Department of Finance officials have recommended that the taxation on investments in funds be aligned with the lower, 33 per cent capital gains tax rate that applies to direct investments from stocks to property.
Under current rules, domestic investors in funds must pay a 41 per cent tax on the sale of a fund, irrespective of what income tax bracket they are in, or after eight years – which ever comes first.
The officials have recommenced, as part of a review of the Irish funds sector, that the eight-year rule – known as the deemed disposal rule – be removed and that rate be aligned with the capital tax rate.
The move is aimed at making it easier for people with cash sitting idle in low-yielding bank accounts to potential earn more money through investments. It would simplify the current situation where a dozen taxation regimes apply, from the 33 per cent rate on deposit interest retention tax (Dirt) to the marginal income rate being applied to distributions from pension pots.
It will fall on the next Government to give proper consideration to proposals stemming from the report, which is largely aimed at boosting Ireland’s position as a global hub for investment funds. Irish-domiciled funds, including regulated funds and unregulated special purpose vehicles, which have more than €5.5 trillion of assets under management.
Former Minister for Finance Michael McGrath said before stepping down in June, when he was nominated as the Government’s pick as an EU commissioner, that he had asked his officials to “look particularly closely” during the review at ways to increase individual participation in investment.
He flagged the previous month that the Government was looking at tax changes to make it more attractive for households to invest, noting at the time that people had more than €150 billion on deposit with banks, most of which was in on-demand or current accounts, earning little or no interest.
The Irish Equity Market Forum, comprising officials from the Dublin stock exchange and corporate law, accountancy and stockbroking firms, had called on the Government to launch a tax-friendly retail investment plan along the lines of the popular schemes in some other European countries, including the individual savings accounts (ISAs) scheme introduced in the UK 25 years ago. However, the department officials did not recommend a similar savings scheme be set up in Ireland as they set their focus on simplifying the current taxation of investments.
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