Would the palaver not be resolved if Government said to EFT providers, okay we'll reduce/amend the tax if you lads sort out the taxation for clients to ensure that there's no self-assessment and avoidance, and it's really up to yourselves if you want to charge clients for that?
Sorting out the 8 year deemed disposal rule palaver
- Thread starter GSheehy
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For context, this post was in response to the text below and was posted here by the boss as it might have taken that other thread off topic.
Steven Barrett
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The whole thing is a mess. The Revenue don't know how to handle queries on deemed disposal outside of the life companies (which there shouldn't be any queries as the life companies pay it). Low cost providers aren't going to do it as they are low cost advisors for DIY investors. They aren't going to get involved in clients taxation issues.
This is entirely the Revenue's fault. When deemed disposal came in, it was really just life companies that they had to deal with. With online brokerages becoming much more popular, the Revenue needed to adapt and adjust. Surely sticking another line onto the Form 11 & Form 12 to deal with this isn't that difficult (probably cost €300,000 to get it done!
). They need to sort out the reporting of deemed disposal, never mind the Irish taxation of ETFs being out of whack with the rest of the world.Life companies didn't increase their fees when deemed disposal was introduced so why would they reduce them if it was removed?
I don't know. You'd have to contact each company for a call on that. I would say that much of the cost (setting up the system) has been absorbed already and that it is now just an administrative cost. You'd really only find out for certain if both platforms/distribution channels were operating on a level playing field.
If you have a 101% allocation on a savings plan and the Government Levy was abolished, you still get 101% allocation (stated on your policy certificate) on all contributions so that would be a nice win for the consumer. KIDs have this as the equivalent of 0.15% pa of a charge so that would probably be a better result. I could easily see the companies that are currently giving 101% allocation reducing their AMCs by that 0.15% pa as it wouldn't be a cost to the life company anymore. Who's going to bring this up with canvassers on the doorstep?
I'd also like to see a system whereby a transfer from one Life Assurance Investment to another (within the initial 8 years - min.) doesn't trigger an exit tax event. This would be very beneficial to those who buy a product, then go online to do some research, get a dose of buyers remorse because they're paying a 1.5% AMC for something that's freely avilable at 1% AMC and are stuck because of the limitations of Life Assurance Exit Tax. It'd be like Traspasos in Spain. CCPC should really get stuck into this one.
I'm around long enough to remember when Quinn Life came to the market with (initial) AMCs of 1.35% pa (pre Levy days) on investments (1.5% on pensions) and it was hailed as great competition in the market. AMCs have come down a lot since then.
Gerard
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Steven Barrett
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I w
) and 5% on every single premium. This was the standard commission across the board. While there's still some like that out there, they are in the minority.
It wasn't too long ago that people wouldn't invest through their pensions because they were seen as such a rip off. Look at it now, on this site, the #1 bit of investment advice to people is to put as much money as possible into their pensions. Costs have come down a massive amount and the commission structures have changed so much. I used to get 25% of the first year premium for monthly (I'm sure you used to get 60% Ger
) and 5% on every single premium. This was the standard commission across the board. While there's still some like that out there, they are in the minority.Perhaps not but deemed disposal was introduced before the explosion in popularity of DIY ETF investors. Now the life companies are in competition with that and one of their selling points is "We charge a bit more but we will handle all the complex tax and admin for you".
If the tax was no longer complex enough to need a professional to do it for you, then it would be harder to justify paying the higher fee.
Here's the thing, the DoF (and Revenue) don't see it that way at all. They view what the offerings of the life companies as an alternative to bank deposits
You only need to go as far as "Deposit products tend to be relatively simple where the relevant amounts are deposited and do not normally attract fees or commissions." in that seminal review by DoF to realise they were not for turning. I mean, why do people complain about the low deposit rates from Irish Banks? Wonder has it anything to do with bank margin/fees on deposits.
LAET got lumped together with DIRT
DIY ETFs came along and got lumped with a version of Life Assurance Exit Tax (without the Levy).
The life companies pretty much have it sewn up because they somehow created the tax regimes for all savings/investment products in Ireland. It really is a remarkable feat from them when you consider that they can't get the 41% (2014) reduced or the Levy (2009?) removed.
The change from ~23% tax -> 41%+levy+deemed disposal tax could have finished off life companies but it seemingly didn't. But charging entry fees and ongoing high fees, and having near useless guaranteed performance products didn't either - so is it that surprising?
You can be wealthy but not very financially savvy or interested - e.g. you've sold a farm, you've got an inheritance, you've built up a big chunk of savings, you're a medical consultant etc.. If you're in this group you're a prime target for a life company. You're happy to preserve your wealth and if it grows even better.
The problem is for people trying to build wealth via ETF investing. To most people someone saving 100e a month into an ETF would be quite different from someone with 5m in a fund, however Revenue will for tax purposes treat them almost identically.
You can be wealthy but not very financially savvy or interested - e.g. you've sold a farm, you've got an inheritance, you've built up a big chunk of savings, you're a medical consultant etc.. If you're in this group you're a prime target for a life company. You're happy to preserve your wealth and if it grows even better.
The problem is for people trying to build wealth via ETF investing. To most people someone saving 100e a month into an ETF would be quite different from someone with 5m in a fund, however Revenue will for tax purposes treat them almost identically.
My guess is no, low cost brokers would probably prefer to stop allowing Irish PPS numbers access to ETF funds than handle the tax, that's a zero cost solution to that request from government.
But the avoidance issue can't be understated, for Revenue to enforce this they need to take the information they get from brokers, note it's an ETF, then wait around 10 years to see first if the ETF is in profit, if it's been sold, if the owner hasn't moved to another country, if the owner is still alive, if the owner hasn't paid tax, if Ireland has dumped deemed disposal, and then issue a demand.
For a share CGT gain the broker will tell them about the sale, the bank will tell them about the lodgment. In terms of enforcement there's a night and day difference between an easily tracked disposal and a notional one. Eventually there will be a real disposal - but will that happen in Ireland - will it be declared - will it be declared as CGT instead of exit tax and let Revenue see if they spot the error.
I think Revenue could be the ones who get this changed - maybe they've not realised it but they need a simpler scheme - what they have is a scheme based on wishful thinking - and revenue aren't known for that (note how they ditched self declared ESPP this year). Or maybe they stop allowing ETF purchases outside of life companies?