can provide it then.
 
I received my tax-pack from the broker.
It shows Encashment tax of 25% taken at source, to Irish tax authority.
This is more confusion, because its an EU UCITS fund.
Has anyone had this occurence?
 
Encashment tax on dividend distributions from an EU ETF.
I think the broker / wealth manager are wrongly classifying the ETF. Its clearly a UCITS fund.
I thought all UCITS are subject to the 41% rule.
 
An encashment tax is just a prepayment of any tax due - it would be a credit against tax due when you file a return

Dividend paid €100
Exit tax @ 41% € 41
Encashment tax € 25
Tax now due € 16
 
jpd said:
An encashment tax is just a prepayment of any tax due - it would be a credit against tax due when you file a return
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Yes, but encashment tax (aka DWT) doesn’t apply to investment undertakings.

Without knowing what vehicle made the deduction, it’s impossible to advise further.
 
Dividend Withholding Tax and Encashment Tax are not the same - different bodies are responsible for the collection and payment

Encashment Tax
Encashment Tax is a withholding tax deducted from income from public revenue dividends and dividends of a non-resident body. The individual who is responsible for the payment of income must deduct the tax.
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jpd said:
Dividend Withholding Tax and Encashment Tax are not the same - different bodies are responsible for the collection and payment
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Technically you are correct but they both represent a withholding from dividends at a rate of 25%.

The key point is that neither apply to investment undertakings.
 
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