Dáil Éireann Debate, Wednesday - 15 July 2015
95. Deputy Pearse Doherty asked the Minister for Finance the revenue for the Exchequer from the removal of the capital gains tax exemption on the disposal of a life assurance policy under section 593 of the Taxes Consolidation Act 1997. [29511/15]
View answerSection 593 of the Taxes Consolidation Act 1997 provides for an exemption from Capital Gains Tax (CGT) in cases where the person disposing of a life assurance policy is the original beneficial owner of the policy. This CGT exemption does not extend to a disposal by a person who is not the beneficial owner of the policy and who acquired the rights or interest in the policy for a consideration in money or money's worth. Any chargeable gains arising on such disposals would be liable to CGT at the current rate of 33%. The Revenue Commissioners do not have the relevant data on disposals of life assurance policies to which the CGT exemption applies that would allow for any reliable estimate of the figure sought by the Deputy.
However, the Deputy should also note that, since January 2001, an investment in a life policy is taxed under what is known as the gross roll-up taxation regime. This regime allows a policyholder's investment to grow tax-free throughout the term of the policy, subject to a deduction of income tax (commonly referred to as exit tax), from payments made by the life assurance company to the policyholder. The current rate of this exit tax is 41% and it is applied to any gain arising on a payment made to the policyholder, on the redemption, in full or in part, of the policy.
For completeness, I should also mention that in addition to the deduction of exit tax from payments made to policyholders, there is also a further tax provision in place to ensure that policyholders cannot indefinitely postpone taxation by letting their monies accrue on a tax exempt basis in a policy. Under this provision, a taxable event is deemed to take place on the ending of the 8 year period beginning with the date of commencement of the policy, and on every subsequent 8 year period. This is known as the "deemed disposal". The effect of this provision is that the life assurance company is obliged to account for tax (at the rate of 41%) on the same basis as would apply if the policy had been redeemed by the policyholder on that deemed disposal date. Whenever an actual payment is subsequently made by the life assurance company to the policyholder, a tax credit is given for the exit tax paid on the deemed disposal event.
The yield from exit tax in 2014 was €130 million.
