Everlake Guide to Taxation of Investments

Introduction

Investment Returns are subject to different tax regimes depending on the form of the investment. As a retail investor you generally have the option of investing in investment funds or directly in securities

• Investment Funds – means collective investment funds of any type including, Irish Unit Linked Funds, Unit Trusts, Open Ended Investment Companies (OEICs), SICAVs, UCITS or Exchange Traded Funds which are liable to exit tax at a rate of 41% (Tax year 2022).

• Securities – means listed shares, certain non-EU ETFs or certain UK Investment Trusts (which are listed companies) or any instrument (exchange traded or otherwise) that is not taxed as a fund.

Taxation of Investment Funds (Exit Tax)

Investment funds are subject to an Exit Tax of 41% (2022). This is applicable on dividends arising from the fund or on the sale or redemption of units / shares in the fund. It also applies to the increase in value of the fund after each eight year holding period.

Some of the disadvantages of this tax are

• Losses on one fund cannot be offset against gains on a different fund

• Investors pay a flat rate of tax with no allowances or reliefs and with no reference to their personal marginal rates of income tax.

• Losses on shares, property or other assets cannot be offset against gains on funds and vice versa

• A notional tax charge is applied every 8 years on notional gains whether these are realised or not

• Exit tax will apply on death

Taxation of Securities (Income Tax and Capital Gains Tax)

Income is subject to Income Tax at your marginal rate (plus PRSI and USC) and growth at Capital Gains Tax 33% (Tax year 2022). Details are ibluded in the following appendices:

• Income Tax (See Appendix 1)

• Universal Social Charge (USC) (See Appendix 2)

• PRSI (See Appendix 3)

Gains arising on the sale of securities are subject to Capital Gains Tax (CGT). (See Appendix 4)

Taxation implications for investors

Marginal rate taxpayers

For taxpayers with income in excess of the standard rate band i.e. those whose income is sufficient to push them into the marginal rate of income tax of 40%, then any additional dividend income from securities will be taxed at the following marginal rates of tax:

Aged 70+ with income below €60,000

For older married taxpayers the annual income tax exemption is €36,000pa and the maximum rate of USC is 2% with no liability to PRSI:

Standard rate taxpayers

For taxpayers with income at or below the standard rate band, i.e. those whose income is insufficient to push them into the marginal rate of income tax of 40%, then any additional dividend income from securities will be taxed at the following marginal rates of tax:

(Assuming income in excess of €21,296)

1 55% if self-employed with income in excess of €100,000 per year.

2 Individuals 70 years or over whose aggregate income for the year is €60,000 or less, will only pay USC at a maximum rate of 2%. ‘Aggregate’ income for USC purposes does not include payments from the Department of Social Protection.

3 USC income up to €70,044 ignoring rate bands