2026-04-21

238. Deputy Aisling Dempsey asked the Tánaiste and Minister for Finance if he will commit to the removal of the so-called "deemed disposal" tax in relation to ETFs; and if he will make a statement on the matter. [26607/26]

245. Deputy Grace Boland asked the Tánaiste and Minister for Finance further to the commitment in the programme for Government to progress the recommendations of the Funds Sector 2030 review to support greater retail participation in capital markets, whether his Department has assessed the recommendation to remove the eight-year deemed disposal rule applicable to exchange-traded funds and other investment funds; the estimated cost to the Exchequer of abolishing this rule; whether the Government intends to remove the deemed disposal provision; the timeline for any such reform; and if he will make a statement on the matter. [25770/26]

The Funds Sector 2030 review recognised that exchange-traded funds, ETFs, sit at the centre of Ireland's ambition to increase retail participation in capital markets - people who are planning for the future and parents who are planning for their children's college education. The current tax framework, in particular the eight-year deemed disposal rule, is a material barrier to that objective. Could the Tánaiste confirm if his Department has assessed abolishing the rule, what the estimated cost to the Exchequer would be, and when he might make a decision on it?

My question is very similar. It relates to the so-called "deemed disposal" tax on ETFs, which requires Irish investors to pay gains every eight years, even where no sale takes place. The programme for Government has committed to an implementation plan to address this anomaly. Like Deputy Boland, I wonder if we could get an update on the details of this and the current timeline.

I propose to take Questions Nos. 238 and 245 together. I thank Deputies Boland and Brennan very much for raising this matter. Their questions relate to the rules governing the taxation of indirect investments such as investment funds and life assurance products. As referenced by Deputy Boland, chapter 7 of the funds review focuses on enabling and encouraging retail investment. It does make a number of recommendations including the removal of the deemed disposal rule. Deputy Brennan reminds us of our programme for Government commitments. These recommendations are being given careful consideration. We are looking at the existing regime and how it operates. The specific change raised by both Deputies is the removal of the deemed disposal rule. There is a specific reference to its application to exchange-traded funds. There is no separate taxation regime specifically for ETFs. We need to remind ourselves why deemed disposal was introduced. It was introduced at that point in time as an anti-avoidance measure that applies to investments in Irish-domiciled investment funds and life assurance products, as well as equivalent offshore funds and certain foreign life assurance products, in order to prevent the indefinite roll-up of income and gains, and the associated loss of tax to the Exchequer. That is the history, if you like, to remind us all but the world has changed a lot since then and our policy and thinking need to change too. Under deemed disposal, taxes are levied eight years after an investment is made, and every subsequent eight years, regardless of whether a disposal has in fact occurred. The tax is levied on any gain in the value of the investment from the date of the acquisition to the date of the deemed disposal. On the ultimate disposal of the investment, any tax paid is allowed as a credit against the final tax liability. The funds sector report noted that changes were needed. It did say that changes to deemed disposal would require guardrails to protect the Exchequer and ensure that appropriate taxation is paid. That is important. I think we all agree on that. The most recent budget committed to publishing a roadmap for the taxation of retail investment, setting out an approach to simplify and adapt the tax framework to further support retail investment while retaining necessary and important anti-avoidance protections in a proportionate manner. The relevant recommendations of the funds review, including deemed disposal, are now being considered as part of the work under way in the Department of Finance on this roadmap. We will be publishing this in the coming months and in advance of the budget. As I announced at the first annual savings and investment forum, on 31 March, a key aspect of the roadmap is the development of a new Irish investment account that aims to reduce the complexities related to retail investment taxation and allows Irish people to grow their savings more efficiently. That complexity is one of the real issues keeping middle Ireland out of investing in this country. The cost estimate of changes to deemed disposal is the challenge. The information available to Revenue does not allow it to isolate the tax returns due to deemed disposal rules from other events that could give rise to a tax liability. We need to work our way through this. If it were assumed that all relevant retail investment exit taxes were as a result of deemed disposal, which of course they are not, removing deemed disposal could give rise to a potential cost of €284 million, based on tax paid over the past eight years. As the Deputies know, we took some steps in this area in the most recent budget. An estimate was prepared of the Exchequer impact of deemed disposal not applying, assuming the deemed disposal was closer to 50% of the total tax paid. This assumption results in an estimated full-year cost to the Exchequer of €142 million for the removal of deemed disposal. However, I am being truthful in saying there is not an exact science because of the complicating factor. I reiterate the point that we took steps in the last budget to reduce the rate to 38%. That was important. There is, however, the broader issue of whether the policy is fit for purpose. I am not convinced it is. It is somewhat outdated. We need to have a conversation about how it could be overhauled, with new, appropriate guardrails put in place. Alongside that, though separate and distinct, is the question of how we develop a new investment account that reduces complexity, has one point of tax and puts the responsibility for collecting that tax on the provider of the account, the institution, not the person making the investment.

