ETF Returns & Irish Taxation

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. All my ETF investments were made back in the 2000s and while I would like to add to them, I now avoid them and make direct investments in shares. This is not ideal but it is the best I can do to protest at the Exit tax regime.

If it was more widely known, I guess more people would complain but as the vast majority of the Exit tax investments are in Irish funds, most people are only vaguely aware so it passes unnoticed
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I'm inclined to agree with you. I think investing in ETFs from Ireland is so laden with downside imposed by the tax system that it just isn't worth the bother. I absolutely love the concept of ETFs and in a perfect world we could just log on to M1 Finance of some such and fire away but this is Ireland and the system has us by the balls. It's an absolute maze.

I refuse to pay for professional advice and won't use high priced legacy brokers, so like I suspect many of you on here, I have to be smart. It's third world compared to the US but it is what it is.
 
DeInfoSeeker said:
It's an absolute maze.
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There's an argument that the tax system makes investing in ETFs more costly than directly in shares, but if anything I think it's less complex that shares.

Shares -
  1. Stamp duty on entry, but only for certain markets
  2. Tax return required annually from day one to declare dividends. PRSI/USC/IT all required.
  3. Multiple dividends coming out per annum per company
  4. Maybe some messing trying to get into DRIP/SCRIP schemes to get rid of all the annoying dividend cheques arriving in the mail, companies starting/stopping their schemes etc.
  5. Mountains of mail about AGMs/EGMs/company updates
  6. Probably a rights issue or two in here that may trigger a tax event or at least a recalc of your cost base
  7. Getting a geographic spread means buying shares in multiple jurisdictions and dealing with various levels of dividend withholding tax, double taxation agreements etc etc
  8. Use-it-or-lose-it nature of CGT allowance means you may be selling shares every year to use up the allowance, then doing a CGT tax declaration which depending on when you sell the shares can be twice a year
  9. Stamp duty on exit, depending on the market
  10. CGT on eventual exit, probably some more messing trying to make best use of CGT offsets
  11. Regular buying/selling of shares to rebalance your portfolio means some of the above steps being done again after the initial purchase
ETFs -
  1. Tax return required (likely annually if you're buying in regularly) when the first ETF you buy reaches 8 years
  2. Simple tax rate when you exit, same as the one you're using every year. One tax rate vs at least five compared to direct shares.

Managing ETF taxation is well within the realm of a basic Excel spreadsheet and doing your own tax return. Handing the tax return for a broad portfolio of geographically diversified direct share investments is an incredibly onerous task, I remember well the full A4 binder of dividend notes etc. I used to send my poor accoutant for a fairly small portfolio...
 
Hi,

I need to calculate if I have any tax due upon selling an ETF, I went through the below but found it a bit confusing on the approach to use. In my situation, I have exposure to one UCITS ETF and within that, I have made around 14 purchases over the last 2 years, and I am liquidating the holding. Do I owe tax on the following

1. 41% of Current Value of all transactions - Total purchase cost
2. 41% of the current price - initial price on each individual transaction? Meaning a number of the transactions would have no tax due but the recent transactions would.


Part 27 - Sections 731-747F

www.revenue.ie www.revenue.ie
 
Each transaction is classified as its own unique investment even if it is the same fund.

Losses on UCITS ETF's are not available to offset against other investments.

Therefore just take the transactions that you have made a profit on and multiple that * 41%.

Revenue MyAccount has a section to ask confidential questions of Revenue tax staff also.
 
KBIreland said:
Each transaction is classified as its own unique investment even if it is the same fund.

Losses on UCITS ETF's are not available to offset against other investments.

Therefore just take the transactions that you have made a profit on and multiple that * 41%.
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Hi,
Could you clarify something for me please?

I had always thought that on first disposal you could elect to use an average cost basis, rather than FIFO, thus allowing losses on the same ETF to be offset against gains. Is this not the case?

I fully understand that losses can't be offset against other gains/income, but I'm surprised that they can't even within the same ETF?
 
Yes, you can use average cost

It looks like it allows losses with the same ETF to be setoff - but that's the case using FIFO as well just the timing is different - I haven't time to post an example now but will do it later
 
The average cost is as simple as

1. Purchase 2 @ 3.00 = 6
2. Purchase 3 @ 4.00 = 12
3. Purchase 1 @ 3.50 = 3.5

= 6 units costing 21.5 with an average for 3.58 (21.5 / 6). The tax becomes [Units * (Sale Price - Average Cost) ] * 41%?
 
