Is the 41% Exit Tax Soon to be Scrapped? Michael McGrath to Review

You misunderstand me. Over €1bn has been taken in Exit Tax over the last 10 years. This will be mostly Deemed Disposal. If the Exit Tax rate is dropped it drops retrospectively for Deemed Disposal and has to be given back. That's were I get the €200m, maybe €150m. Year on year the hit will be only be about €30m.
 
But €600m of that was taken in the first 3 years (2014-2016). Since 2017 Exit tax take, went down every year except for 2021/2022. That's because people (myself included) changed the way they invested because of Exit tax and bailed out. Contrast that with the CGT tax take which increased every year (except for 2020).

The government are the wrong side of the Laffer Curve on this one. I agree in the first year of scrapping Exit tax it might cost €20-30m, but in the long term I believe the government will take in higher overall CGT through higher capital gains (due to scrapping the 8 year rule) and more people investing because 1. It's easier and 2. the 41% is offputting.
 


The Laffer Curve is a relationship which suggests there is an optimum tax rate which maximises total tax revenue.
 
I am referring to the retrospective return of tax under the DD rules which will be over €100m. There is no way the Exit Tax regime is going to change. But I agree that the emergency rate of 41% is counterproductive and reducing this to say 35% will give a Laffer kicker. The complication is the retrospective nature of DD.
 
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Duke of Marmalade said:
The complication is the retrospective nature of DD.
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All the more reason it should never have been introduced even the term "deemed disposal" has totalitarian connatations,
"Yes we know you didn't dispose of the asset but we have deemed that you did and we want the money"
 
If it wasn't for deemed disposal, direct investment would have been at a very big disadvantage. The life company would be able to buy and sell investments at will under the wrapper. ETFs can do the same. For true horizontal equity there would be a need to look through to the wrappers investment activity and for the investor to account for these annually. That would be a nightmare. So horizontal equity can only be approximate. Hence there will always be a tax dimension as to which route you take. If you are a buy and hold (forever) you chose direct (if tax was the only consideration) and vice versa.
41% Exit Tax + 1% levy is not on the same horizontal level as CGT + IT, at least for standard rate taxpayers. It should be dropped to 35%. The big issue that the life industry will want to avoid at all costs is a progressive Exit Tax. If it were progressive it would would probably be 25% for standard rate taxpayers and, yes, 41% for higher rate payers.
 
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Duke of Marmalade said:
41% Exit Tax + 1% levy is not on the same horizontal level CGT + IT, at least for standard rate taxpayers. It should be dropped to 35%
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I wonder how many people on the standard rate are investing in ETFs or life companies? The vast majority must be on the higher rate surely, so maybe it makes sense to align the exit tax rate with the higher income tax band rather than the standard?

Personally I think a UK ISA type scheme would be a better way to go than messing with exit tax/DD. It would encourage average people to invest, direct some investment away from property, average people would not need to worry about CGT/IT/DD/DWT returns but it wouldn’t be seen as a big gift to the wealthy, so less ammunition for SF than say reducing CGT or exit tax.
 

"Hesitant investors​

Yet information from a couple of years back suggests we fail to get savings working for us.

Compared to other countries, Irish people are a lot less likely to invest their money. 2013 stats showed that only 7.5% of Irish households held investment funds, and 13% held shares. The average value of both was under €5,000. By contrast, in the US, over 30% of households hold investments. And in the UK, around 50% of adults with savings hold risk-based investments. Why’s that?"

a paragraph taken from moneycube.ie asking why do irish people invest so little of their savings relative to our compatriots, from 2013 only 7.5% held investment funds and only 13% held shares compared to 50% in the UK holding investments outside of deposits. Those stark statistics alone are reason enough to abolish this silly legacy tax. Awell as that we need to introduce UK style ISA investment accounts. We are complete outliers compared to all of our OECD colleagues in this regard. As @AJAM has said imagine if we doubled the the amount of money invested in ETFs and investment funds from these small figures the revenue would be collecting alot more yearly tax from dividend income and CGT turnover from more investments being bought and sold. Also they need to pull down the CGT rates at least to 30% to incentivise people selling investments
 
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joe sod said:
imagine if we doubled the the amount of money invested in ETFs and investment funds from these small figures the revenue would be collecting alot more yearly tax from dividend income and CGT turnover from more investments being bought and sold.
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I’ve often wondered if part of the reluctance of the government to encourage stock market investing over property is that money spent buying a property in Ireland stays in Ireland, whereas money invested in shares is essentially goes to UK/US/European companies/economy in the vast majority of cases? If we had a stronger stock market here would the incentive to get people investing in stocks be greater?
 
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Money invested in shares generally goes to other investors - unless you participate in an IPO

The size and strength of a stock market is largely down to the size of the economy behind it - there is no way that the Dublin stock market could rival any of the European stock markets never mind the LSE, NYSE or NASDAQ
 
Sure, those were hypothetical statements trying to tease out the answer to my question of whether the government here are less keen on stock investing compared to property because the money largely leaves the Irish economy when people buy Microsoft shares etc.
 
Yes but only short term, obviously when they sell those shares then the money returns but that goes hand in hand with having lower CGT rates because currently the incentive is not to cash out of shares because the taxes are too high. There are countries with much smaller stock markets like Denmark and Belgium yet that does not preclude their citizens investing and also foreign investors buying into the Danish economy. Everything the authorities here are doing is so retrograde and 30 years out of date
 
I don't think we have a problem with inward investment- if anything, too much fdi
 
Right Winger said:
When Charlie McCreevy cut CGT in half, the yield rose.
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At a time of pretty much the fastest economic growth the country has ever seen or will ever see. It also stimulated a lot of transactions unlocking unrealised gains. The circumstances with ETFs today are totally different - I don't see any revenue windfall from lower tax on exit.

I do think investment outside pensions is far too heavily taxed in Ireland but you're making a specious analogy above.
 
LAET could be pitched lower than 35% to allow for the levy, the non annual exemption, the non offset losses/gains across different products/providers, and the cost saving to Revenue via non self-assessment.

Plus, how can anyone 'plan' their finances where the rate at inception can be 78% higer on exit - a defined rate of 25% +/- 3% might give savers/investors some solace in their planning.


Gerard

www.saveandinvest.ie
 
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AJAM said:
If ETF's are taxed under CGT, I will sell a lot of Investment Trusts and Single stocks (paying CGT) and use the proceeds to buy ETF's.
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That's a fair point and one I hadn't considered. I think it would see a related increase in CGT.

I still think though that the wider circumstances of the McCreevy era (soaring asset prices, the whole CGT base including property, etc) doesn't apply today though.
 
AJAM said:
Disagree. If ETF's are taxed under CGT, I will sell a lot of Investment Trusts and Single stocks (paying CGT) and use the proceeds to buy ETF's.
And I'm pretty sure I won't be alone.
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I can see a switch in what you pay tax on. But are you saying your overall tax bill will increase (Laffer)? If so, why would you want this. If not, why would the Revenue want this?
 
This country compared to the UK is completely anti-investing to the general public to provide for their retirement. UK has ISAS/SIPPs for example where there is tax relief on entry and no exit tax. People that invest the max each year can comfortably accumulate 1 million after 20 years. The UK have also eliminated their pension fund threshold for the more wealthy. The 2 million threshold here will mean better paid public servants in their 50s will take early retirement when they exceed this limit to avoid punitive tax on anything above the limit.
 
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