I thank the Tánaiste. I very much welcome that update. It is good to hear that the roadmap will be published in advance of the budget, though it is disappointing to note that the Revenue Commissioners cannot actually track the amount of revenue to the Exchequer. On the issue of removal, the reality is that under the current regime, a retail investor in an ETF faces a much higher tax rate and earlier taxation and cannot offset losses compared with someone investing directly in shares. Low-risk, diversified investing is taxed earlier and more heavily than speculative stock picking. Therefore, we really need to do something for parents who are looking to the future and those who weathered really bad times in the 1970s and 1980s and know how important it is to put money away for a rainy day but who are seeing the value of their savings eroded through inflation and very low deposit rates.

I too thank the Tánaiste for his clear answer. The core issue here is one of fairness within our own tax system. An investor in individual shares pays capital gains tax at 33% and then only when they eventually sell those shares. However, an investor who chooses a diversified ETF, which is arguably the more prudent investment choice for an ordinary saver, pays a higher rate on the gains they have not yet realised. As was mentioned, they also cannot offset their losses in these, and they face a tax settlement every eight years, regardless of their intentions regarding the underlying ETF. This creates a disparity that is very hard to justify. I appreciate that the Minister gave a detailed explanation as to how this came about by way of trying to justify it. I agree that there are complexities but does the Minister in turn agree there is a very strong case for removing the rule in the near term, not just because it is part of the programme for Government but also because it is the fair thing to do for Irish savers?

The short answer is "Yes" and the next word is "but". Yes, I see the policy challenge here. I do not like a situation where the world has evolved and policy has not caught up. Therefore, I would like to see an overhaul in this area. I am quite committed to that and to reforming retail investment. The only reason I say "but" is in relation to the near-term aspect. No matter what question anyone asks me on tax, I do not want to tie our hands, as a collective government or Oireachtas, in terms of decisions we may make in the time ahead. However, the Irish people can judge this Government, in its current form, on what it did in its first budget. It reduced the rate associated with the rule from 41% to 38%. That was a statement of intent by my predecessor, the then Minister Paschal Donohoe. Second, we said we would publish a retail investment roadmap for overhauling this sector and roll into that the recommendation of the funds sector report, which deals very much with deemed disposal, among other areas. Third, we have given a commitment that we are not just going to say we are going to champion the savings and investment union at a European level but are also going to make sure there are practical benefits for citizens in Ireland in terms of establishing an investment account. I have no doubt we will be able to make progress on this together in the time ahead. I would hope we can make progress on this in the near term, but let us work through that. I am learning it is important when you are a finance Minister to say tax matters are a matter for budget day, and I am quite comfortable with that. That is the appropriate way to proceed. Deputy Boland's point on parents and others is important. I have heard some ill-informed comments – Quelle surprise – on the investment account. First, you would swear we were the only ones doing this. We are certainly not the first. It is the right thing to do. It is a recommendation of the European Commission. We cannot just talk about financial resilience at a macro level; we have to bring it into people's households. I have heard it asked whether this is just something for the wealthy. The wealthy are well able to look after themselves. They do not need our help. They are not the people being blocked out of investments. The people being blocked out of investment are parents, the garda married to the nurse, the teacher, the civil servant, the small business owner and the person trying not just to get by but also to get ahead. This is an opportunity, over the longer term, to help families, or middle Ireland, to build up resilience. I am extraordinarily committed to that.

I appreciate the Minister's comments. I look forward to seeing the roadmap and having discussions in the House on it. I thank the Minister.

There is another dimension to this. Ireland's position as a major ETF hub in Europe is something we should rightly be very proud of, but there is a contradiction at the heart of that success. Ireland is one of the best places in the world in which to manage and distribute ETFs but one of the most difficult places in Europe for an Irish resident to actually invest in them. Foreign investors in Irish-domiciled ETFs enjoy growth with no deemed disposal obligation, while Irish investors investing in the same products do not. Does the Minister acknowledge that this anomaly undermines or may erode our reputation as a well-functioning financial centre?

I would put it in a slightly different way, but I agree with the broader point. Given our country's huge success in financial services, the considerable revenue, jobs and prosperity this has resulted in and the fact that we have in many ways become a global hub for financial services, there is an irony in our being a major global financial services centre when, at the same time, we have locked so many of our citizens out of meaningful participation. "Ironic" is probably the diplomatic word. We have to challenge ourselves, and I have to challenge myself, to see how we can ensure the tax regime in this country is not getting in the way. It is the Government's job to help where it can, but it is also sometimes the Government's job to get out of the way. Our tax regime is in the way of people being able to invest and to access ETFs and their like. Deputies Brennan and Boland quite rightly made a point on the differential between the exit tax and CGT. In fairness to former Minister Donohoe, there was a step made in the right direction with the decrease from 41% to 38%. However, CGT is at a different level. We have made it clear as a Government that we are committed to making progress on this, ensuring Ireland has a much more diversified savings and investment offering, ensuring that is accessible to all our citizens and not just the wealthy, and ensuring the tax system is fair and that politics is not just a reductive debate about how to hand out public money but a more sophisticated and informed one about how to ensure hard-working families are able to get ahead, and not just get by in life, by making sure the tax system works in that direction.