Very true! But the deemed disposal every 8 years is a major drawback.
Very true! But the deemed disposal every 8 years is a major drawback.The tax on ETFs is more less the same as the blended rate on capital gains and income on a rental property.
Your ETF will never call you at five to midnight with a broken toilet seat though.
Publication from the RTB today. Most landlords do comply with the RPZs. There are increases above 2% pa, but even the RTB admits that a lot of this is either rounding up, an increase over say 14 months or back dated increases (no increase for 3 years so, 6% now).What is can't fathom is how the market rents have remained so high - I understand the supply and demand but I would expect the majority of rental stock to be existing, not new but based on gut feeling and not hard data.
Is it really the case that so many more new rentals that aren't subject to RPZ are coming on the market, given how few new builds seem to be happening? Most landlords are surely complying with RPZ rules?
Compare an ETF that grows 7% a year and a rental property that returns 5% of value after costs and appreciates in value by 2% year.Very true! But the deemed disposal every 8 years is a major drawback.
True, but if I buy an ETF now for 100k and it doubles in value over 8 years to 200k, I will have a 41k tax bill at that point. I either have to find that 41k from my personal funds or sell 41k of the funds to pay the tax. Tax isn't charged on sales like all other assets, it automatically arises on the increase in value every 8 years.Compare an ETF that grows 7% a year and a rental property that returns 5% of value after costs and appreciates in value by 2% year.
Is the tax treatment much better on the rental?
Now adjust for regulatory risk, tenant risk and your time and effort.
That balances out to some extent when it comes to liquidating at a later date and the deemed disposal taxation is taken into account when calculating the final tax liability.Also, the 8th anniversary could occur during a day when the stock market is very high for some reason - it is tax on the value at a very specific point in time.
Direct equity investments are another option with a much more favourable tax treatment compared to ETFs.Honestly, if it wasn't for these tax points, I'd get out of rental properties entirely and just put all the proceeds in the various ETFs. The returns seem to be good and, as you say, ETFs don't bother you about broken toilets, no filing, no RPZs, etc. etc.
I’ll pretend you had the same experience with property. You buy a house for €100k. You make a rental profit of €5k a year for eight years so €40k gross and assume a big increases in house prices so a capital gain of €60k.True, but if I buy an ETF now for 100k and it doubles in value over 8 years to 200k, I will have a 41k tax bill at that point. I either have to find that 41k from my personal funds or sell 41k of the funds to pay the tax. Tax isn't charged on sales like all other assets, it automatically arises on the increase in value every 8 years.
On your first point, you are correct, it probably does balance out over time; but having to either find the cash to pay the tax from elsewhere or having to sell a proportion of the overall fund when you don't actually want to makes this very unattractive to my mind anyway.That balances out to some extent when it comes to liquidating at a later date and the deemed disposal taxation is taken into account when calculating the final tax liability.
Direct equity investments are another option with a much more favourable tax treatment compared to ETFs.
But I am paying the income tax from cash flow ie. rent coming in. I just put aside an amount for income tax every month from the rent.I’ll pretend you had the same experience with property. You buy a house for €100k. You make a rental profit of €5k a year for eight years so €40k gross and assume a big increases in house prices so a capital gain of €60k.
You are €100k gross better off. But after eight years you’ll have paid €20k in income tax and you have another €20k in CGT whenever you sell the house. That’s about €1k better than if you’d bought the ETF with dozens if not hundreds of hours more work!
Possibly I am, but I have looked at this and thought about it over the years. Having an unknown and unavoidable tax liability hanging over me in eight years time is not something I am comfortable with at all. Plus the value of the ETF could drop for the years after year 8, I've paid tax on what turns out to be a notional gain and I'm doubly down because part of the ETF has been sold to pay the tax on the imaginary profit.@Greenbook - you are hung up on the cash flow issue which is irrelevant. If you don’t have a gain on the ETF you don’t have to sell it. If you do have a gain you can sell a part to pay the tax.
but I do not think that I either have the intelligence or mentality to invest successfully in shares. There is far too much of a risk that I'd pick the wrong shares and lose my shirt
As I've said before, even if/when they get in many of their madcap financial ideas, which are easy to fly kites about in opposition, will most likely be moderated by pragmatism and having to compromise with coalition partners. Of course, if such a coalition includes a chunk of the far left then we will all have bigger things to worry about...Topic gone a bit off thread towards ETFs.
Personally, given the recent SF performance it’s only a matter of time before that bunch of economic geniuses get into power.
And if they have any bit of wit about them, they'll be singing all the way to the RTB.but will put a case to the tenants , in the new year, to come back to me with a reasonable uplift in the rent versus the rpz calculation.
Dont forget the "gearing"that is possible with an irish rental propert.E.G.Say 70% morgage and the rental income wipes out[erases the morgage].and then there is no morgage.This is a huge advantage.Methinks.!!I was a landlord for the guts of a decade. It was pretty much by accident due to a job move I held on to the house in case I ever moved back which in the end I did. So more for personal than financial reasons.
Total return from the house was probably 120%, mainly due to capital gains. But after tax it would be something like 80%. And this was at a time of buoyant house prices and rising rents (got stuck by RPZ rules in the end). I used a management agent which was worth the price but some minor repairs and garden work I just had to do myself. Likewise non-negligible work insurance, tax return, paying tradesmen, etc, and the first set of tenants quit at short notice and I had to scramble for a new batch at a bad point during the pandemic. I'd say it averaged 30 minutes a week, heavily clustered.
Anyway the same period the house got me a 120% return the S&P500 gave a total return of 221%. After deemed disposal I would have made a 130% net return. No question that an ETF would have been a better use of my wealth (and a lot less hassle) than hanging on to the house.
Maybe I'm cherrypicking here, but I'd challenge anyone to pick a moment over the last 30 years where the total return from the S&P500 to date would be less than that from an Irish rental property.
AFAIK lenders only go to 50% LTV now for landlords.Say 70% morgage and the rental income wipes out[erases the morgage].and then there is no morgage.
I mean if rpz calc says €167 increase I’ll take a 100 increase.And if they have any bit of wit about them, they'll be singing all the way to the RTB.