The attached Excel spreadsheet has an example of using FIFO and Average cost and the following assumptions
Two purchases of an ETF - 100 shares on 1/07/2007 and 200 shares on 1/9/2011
Two deemed disposals - 100 shares on 1/7/215 and 200 shares on 1/9/2019
Actual disposal of 300 shares on 1/6/2020

You can change the dates and the timings but eventually when the full disposal is made the tax will equalise
 

Attachments

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Dublinbay12 said:
The average cost is as simple as

1. Purchase 2 @ 3.00 = 6
2. Purchase 3 @ 4.00 = 12
3. Purchase 1 @ 3.50 = 3.5

= 6 units costing 21.5 with an average for 3.58 (21.5 / 6). The tax becomes [Units * (Sale Price - Average Cost) ] * 41%?
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Correct - but there will be a separate deemed disposal for each of the three purchases as well as any actual disposals
 
Sarenco said:
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.
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You are right, however is there a case to be made for simply avoiding stocks that pay a dividend and therefore only ever paying 33%?
 
I have a quick question which unfortunately I think I know the answer to....is investing in ETFs in Ireland still "tricky" for the average person on the tax side?

My brother is keen to invest as I do but I'm in Germany and I believe things are very different for tax purposes. This is how it works here:

Over here I can invest in any foreign or domestic ETF, distributing or accumulating, without the tax being any different for me as the end customer. The bank/broker has to do all the heavy lifting and calculations and they automatically deduct the taxes and forward them to the tax office. For distributing ETFs it's straightforward, the tax is clear. For accumulating ETFs there is a fictive tax calculated based on fund value and current interest rates or something and this is deducted and paid every year. When this fund is sold (or part thereof) a calculation is performed to see if a tax refund is due or a tax payment is due.

The rate of tax is flat, it does not depend on your income tax rate, so the bank can do all this without knowing your personal circumstances, like DIRT in Ireland I guess.

Singles/couples have 1k/2k tax free allowances on this withholding tax (this includes profits from ETFs, both dividends and capital gains) per year. You can divide this tax free allowance up between your various banks/brokers/building societies and any tax below the threshold at the particular bank will not be deducted at all. The banks report to the tax office what portion of your tax free allowance you have declared to them so no cheating as they just add up all the allowances each year and check that you don't exceed your allowed total.

You only need to declare any of this on your tax return if you believe you overpaid withholding tax or capital gains tax, for example you forgot to tell one of your brokers about which portion of your tax free allowance you wanted to assign to them. They would then deduct withholding tax at the full 25% and this would need to be claimed back from the tax office. If you only assigned say €100 of your €2000 allowance you would also be able to claim back the over payment by including the details in a tax return.

I understand it is far more involved in Ireland and I think it's probably beyond my brother's capabilities to be honest. I don't want him getting himself into trouble. In Germany until 2009 it was also very complicated, at which point investing in domestic ETFs was greatly simplified. Since 2018 investment in any ETFs domiciled in the EU at any rate has been greatly simplified. It seems somewhat perverse that I can more easily invest in Irish domiciled ETFs than my brother in Dublin but it is what it is. Assuming my assumption is correct and it's too tricky for him, is there any light on the horizon here? Any sign the environment for retail investors like my brother will be simplified?

Can my brother invest in "something" that approximates say the S&P 500 without buying an ETF in Ireland if the above assumption is correct? Individual shares is beyond him and I believe too risky for most mere mortals like he and I.
 
murphaph1 said:
I have a quick question which unfortunately I think I know the answer to....is investing in ETFs in Ireland still "tricky" for the average person on the tax side?
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Have you actually read the thread and others like it?
 
murphaph1 said:
Can my brother invest in "something" that approximates say the S&P 500 without buying an ETF in Ireland if the above assumption is correct? Individual shares is beyond him and I believe too risky for most mere mortals like he and I.
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Yes. His best bet is to invest in a fund tracking the S&P 500 through a life assurance company.

Standard Life have a Vanguard S&P 500 available at a 0.90% Annual Management Charge (AMC) - see page 6: https://www.standardlife.ie/dam/Glo...rdlife_IE/IE-PDFs/your-investment-options.pdf

The downsides are:
- he will be subject to the 1% levy which will be an upfront bite out of his investment, and
- he will have a higher AMC than going the ETF route.

The upside is that the tax will be taken care of by the life co. so there'll be no stress for your brother on that front.
 
Thanks a mil AAAContributor. That sounds like the way to go for him. It's not as bad as I thought. A bit more expensive but not deal breaking by any means. Looks ideal for him :)
 
I think the tax bit is rather simple if you keep things simple but can be complicated and cumbersome if you buy and sell frequently. I have a low cost DeGiro account, wire the cash once a year and buy accumulating ETFs once a year. I used to have two distributing ETFs on which I had to pay the 41% on the dividends yearly. Last year I rebalanced the portfolio so I only have now accumulating ETFs, really simple the only thing to do is pay the 41% tax on the profits at sale or at the 8 year mark. If he doesn't plan to buy and sell frequently and focuses on accumulating ETFs rather than distributing ETFs then the tax part is rather simple.
 
Thanks folks. My concern would be that he would lose track and forget to pay the tax on the deemed disposal. I do not wish to take on the responsibility of keeping track of his finances, so it needs to be idiot proof.
 
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