Exit tax (before 8 year anniversary of 1st purchase) on monthly ETF purchases

Gordon Gekko said:
Agreed. If someone wants to invest on a monthly basis, the life company route makes most sense. Cue whinging about fees. Sometimes it’s not possible to have one’s cake and eat it.
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What if a person can handle the tax and paperwork themselves?

Surely that's a better alternative.
 
I could handle the tax and paperwork better than most and I think it’d be a crazy approach.

If I wanted to invest €1,000 a month, I’d either save up and invest €12,000 once a year, or I’d invest in Investment Trusts and avoid the 8 year rule entirely.
 
Investment trusts may become off limits on EU investment platforms as the U.K. is now a third county and the Brexit deal is silent for the most part on equivalence
 
Paul O Mahoney said:
So, an unrealised gain is taxed , well that's ........... how can this be justified?
Is this just here or is it the same in Europe?
And what happens is its a loss, is that carried forward or realised and written off against other classes of tax?
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Under the gross up investment vehicles, no tax is paid to the revenue on dividend payments or any profits on the selling of shares. The revenue complained that people were keeping their money invested for decades and the revenue weren't getting any tax income, hence the introduction of the 8 year deemed disposal.

I can see the logic behind their reasoning but the execution is incorrect in not allowing dividend paying ETF's/ funds be taxed as income with profits taxed under CGT.

Losses cannot be offset against gains.

I don't know what the tax treatment is in other EU countries.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Thank you it just sounds so inequitable, I mean those investments are probably done after tax income too.
My uneducated eyes see this as a form of double taxation and I have never seen unrealised gains taxed.
 
ETF's in France are treated as ordinary shares. so any dividends are taxed as investment income and any gains as capital gains. Losses are offsetable against gains
 
Paul O Mahoney said:
Thank you it just sounds so inequitable, I mean those investments are probably done after tax income too.
My uneducated eyes see this as a form of double taxation and I have never seen unrealised gains taxed.
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You have to pay tax on all investments, whether it is under the CGT method or exit tax method.

There is no double taxation either as any tax paid under the deemed disposal method is offset against the actual tax due when you do actually cash in your investment.

While I do not agree with how the revenue have handled the taxation of investments, allowing people tax free investments of both capital and dividends goes against taxation practice in any economy.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
With the monthly etf purchases, and the individual calculations, losses from one month can offset the gain from the next month in the same fund right?

For example
Month1: 100 @ 1
Month2: 100 @ 4
Month3: 100 @ 3
Month4: 100 @ 2

Doing a return after 8 years, selling price of 3.
Month1: +200
Month2: -100
Month3: 0
Month4: +100

So tax due on the return would be based 200 in this example rather than 300?

Also people have mentioned spreadsheet for tracking this previously. Does anyone have one to share or know of any software that might already do it? Everything I've found is geared towards other markets without this individual purchase tracking madness.
 
I am not sure about this - I think each purchase is handled individually

You would be extremely unlikely to find buying prices following that pattern - well, apart from Jan 2020 - May 2020and still be under water in 8 years time
 
jpd said:
I am not sure about this - I think each purchase is handled individually
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@jpd - can I double check this point with you?

I'm asking because in a thread I posted a few months ago with a similar query to @ryaner above, my numbers were similar (mixture of gains and losses within the same fund), but the event involved a sale rather than a deemed disposal:

ETF Tax Queries - Technical Points

Hello All, Looking for some clarification on the following points from anyone with experience in these matters: 1. Vanguard Total World Stock ETF https://institutional.vanguard.com/iippdf/pdfs/FS3141R.pdf As far as I understand, Capital Gains Tax (33%) is the applicable rate on any...
askaboutmoney.com

Are you saying that the tax treatment is different depending on the event?

My understanding of your response to my thread was that losses on purchases could be offset against purchases that had gains so that 41% tax was due on the net profit at sale time.

However, you seemed to imply that for deemed disposal calculations, the gains are ring-fenced and there is no allowance for losses.

Can you or any other poster advise if there is any technical Revenue document or other resource to clarify exactly the tax treatment in these situations?

Or alternatively, if anyone has encountered this situation in their own personal trading/investing history and obtained advice?
 
The post you referred to concerns non-EU ETFs which are treated like shares and are liable to CGT on disposal

Quoting from the Revenue guidance document Part 27-01A-03 - Exchange Traded Funds (ETFs) (revenue.ie)


It isn't specified but I read it as each monthly purchase is a separate investment
 
jpd said:
The post you referred to concerns non-EU ETFs which are treated like shares and are liable to CGT on disposal
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That's not correct.

My post was as follows:


You replied:


So, would you revise/edit this reply now to advise that the total purchase cost is not allowable and that the tax due is €307.50 and not €205?
 
If you dispose of the ETFs before the 8 years, then as far as I know you have two options when calculating the gain - FIFO or average cost

If you use FIFO then each purchase is treated as a separate investment, so the tax is due on 300 as losses are not offset
If you use average cost, then the average cost for the ETF is (100+400+300+200) ÷400 = 2.50, and in this case your gain is 200

It is not clear to me if you can use the average cost method for the deemed disposals

As you can see, the whole thing is a mess
 
jpd said:
as far as I know you have two options when calculating the gain - FIFO or average cost
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Where do you draw this knowledge from as this is quite a specific statement to make?

For the tax to be payable on a notional gain of €300 it means the tax payable is well in excess of 41% of @ryaner's net profit.

This would seem unfair and perhaps there is a concession by Revenue to allow the taxpayer the benefit of using either approach. But, this would have to be based on something solid.

jpd said:
As you can see, the whole thing is a mess
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It's not clear to me that it is a mess.

Somebody that lurks on this forum must have a straightforward answer or have encountered this situation in their own investing life or indeed works in a life company and deals with this matter on a day-to-day basis.

For instance, if one was to invest in a UCITS fund with a life company and have cashflows as per @ryaner above and sells/has a deemed disposal, the system computes the tax amount and so this matter has definitely been determined by the life company prior to facilitating investment by customers in these funds.
 
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Had a quick look - obviously needs tailoring to specific circumstances - removing the gain calcs after the 4 months so it doesn't throw an error due to no other data points, plus adjusted the inv amnts as I had defaulted to 1000.

The result gives below. Seems I set up to treat each purchase individually and ignore losses, cant remember if that was just to err on side of caution or if I had any clarity on it from revenue.

InvestmentsUnit price
YearJanFebMarApr
0€1.00€4.00€3.00€2.00

Units purchased
JanFebMarApr
100 25 33 50

Gain for Deemed disposal Exit TaxTOTAL TAX DUE EACH YEAR
Yeargain/loss34
2029​
8 200.00 - - 50.00Price at 30th June€3.00€103
 
The choice of FIFO or average is in a Revenue document - you make the choice on the first disposal (or deemed disposal?) and then it is fixed

I have a number of ETF but do invest regularly so it is easy enough to keep track.

Anyone trying to do it on their own with regular monthly investments is in for quite a lot of effort. That's why most people buy into a life assurance plan
 
ryaner said:
For example
Month1: 100 @ 1
Month2: 100 @ 4
Month3: 100 @ 3
Month4: 100 @ 2

Doing a return after 8 years, selling price of 3.
Month1: +200
Month2: -100
Month3: 0
Month4: +100
Click to expand...

note the "simple scenario" miscalculations on gains/losses
 
Thanks for running that @50andOut

How is the figure of €103 calculated?

If you have it programmed to ignore losses, shouldn't the tax be 41% on the Month 1 gain of €200 (=€82) and 41% of the Month 4 gain of €100 (=€41) for a grand total of €123?
 
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