Moving to Ireland - taxes on ETFs vs individual shares

[Dwarvenshire]

Hi all. My wife and I are highly considering moving to Ireland from South Africa. We both work in the healthcare field.

We own some ETFs in US brokerages in dollars and some South African individual shares in Rands.

I have been researching taxes in Ireland and have learned about the deemed disposal rule, as well as how Ireland treats ETFs - to my understanding gains on etfs are taxed at 41% and every 8 years your unrealised gains are taxed at 41% according to deemed disposal. This is a heavy tax penalty and will significantly impact returns and compounding over time.

I wanted to ask for help - as we will not be domiciled in Ireland, but rather South Africa, would it be advantageous from a tax perspective to sell our ETFs and buy individual shares? Will these ETF taxes apply to my wife and I as well as deemed disposal even if we don't remit any of these investments to Ireland?

thanks for the help!

 

[AAAContributor]

You are right to research these matters before you move to Ireland rather than after.

It's not the case that all ETFs are taxed at 41% and subject to deemed disposal.

You (or preferably a tax professional) have to examine the prospectus of the ETF to discern its structure as it could be the case that it is an ETF that can be taxed under general tax principles (income tax on income, capital gains tax on gains, no deemed disposal provisions), rather than under the 41% + deemed disposal regime.

If your particular chosen ETFs are eligible to be taxed under general tax principles, then your non-domicile status should allow you to benefit from the remittance basis of taxation. ETFs that are subject to the 41% rate and deemed disposal provisions cannot avail of the remittance basis of taxation and taxes would apply even if there was no remittance to Ireland.

As a non-domicile, you should definitely seek out tax advice in Ireland (and SA) prior to your move as there are practical matters to consider prior to taking up Irish residence i.e.

- identifying capital accumulated prior to becoming Irish tax resident and placing this capital in a separate account;

- ensure that any income paid on the capital is credited to a separate account so that remittances can be made to Ireland from the capital account, free of tax;

- review of investment portfolios to consider whether it is worthwhile to rebase investments;

- gifting assets prior to becoming Irish tax resident (though you do have a 5-yr window of time to play with here as a non-domicile).

 

[Dwarvenshire]

You are right to research these matters before you move to Ireland rather than after.

It's not the case that all ETFs are taxed at 41% and subject to deemed disposal.

You (or preferably a tax professional) have to examine the prospectus of the ETF to discern its structure as it could be the case that it is an ETF that can be taxed under general tax principles (income tax on income, capital gains tax on gains, no deemed disposal provisions), rather than under the 41% + deemed disposal regime.

If your particular chosen ETFs are eligible to be taxed under general tax principles, then your non-domicile status should allow you to benefit from the remittance basis of taxation. ETFs that are subject to the 41% rate and deemed disposal provisions cannot avail of the remittance basis of taxation and taxes would apply even if there was no remittance to Ireland.

As a non-domicile, you should definitely seek out tax advice in Ireland (and SA) prior to your move as there are practical matters to consider prior to taking up Irish residence i.e.

- identifying capital accumulated prior to becoming Irish tax resident and placing this capital in a separate account;

- ensure that any income paid on the capital is credited to a separate account so that remittances can be made to Ireland from the capital account, free of tax;

- review of investment portfolios to consider whether it is worthwhile to rebase investments;

- gifting assets prior to becoming Irish tax resident (though you do have a 5-yr window of time to play with here as a non-domicile).

Thank you so much for your helpful reply.
I will take your suggestions into consideration when seeking further help.

I own VT (vanguard world fund) which is US domeciled - this etf has a similar Irish domeciled etf VWRA/VWRD although they are not exactly the same. VT has 9600 companies over the globe and includes small cap stocks whereas VWRA/VWRD do not (around 3800 companies total). VT tracks the FTSE global all cap index, and vwra/vwrd track the global all world index (different underlying indices).To my knowledge there isn't an Irish domeciled etf that replicates VT and tracks the FTSE global all cap index. Do you think this would possibly be different enough to be eligible for tax under general tax principles?
Do you possibly know of any professionals I can contact to go through the respective prospectus' to confirm this.

 

[AAAContributor]

Do you think this would possibly be different enough to be eligible for tax under general tax principles?

Looking at the prospectus (https://personal.vanguard.com/pub/Pdf/p3141.pdf), it is most likely that VT is eligible for tax under general principles, but get this confirmed by an expert in the area.

I'm not connected to any of these firms but I've seen some published work by professionals belonging to these firms and they seem to know this subject area very well:

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[Dwarvenshire]

Thanks again for your help!