(Request) Spreadsheet/Model comparing after tax returns of ETF, Life assurance, Directly held shares, non tax relieved pension contribution?

S

SPC100

Registered User
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Hi,

Does anyone have a good spreadsheet or model comparing the potential after tax returns from the various potential investment mechanisms?

There are at least these set of options available to folks
  • ETF,
  • Life assurance,
  • Directly held shares,
  • non tax relieved pension contribution.
Obviously a lot depends on which shares/markets are being invested in, their future prices and their future dividends, not to mention future taxation policy. But those could be variables in the model.

Thanks!
 
I think that there's a danger of getting bogged down in overanalysis in this context. There's no point in trying to predict the respective gross returns on the different options or try to accurately compare the after charges/tax net returns on hypothetical scenarios. So, better to just recognise that the latter two are more attractive from a tax/charges point of view compared to the first two. Then use that information to choose the appropriate investment route. Once again I'll link to my recent post in a similar vein.

What to do with a million euros?

Personal details Your age: 49 Your spouse's age: 54 Number and age of children: 2 aged 9 and 14 Income and expenditure Annual gross income from employment or profession: €30,000 (state job) Annual gross income of spouse/partner: €60000 (state job) Pension: have maxed AVC’s (should I also...
www.askaboutmoney.com
 
ClubMan said:
There's no point in trying to predict the respective gross returns on the different options or try to accurately compare the after charges/tax net returns on hypothetical scenarios.
Click to expand...

Yes, but that is not what he is asking.

If I decide to invest in shares, then I would like to know which is the most cost-efficient and tax-efficient vehicle.

Brendan
 
If this was tidied up/condensed/added to you might have a solid foundation for the suitability of each option?

The Disclosure Schedule that a client receives on a Life Assurance investment gives a illustrative table of projected benefits and charges (including taxation to date) for years 1-5, 10, 15, 20. It's based on an assumed return of 4.67% pa.

If there was something similar for ETFs and shares?
 
To create a comparative model of after-tax returns for various investment vehicles in the Republic of Ireland—specifically ETFs, life assurance, directly held shares, and non-tax relieved pension contributions—let's break down the tax implications and potential returns for each category.

1. Tax Treatment Overview​

Investment TypeTax on GainsTax on IncomeAdditional Notes
ETFs41% exit tax (deemed disposal every 8 years)41% exit tax on dividendsHigher tax than directly held shares; losses cannot offset gains .
Life Assurance41% exit tax on gains41% exit tax on incomeTax-free growth for up to 8 years; taxed only upon exit.
Directly Held Shares33% capital gains taxMarginal income tax rates (up to 55%) on dividendsLosses can offset gains; more favorable tax treatment compared to ETFs.
Non-Tax Relieved Pension ContributionsN/A (tax-deferred until withdrawal)N/A (tax-deferred until withdrawal)Taxed at marginal rates upon withdrawal; contributions may reduce taxable income.

2. Hypothetical Investment Model​

Assuming an initial investment of €10,000 with an annual return of 5% over a period of 20 years, we can estimate the after-tax returns for each investment type.

Calculations:​

  • ETFs:
    • After 8 years, deemed disposal occurs.
    • Growth after 8 years: 10,000×(1+0.05)8≈€14,69310,000×(1+0.05)8≈€14,693.
    • Tax on gain: €14,693−€10,000=€4,693€14,693−€10,000=€4,693 → Tax = €4,693×0.41≈€1,926€4,693×0.41≈€1,926.
    • After-tax value: €14,693−€1,926≈€12,767€14,693−€1,926≈€12,767.
  • Life Assurance:
    • Similar growth calculation as ETFs.
    • After-tax value upon exit after 20 years would also be subject to a similar exit tax.
  • Directly Held Shares:
    • Growth after 20 years: 10,000×(1+0.05)20≈€26,53310,000×(1+0.05)20≈€26,533.
    • Tax on gain: €26,533−€10,000=€16,533€26,533−€10,000=€16,533 → Tax = €16,533×0.33≈€5,463€16,533×0.33≈€5,463.
    • After-tax value: €26,533−€5,463≈€21,070€26,533−€5,463≈€21,070.
  • Non-Tax Relieved Pension Contributions:
    • Growth is tax-deferred until withdrawal. Assuming the same growth rate and taxed at the marginal rate upon withdrawal.

3. Summary of After-Tax Returns​

Investment TypeAfter-Tax Value After 20 Years
ETFsApproximately €12,767
Life AssuranceSimilar to ETFs (~€12,767)
Directly Held SharesApproximately €21,070
Non-Tax Relieved Pension ContributionsDepends on marginal rate upon withdrawal

Conclusion​

From this model:
  • Directly held shares offer the most favorable after-tax return due to lower capital gains tax rates and the ability to offset losses.
  • ETFs and life assurance products are subject to higher exit taxes but provide some advantages in terms of deferred taxation.
  • Non-tax relieved pension contributions can be beneficial due to their tax-deferral nature but will ultimately depend on the individual's marginal tax rate at withdrawal.
This comparative analysis highlights the importance of understanding the specific tax implications associated with each investment vehicle in Ireland to make informed financial decisions.

This response was generated by AI so please verify the information before proceeding. Best of luck.
 
