Neale Richmond
Question:245. Deputy Neale Richmond asked the Minister for Finance his views on whether the exit charges on investments are still necessary on investments; and if he will make a statement on the matter. [57939/22]
View answerTuesday, 22 November 2022
Questions (245)
Written answers
As the Deputy will be aware, Finance Act 2000 introduced the gross roll-up taxation regime for investments in domestic funds (in section 58) and for investments in life policies (in section 53). While Finance Act 1990 had introduced anti-avoidance rules that are known as the “offshore funds” regime, Finance Act 2001 (in section 72) amended the offshore funds regime to provide for gross roll-up in certain offshore funds that were similar to the Irish funds within the gross roll-up regime.
The general thrust of the gross roll-up regime is that there is no annual tax on income or gains arising within the investment. However, exit tax must be deducted on the occurrence of a “chargeable event”.
With respect to an investment in domestic funds, exit tax applies to the profit element of each chargeable event, and such chargeable events include –
- the making of relevant payments (which includes any dividend),
- the redemption of the investment,
- the transfer by an investor of their investment,
- the appropriation or cancellation of units by a fund to discharge tax payable on a gain arising from a transfer of units by a unit holder; and
- on the ending of an 8-year period beginning with the acquisition of a unit in a fund, and each subsequent 8-year period beginning when the previous one ends. This is commonly referred to as a deemed disposal. The purpose of the deemed disposal is to prevent indefinite roll-up within the fund.
With respect to life policies, Life Assurance Exit Tax (“LAET”) applies to the profit element of each chargeable event and chargeable events in relation to an investment in a domestic life policy written on or after 1 January 2001 include –
- the maturity of the life policy,
- the surrender in whole or in part of the rights conferred by the life policy,
- the assignment in whole or in part of the life policy, and
- the ending of an 8-year period beginning with the inception of the life policy and each subsequent 8-year period beginning when the previous one ends. The purpose of the deemed disposal is to prevent indefinite roll-up within the policy.
Rate of exit tax and collection mechanism
The rate of exit tax applied is generally 41% in the case of an individual (or 60% in certain instances where the investment is under the personal control of the taxpayer). USC and PRSI do not generally apply where exit tax applies. The general rate of exit tax applied in the case of a corporate investor is 25%.
The fund or life company is responsible for operating exit tax and paying it over to Revenue. This means that most individuals who invest in these products do not have to file a tax return with Revenue and pay the tax due. The removal of the exit tax regime would result in many more individuals having to file income tax returns to pay and file the tax due on their investments.
Exit tax is a collection mechanism that, as set out above, is coupled with the gross roll-up regime.