Officials from the Financial Department have proposed adjusting the tax on fund investments to match the lower capital gains tax rate of 33 per cent that is enforced on direct investments from stocks to property. Present legislation necessitates domestic fund investors to pay a 41 per cent tax upon selling of a fund, regardless of the tax bracket they belong to, or post eight years, whichever comes earlier.
These officials, as a part of their review of the Irish fund sector, have advised the removal of the eight-year rule, also referred to as the deemed disposal rule, and synchronising the rate with the capital tax rate. The objective behind this proposal is to streamline the process for those bringing in low returns from dormant money in bank accounts to potentially generate higher revenues via investments. It aims to simplify the prevailing scenario where twelve different tax regimes are applicable, ranging from the 33 per cent rate on deposit interest retention tax (Dirt) to the ultimate income rate applicable to distributions from pension pots.
The onus will be on the succeeding Government to adequately consider proposals originating from the report, whose primary purpose is to intensify Ireland’s globally recognised role as an investment funds hub. Regulated and unregulated special purpose vehicles in Ireland, including Irish-domiciled funds, collectively have over €5.5 trillion assets under their management.
Michael McGrath, the previous Finance Minister, prior to his resignation in June when he was designated as an EU commissioner by the Government, had requested his officials to scrutinise closely during the review for ways to augment individual involvement in investment. He had indicated the preceding month that the Government was contemplating tax alterations to make investing more appealing for households, pointing out at that time that people had over €150 billion deposited with banks, the majority of which was either in on-demand or current accounts, accruing minimal or no interest.
The Irish Equity Market Forum, a group composed of Dublin stock exchange officials and representatives from corporate law, accounting and stock trading firms, has urged the Government to kick off a tax-advantageous retail investment initiative. Such a plan would echo the much-admired models seen in a number of European nations, taking particular inspiration, for instance, from the Individual Savings Accounts (ISAs) scheme which was put into practice in the United Kingdom 25 years ago. Despite the proposition, authorities from the department refrained from proposing a similar savings plan for Ireland, choosing instead to prioritise the simplification of the existing investment tax system.