I'm not sure about some of the above:
  1. Life Assurance
    • I presume that this refers to Unit Linked funds, UCITS, and the like?
    • "Tax-free growth for up to 8 years; taxed only upon exit." - aren't they also subject to deemed disposal taxation evrery 8 years? The ones that I held up to recently certainly were.
  2. Directly held shares
    • "Marginal income tax rates (up to 55%) on dividends" - is this correct or should it be 52%?
  3. Pension
    • "Taxed at marginal rates upon withdrawal" - what about tax free lump sum?
 
Ah - "This response was generated by AI" - that probably explains it.
I've seen AI/ChatGPT get very basic stuff wrong and it's always fun to ask it "Are you sure that your answer is correct?" and then see it churn out something completely different.
 
I have a spreadsheet which I put together a few years ago for my own use which looks something like this.



The figures are likely out of date or in some cases were just plain wrong at the time. But I think the structure might still be useful if others were willing to help update the input variables.

I am happy to share this if it is of use...
 
You need to explain how you calculate the figures from one year to the next

For example how do you get from 98,500 to 104,804 in the case of Income ETF
 
ClubMan said:
Ah - "This response was generated by AI" - that probably explains it.
I've seen AI/ChatGPT get very basic stuff wrong and it's always fun to ask it "Are you sure that your answer is correct?" and then see it churn out something completely different.
Click to expand...
That's why I always place a caveat to verify the information when presenting to a third party and double check if I'm using it myself. We are in the early days of AI and it's improving very quickly, just remember that like VAR in football, today is the worst it will ever be.
 
3CC said:
The figures are likely out of date or in some cases were just plain wrong at the time. But I think the structure might still be useful if others were willing to help update the input variables.
Click to expand...
also the growth rate of nearly 8% per year in the share portfolio and ETFs is very unrealistic, most funds and portfolios would only be doing 4 to 5% per year on average
 
Clubman - paralyisis analysis is very real - I have been affected by that myself

Gerard - thanks for highlighting the thread - the post by @AJAM was a good summary of treatment of various options.

The AI was interesting. It only let the ETF grow for 8 years, but it let the shares grow for 20!

3cc, yes, something like that which you did. I'm wondering if others have already built good models!

Gordon, For winners/losers, I think the most important things would be how much of the growth we predict comes from capital gain vs income, and the person's particular tax situation. I think higher growth rate, are also more likley to make the difference between winners and losers larger, i.e. exagerate findings.
 
Gordon Gekko said:
That shouldn’t change the winners and losers though, no?
Click to expand...
No but it exaggerates the differences especially if the original assumptions are wrong, going from 98,000 to 322,000 after 16 years is not a typical performance. Also the 41% tax taken off doesn't look so bad since the growth has been so good (which is not realistic) . It makes the net result even after taking away the taxes still look great.
 
Does it?

Or isn’t it all relative?

If I double my €10k, it’s €4,100 exit tax or €3,300 CGT.

If I triple it, it’s €8,200 exit tax or €6,600 CGT.
 
Gordon Gekko said:
Does it?

Or isn’t it all relative?

If I double my €10k, it’s €4,100 exit tax or €3,300 CGT.

If I triple it, it’s €8,200 exit tax or €6,600 CGT.
Click to expand...
That's not what I'm saying, I'm well aware of how percentages work. By exaggerating the performance of a fund, 8% a year for 16 years is basically unattainable, the net amount even after lopping off the 41% is still a large sum of money and you would still be happy. But that's not a realistic scenario, run the model again with 4.5% growth, you end up with alot smaller gross sum after 16 years , then the 41% needs to be lopped off, that's reality. By exaggerating the growth the extra 3.5% surplus growth is paying the tax but that's Alice in wonderland performance
 
Last edited:
For the purpose of trying to first order model outcomes. I suggest that we assume that all vehicles have the same (before fees) performance. (This assumption may not actually be true for the direct share holding where a smaller basket of shares, even with re-balancing, may under or over perform the broad index. But if we determine direct shares is optimal, we can then go read the research on optimal strategy about how to invest in a basket of shares).

 
Fees/costs for the solution will clearly affect the outcome. That probably rules out the life assurance policies, which I understand also have an 8 year tax event, but generally have higher fees than an ETF. So we would then expect an ETF to beat life assurance.
 
Beyond costs, the other key determinant will be how much tax reduces the compound return.

Let's ignore non tax relieved pension option for a moment. and look at ETF vs direct shares.

If, as per above, we assume that direct shares can equally capture the 'stockmarket gain of an index'. I think the comparison boils down to whether the income tax cost (annual dividends) from holding shares directly is better or worse than the tax drag from the 8 year deemed disposal.

That is clearly sensitive to how much of the return arrives as capital growth vs income.

If the direct shares basket happened to issue no dividends, it seems clear that direct shares would win, as they would then compound tax free.

If the direct shares basket returned all it's gain in dividends, and if that income was taxed at higher rate, and it seems clear ETFs will win, as they get the benefit of tax free compounding for 8 years.

Conclusion: For ETF vs shares modelling, we need to be mindful about how much of the gain we assume is from dividends and how much is from capital growth.
 
jpd said:
You need to explain how you calculate the figures from one year to the next

For example how do you get from 98,500 to 104,804 in the case of Income ETF
Click to expand...

First off - a disclaimer/confession. I did this sheet back in 2018 when I was even more confused about Exit Tax than I am now. So it's probably not perfect but it might help the OP as a starting point.

I can update the sheet based on any comments that are posted here so that it will hopefully be more useful (both for myself and anyone else that wants a copy).

I have already made a few changes to address a few comments and to correct a few errors (sorry!) The revised sheet now looks something like this.

 
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