Financial Services

I welcome the Tánaiste’s initiative to introduce personal investment accounts. I am on the record of the House saying that quite a bit. It is great. This can play an important role in encouraging more people to move from traditional savings into long-term investment and to build wealth over time. Irish households are strong savers and giving people greater choice and a straightforward framework for investing is welcome. As we create a new framework for future investors, however, we also need to address the problems faced by people who have already invested. That brings me to deemed disposal. I have consistently called for the abolition of the deemed disposal rule on exchange-traded funds, ETFs, and other investment products, subject to investment undertaking tax. The issue here is not simply the rate of tax, the investment undertaking, IUT, rate is an issue and there is a case for looking at it. However, even if it were reduced, deemed disposal would remain a fundamental problem because it interrupts the benefits of compounding. Long-term investment works because returns can be invested and generate further returns over time. Under deemed disposal, an investor can be required to pay tax on a gain that has never been realised. They may have to sell part of their investment or find cash from elsewhere simply to meet a tax liability. That means money which could otherwise remain invested and compound over decades is taken out of the investment. This matters in particular for ordinary retail investors. I have had so many people approach me and talk to me about this since I started to raise it. I have been surprised at the response I have got since first bringing it up. People in their 20s and upwards -people of all ages - from all areas of my constituency at different points in their lives and careers all see the opportunity in ETFs as a way to get ahead in life but they also see the unfairness of a tax that penalises potential and unrealised gains. Many are young people building savings towards a first home or people that are building up for retirement. Others have invested an inheritance, redundancy payment or a lump sum. They are investing for the long term, not necessarily looking to realise gains every few years. Budget 2027 could be a landmark moment when the Government abolishes deemed disposal on ETFs and other investment products subject to investment undertaking tax, IUT. I understand what is happening at the moment and that there are budgetary demands, especially within a planned tax package of €1.5 billion. The Department of Finance has advised in replies to parliamentary questions I have tabled that IUT receipts account for less than 30% of the combined receipts from taxes subject to deemed disposal, and that makes IUT a practical place to begin, at a potential cost of less than €40 million. Those are my figures based on replies to parliamentary questions. For reference, that is double the cost of reducing the exit tax by 3%, as it was in the last budget. The abolition of deemed disposal could then be extended to life assurance products in subsequent budgets. The introduction of personal investment accounts gives us an opportunity to create a better framework for long-term retail investment but that framework must work for those who have already invested as well as those who will invest in the future. This would ensure existing investors would not be left behind.

I thank the Deputy for raising this matter. I am replying to her today on behalf of the Tánaiste and Minister for Finance. The deemed disposal rule was introduced in 2006 as an anti-avoidance measure. It applies to investment undertaking tax, life assurance exit tax and equivalent taxes in the self-assessed space applying to investment through certain kinds of funds and life assurance policies. Exchange-traded funds or ETFs are among a range of investments to which the rule applies. It was introduced because a pattern was observed at that time of products being structured so that tax could potentially be indefinitely deferred, which was contrary to the spirit of the gross roll-up tax regime introduced in 2000. Under the deemed disposal rule, tax is levied eight years after the original investment is made, and every subsequent eight years thereafter. It is charged at the general tax rate for such investments, on any gain in the value of the investment from the date of acquisition or the last deemed disposal. The tax paid under the deemed disposal rule is effectively a prepayment of tax rather than an additional charge to tax, and is allowed as a credit against the tax due on a subsequent chargeable event, with any excess paid being refundable. Like any other aspect of the tax system, the deemed disposal rule is kept under review and may be subject to policy change. Just because a measure was introduced in response to relevant concerns at the time does not mean it should not be reconsidered in the current context. The Tánaiste has been very clear that more should be done to encourage and support people in Ireland to put their money to work through investing in capital markets. That is why, at the first annual savings and investment forum in March, he announced his intention to introduce a new investment account, similar to the savings and investment account models operating in other jurisdictions but designed to meet Ireland's specific needs in terms of encouraging retail investment. It aims to reduce the complexities related to retail investment taxation and allow retail investors to grow their savings more efficiently. Importantly, one of the key guiding principles underlying the design of the account is a focus on encouraging new retail investors, rather than directing investment into any particular sector or product. The new account aims to reduce the complexities related to retail investment taxation and allow retail investors to grow their savings more efficiently. A lifetime tax-free threshold will apply to the account. Where the value is above the threshold, a low rate of tax will apply to the excess value of the account. An annual limit will apply to the maximum amount that can be contributed to the account. Existing regimes in place for taxation of retail investment, including the deemed disposal rule, will not apply to the new account. All tax reporting, tax administration and payment of any tax due to Revenue will be managed by the provider, thereby removing the requirement for the individual investor to calculate or return any tax due. The Tánaiste believes that the introduction of this account will be a key step in supporting Irish people to put their money to work. However, as stated, that does not mean that the broader tax regime for retail investment is not subject to review and potential change over the coming years.

I thank the Minister of State for the reply. I very much welcome the statements by the Tánaiste and the work that has taken place on personal investment accounts. It is a world of opportunity for us. It is a very positive move in terms of maximising the savings that are being put away and could be working harder for everyone. I also welcome the work that is being done around financial literacy and making investments more accessible for people. Like I said, this was an eye-opener for me. Since I spoke about ETFs and the deemed disposal rule I have met many people on their doorsteps who are concerned about this issue. It has certainly opened up my eyes to how much focus there can be on this area. When I see issues, I come up with solutions and I try to be practical. I suggest the figures today as a stepping stone towards the abolition of the deemed disposal rule. It might be something that the Department of Finance could look at. I look forward to the budget.

I know from everything she has done in political life that Deputy Currie is definitely a person who looks for solutions. She looks at issues and asks how we can find a solution. The focus of the Tánaiste on the new investment account is very clear and has been outlined. However, he and the Government are well aware of the frustration many investors feel with the deemed disposal rule, as Deputy Currie has highlighted. The introduction of the account does not mean that the broader tax regime for retail investment I mentioned earlier is not subject to review. In that regard, I highlight the recommendation of the funds review published by the Department of Finance in 2024, which, while recommending the removal of the deemed disposal rule also states that the addition of guardrails to protect the Exchequer would be required. In tandem with this, officials in the Department of Finance continue to analyse how the tax regime for retail investment can be reformed in ways that support investment while balancing this objective with the need to protect public finances. Any future decisions will need to take into account the cost to the Exchequer of changes in a particular year.