Mercer Oneview Ireland

Tax on Savings and Investments

Most forms of investment carry a tax liability on any gains. By educating yourself on your options you can reduce that 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

Taxation in Ireland

 

DIRT
41%

Stamp Duty
1%

Income Tax -
Personal Rate

Capital Gains Tax
33%

Local Property Tax

Exit Tax
41%

Life Insurance Levy
1%

PRSI

Deposits

Yes

 

 

 

 

 

 

Yes

Insured Investment Funds

 

 

 

 

 

Yes

Yes

 

Shares held directly

 

Yes

Yes

Yes

 

 

 

Yes

Residential property worth under €1M

 

Yes

Yes

Yes

Yes

 

 

Yes

Principal residence

 

Yes

 

 

Yes

 

 

 

Government bonds

 

 

Yes

Yes
(except Irish Govt Bonds)

 

 

 

Yes

Any investment asset held in a pension

 

 

 

 

 

 

 

 

*PRSI is applied to unearned investment income from the indicated asset classes where the owner is not solely a PAYE taxpayer and/or is in receipt of total unearned investment income in excess of €3,174 per annum

  • Deposit accounts
  • Irish insured investment funds
  • Company shares held directly
  • Residential property
  • Your Principal Private Residence
  • Government bonds

Deposit accounts

Deposits in Ireland are subject to Deposit Interest Retention Tax (DIRT) of 41%. Any interest received has DIRT deducted at source. This can make it difficult for deposit returns to keep pace with inflation.

If you wish to earn interest without payment of DIRT it may be worth considering Irish State Savings Certificates or Savings Bonds

Irish State Savings Products

If you or your spouse is aged 65 or over and if your income is below the income exemption limits (€18,000 per annum for a single person and €36,000 per annum for a married couple) you should be able to claim exemption from DIRT by completing a form at your bank or building society.

Irish insured investment funds

The main providers of investment funds in Ireland are insurance companies. The investment funds provided by Irish insurance companies are subject to the following taxation, where investments are made after 1 January 2001:

  • A 1% levy on the original investment amount
  • Exit tax of 41% on any gains, deducted either every eight years or on encashment if earlier

If subsequent to exit tax being deducted the fund falls in value and is encashed, the investor will be entitled to a refund of the excess tax paid.

A positive feature of this system of taxation is that, for higher rate taxpayers, returns such as dividends or rent can be received within the fund at a lower rate of tax than they might pay for direct investments.

A negative feature of this system is that losses on insured investment funds cannot be offset against gains from other such funds, if those funds are managed by a different provider.

On insured investment funds, tax is deducted at source. This means that holders of insured investment funds do not need to alter their tax returns when profits or losses are taken.

Company shares held directly

Irish investors who buy or hold shares are potentially directly liable to 3 taxes, which must generally be paid by individual investors by means of the Self Assessment system. These taxes are:

  1. Stamp duty on share purchase (principally on Irish shares)

  2. Income tax on dividends received

  3. Capital Gains tax on increases in the value of a share

1) Stamp duty

Stamp duty of 1% is paid on the purchase of Irish shares. Few other jurisdictions impose a rate as high, and a purchaser of shares listed elsewhere is not liable for Irish stamp duty.

2) Tax on dividends

Dividends are liable to income tax under schedule F. Thus, a higher rate taxpayer who receives a dividend of €100 will owe tax of €40 (40% being the higher rate tax level) on this dividend.

The shares you hold will be listed in a particular country. Some countries, including Ireland, deduct a minimum level of tax from any dividends paid. In Ireland, this tax is called Dividend Withholding Tax. In many cases it will be possible to offset any tax automatically deducted against your overall liability to income tax on the dividend.

To give an example, if an Irish company pays a higher rate taxpayer a dividend of €1,000, then €200 is withheld and paid to the Revenue by the company. The overall tax liability is €400, of which €200 has already been paid – leaving a balance of €200 in tax to be paid by the investor.

Depending on your personal circumstances, PRSI, the Health Levy and the Income Levy may also be due on any dividends received.

3) Capital Gains Tax

A rate of 33% Capital Gains Tax is payable on gains from many investment assets sold during a tax-year from 6 December 2011 on, including shares. An annual gain of €1,270 per individual is permitted tax free. Losses on one investment can be carried forward and offset against gains on another investment for tax purposes – with the exception of losses on development land and transactions between connected persons, which are ringfenced and can only be offset against gains from the same source.

Shares acquired before 31 December 2002 benefit from indexation relief. This means that the original cost and any expenditure on purchase can be adjusted to reflect changes in overall price levels between (i) the later of the date of purchase and 6 April 1974 and (ii) 31 December 2002. Indexation cannot convert a monetary gain into an allowable loss.

Residential Property

Investment in residential property is liable for the following taxes:

  1. Stamp duty on acquisition

  2. Income Tax on rent

  3. The Household Charge

  4. Capital Gains Tax on disposal

1) Stamp duty on acquisition

Stamp duty of 1% is payable on house purchases up to the value of €1m. Where a house is worth more than €1m, 1% is payable on the first €1m and 2% on any excess.

2) Income Tax on rent

Except for rooms let out from your Principal Private Residence under the Rent-a-Room scheme, rents on residential property held by an individual are subject to income tax, which is 40% for a higher rate taxpayer. PRSI may also apply. The following expenses can however be deducted from gross rents for tax purposes:

  • Interest paid on money borrowed to purchase the property, up to a maximum of 75% of the mortgage interest payable
  • Rates payable on the property
  • Costs related to letting the property
  • Repairs, insurance, maintenance and management fees
  • Capital allowances of 12.5% per annum on the value of the fixtures and fittings
  • Mortgage protection premiums

3) The Local Property Tax

A Local property Tax is applicable at the rate of 0.18% of the Property Value to most residential properties, and 0.25% to residential properties with a market value in excess of €1m. From 2015 your Local Authority will be able to vary that rate slightly. There are certain exemptions from the Local Property Tax, and those on low incomes may be able to defer payment.

4) Capital Gains tax payable when the property is sold

Capital gains tax for residential property works in exactly the same manner as for shares:

  • The rate is 33% in 2015 and is applied to the difference between purchase price and sale price
  • Indexation relief will be available for properties purchased prior to 31 December 2002
  • An annual tax free gain of €1,270 per person is permitted
  • Losses can be offset against gains, with the partial exception of losses on development land or losses from transactions between connected persons

Your Principal Private Residence

Your principal private residence qualifies for special tax privileges that do not apply to investment property. These are:

  • Rooms can be rented for up to €12,000 per annum tax free under the Rent-a-Room scheme
  • No capital gains tax applies on disposal
  • The non-principal private residence charge does not apply

Government Bonds

Irish government bonds are exempt from capital gains tax in the hands of individuals. For this asset class, income, rather than capital gains, tends to be the main source of investment return in most periods. Income tax at your appropriate rate is payable on the income received from Government Bonds.

Gains on the government bonds of other countries may be liable to capital gains tax as well as income tax.

  • The information contained in this website is for information purposes only. It should not be taken in any way as advice. It should not be relied upon as an offer to purchase or sell any of the products that are discussed.
  • The value of investments can go down as well as up.
  • Investments or products mentioned on this site may or may not be suitable for you.
  • Before investing or purchasing any product you should always seek independent financial advice. Mercer can provide independent financial advice if required.

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