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Ireland: Time To Juggle Investments To Beat The Looming New Year Tax Hikes

Tuesday, 10 December 2013   (0 Comments)
Posted by: Author: Fiona Reddan
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Author: Fiona Reddan (The Irish Times)

Tax hikes are coming, for investors and savers alike, with deposit interest retention tax (Dirt) set to rise in January. But as the new year rapidly approaches, should you take action now to avoid giving another cut of your income to the State’s coffers?

From January 1st, the rate of Dirt on deposits will jump by almost a quarter from its current rate of 33 per cent, up to 41 per cent.

For investors, the move is not as significant, but is still hefty. Any gains they make on investment funds and life assurance policies will have tax levied at a rate of 41 per cent also, a hike of almost 14 per cent on its current 36 per cent.

So what should you do if you have holdings in investment funds?

Brian Weber, head of wealth manager Quilter’s Dublin office, is urging clients to consider doing a "B&B”, given the strong performance of equity markets in recent years.

"We believe it is prudent for clients to examine all of their holdings of domestic and international unit trusts, OIECs [open-ended investment companies], Sicavs [société d’investissement à capital variable, a type of OIEC], unit-linked funds and ETFs [exchange-traded fund], with a view to crystallising the gains in the current year,” he says.

This means that an investor should take their gains now, by selling the fund to crystallise the gain and pay tax at the lower rate of 36 per cent – and then buy back the same investment with their funds.

If you put €100,000 into an equity fund in the recent past, you may have seen this double in the intervening period. If it is worth €200,000 now, paying tax at 36 per cent – rather than 41 per cent from January – will save you €5,000.

For Weber, such a move is particularly relevant to investors who have enjoyed considerable gains.

On the other hand, Brendan Barr, head of marketing with Standard Life, says that, while deciding what to do is "dependent on each individual’ s circumstances”, a number of scenarios the investment company have assessed show that it might be best to hold tough.

Pointing to additional charges such as the 1 per cent levy that applies to life assurance policies, as well as exit and entry charges that might apply, he argues that it may not actually save an investor very much.

One of the reasons is that, because investment funds are allowed grow on a gross roll-up basis, gains are allowed to build up untaxed until the eighth anniversary. Breaking the policy ahead of this date in order to pay tax might reduce the overall value of the fund.

Indeed, if your gains have been more modest, if may make sense not to move. Take the example of our €100,000 investment which has instead achieved a gain of 40 per cent. Exiting now will incur taxes of €14,400 (at 36 per cent), leaving €125,600 to be reinvested.

If this achieves further growth of 20 per cent over the next three years, the additional gain will be €25,120, meaning a tax bill of €10,299 (assuming the new 41 per cent rate does not rise further) and a net value of €140,421.

This article first appeared in



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