By Cleona Kinahan M.Sc CFP® QFA FLIA
No matter what type of savings or investment account you have your money in chances are you’ll be liable for some level of tax on any gains made on your investment – Dirt; Stamp Duty; Capital Gains Tax; Exit Tax. Tax treatments on investments should be one of your key considerations when you are looking at your investment options. Whether you think of yourself as an Investor or just someone that has ‘a bit’ in the bank; some or all of these taxes may be relevant to you. You might be an accidental ‘Investor’; maybe you received some free shares back in the day as a result of an Insurance company ‘demutualising’ or inherited a few FBD shares or you could fall into the category of a seasoned Investor. Whatever your status; the taxman isn’t discerning; most forms of ‘Investments or Savings’ carry a tax liability on any gains.
At O’Leary Financial Planning, we always recommend speaking to a specialised tax adviser for bespoke advice however, we do know our way around the main aspects of the rules so we can certainly help find you the best investment option to meet your specific requirements. By talking to your adviser, you can educate yourself on the options that work for you and can reduce your tax liability.
Some of the main ways to reduce the tax you pay on savings and investments include:
- Using any allowances that may be available to reduce tax liability
- Using tax-advantaged investment structures – the most obvious being a pension
- Taking full advantage of your annual capital gains tax allowance
- Keeping a record of any losses on shares or property to offset against future capital gains.
Capital Gains Tax
This tax rate is 33%, however, everyone has an annual allowance of €1,270 which means; any gains that they may receive up to €1,270 are tax free. This is a handy allowance and shouldn’t be ignored. With CGT; you can offset previous losses against future gains; again, this can be very useful for anyone who may have incurred losses on property or assets in the past.
Returns
The Capital Gains Tax Self-Assessment System of Taxation applies to all individuals regardless of whether you are a PAYE earner or self-employed.
If you sell or otherwise dispose of an asset and owe Capital Gains Tax; it is payable under our self-assessment tax rules. This means the responsibility is yours to ensure that tax is paid on time and details of the disposal made in your tax return form to your Tax Inspector. If you do not comply with these rules you will have to pay interest and penalties to the Revenue in addition to the tax owed.
Timing – Tax Payment Dates
The tax due is payable on the following dates –
15 December – Each year for assets sold/disposed during the preceding 1 January to 30 November (Initial Period).
31 January – Each year for assets sold/disposed during the preceding December (Later Period).
As you can see from above dates you do not have much time between selling/disposing of an asset and having to pay the tax due on the gain.
Tax Return Date
In addition to paying the tax; Your tax return for the tax year in which an asset was sold must be sent to the Revenue by 31 October following the end of the tax year.
If you miss this date you will be charged a penalty along with the tax due. This applies even if you actually paid the tax on time but were late sending in your tax form.
EXIT Tax
This is the most straightforward taxation method; it’s a flat 41% tax on any gains within an Investment Bond; administered by the Provider. It does not discriminate; regardless of your personal tax position or any losses you incurred in previous investment bonds; this rate is levied on encashment or each 8th year anniversary of the policy while it is in force. This does mean that your fund can grow without it being reduced by tax during this 8-year period.
HOWEVER corporate savings plans, or investments have a reduced liability of 25%!
Deposit Interest Retention Tax (DIRT)
This tax has been reducing over the last few successive budgets; now in 2019 it stands at 35%. Some would argue that with deposit rates so low; that this tax is vastly irrelevant to most of us as we are earning so little anyway. This Tax charge can make a difference if you are investing in a Capital Secure product that earns a return over the term; if you are lucky enough to be DIRT exempt; you can earn gains tax free.
Those exempt from DIRT include:
- Certain Individuals over 65s
- First time buyer
- Person with a physical or mental disability
- Non-resident
- Companies paying corporate tax
- Revenue approved pension schemes
- Charities
Don’t forget employees and those receiving occupational pensions and who earn over €5,000 in Investment income; may be liable to PRSI & USC on this income. Self-Employed including proprietary directors of small companies, pay PRSI on their gross deposit interest, dividends and rental income.
Remember An Post offer accounts earning a Dirt-free return; it might be worth taking a look.
Tracker Bonds and Structured Products
If you are considering an Investment in any Tracker Bond/Structured product; the various tax treatments under different products may be your deciding factor; are you DIRT exempt – well then, a Deposit Tracker Bond may be suitable? Do you have CGT losses accrued? Then a CGT product may be suitable. Are you a lower rate Income Tax payer; a product liable to Income Tax or else a high dividend paying portfolio may be considered?
Corporate Saving plans and Investment; rather than having large balances in your current account; why not consider putting this money to work AND avail of the reduced 25% tax on gains. By investing in a Regular Saver or Investment Bond you will not be liable to the close company surcharge (20%).
Tax is a significant consideration when deciding what to invest in as different types of investments carry different levels of tax. It’s important to be aware of all the facts when it comes to investments and think about what suits your needs and objectives in choosing the right portfolio for you.
O’Leary Financial Planning has significant experience in assisting individuals in determining what investment options are most suitable, and which investment vehicle is most appropriate. If you wish to discuss possible investment options, and the taxation considerations give us a call on 091 778677.
If you’ve any questions about saving or investment options click here to request a call