Over the 8 years I have been blogging, there is one article that I receive more emails about than any other. It is the blog I wrote in February 2017 on Deemed Disposal, an article that currently sits at the top Google on that topic. Irish investors are aghast in having to pay tax every 8 years on an investment they haven’t cashed in. It feels unfair and it is.
In February of this year I contacted the Revenue about deemed disposal, explaining the amount of emails I receive from investors totally frustrated with the taxation regime in Ireland when it comes to investments. I fully understood their rationale regarding gross roll up investments and them not receiving any tax for decades but not all ETFs and funds accumulate like that. There are distributing ETFs that pay out the dividend (my own US domiciled ETF pays a quarterly dividend which I pay income tax, USC and PRSI on). Is it not time for the Revenue to revise their tax treatment of ETFs? Let people pay income tax on dividends each year and CGT on the gains. Afterall, ETFs aren’t funds and are traded throughout the day, just like a share.
The Revenue did respond to me, telling me they are updating the Revenue Tax and Duty Manuals “as they relate to investments in Irish funds, offshore funds and life policies to streamline their contents, particularly with respect to investments in Exchange Traded Funds.” I had my fingers crossed that we would see some changes in how ETFs are taxed in Ireland.
On 1st September the Revenue issued their update and it wasn’t good news. Previously ETFs domiciled in the USA, EEA or in an OECD member state with which Ireland had a double taxation agreement were taxed as share investments generally i.e. CGT at 33%. From 1 January 2022, that confirmation does not apply. In other words, ETFs domiciled in these countries will be subject to exit tax at 41% and deemed disposal rules.
There is no benefit in holding them beyond 1 January 2022. The dividends that are paid are still subject to income tax, USC and PRSI. If you reinvest the dividends, they will be subject to 41% exit tax just like the capital amount. It is pointless in holding this type of investment when you can invest in a roll up regime where dividends and profits are reinvested without triggering a taxable event. Investors in these types of ETFs will need to trigger a taxable event, pay their CGT and roll it over to a EU domiciled gross roll up ETF.
The Revenue had a real chance to bring Ireland on par with other countries on the taxation of ETFs. Instead they have decided to continue with this archaic tax treatment of investments. This isn’t a matter of giving a tax break for the rich. With online trading accounts, lots of people with regular levels of income are investing in markets; saving for their own future.
13 September 2021
After this article was published, the Revenue have come back to me and clarified their position. From 1 January 2022, the general confirmation that all ETFs domiciled in the USA, Canada, the EEA or in an OECD member State were taxed under general principles, will no longer apply.
From 1 January 2022, investors must look at the product they invested in and decide for themselves whether it is to be taxed under the gross roll-up regime or general principles.
In other words, some ETFs will still be taxed under CGT and no deemed disposal and others will be subject to exit tax and CGT. The Revenue are making the investor decide which one applies to them. Outside of having specialist tax advice, this is a huge risk for individual investors to take.