Investing from Ireland

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Flag of Ireland.svg This page contains details specific to investors in Ireland. However, it does not apply to residents of Ireland who are also United States (US) citizens or US permanent residents.

Investing from Ireland provides information for investors domiciled in Ireland who wish to apply the Bogleheads® investment philosophy. There are a few peculiarities you must be aware of. This article introduces a series of them.

In particular, the choice from the investing options available are not advantageous to the use of a boglehead and a DIY approach. The costs of local pension fund investments can weigh on returns but the tax advantages are attractive. The taxation of ETF’s in Ireland for Irish tax domiciled residents is a significant issue and one that should be carefully researched and understood before committing to any purchases. Please ask portfolio questions in the Bogleheads forum and contact a professional advisor before acting on them.

The general guidance given in EU investing is applicable.

This page is not intended for US resident investors, as their situation is very specific. US expats who live in Ireland should look at Taxation as a US person living abroad before investing in Europe domiciled funds.

Investment options in Ireland

Cash

Cash deposits in High street banks in Ireland generally are insured up until €100,000 per account holder per bank as outlined by the Deposit Guarantee Scheme, Central Bank of Ireland.

High street banks have a variety of accounts ranging from demand accounts (very low interest rates), notice accounts and fixed interest deposit accounts with fixed terms (low rates).

Banks offer fixed term deposit accounts with low rates for example KBC 35 day notice at 0.65% AER. Regular saver accounts are available from the high street banks (current as of January 2019):

  • KBC Regular Saver: 2.5% AER; min./max. deposit €100/€1,000 per month.
  • EBS Family Savings: 1.75% AER; min./max. deposit €100/€1,000 per month.
  • Bank of Ireland 365 Monthly: 1.2% AER; no min., max. deposit €2,000 per month.

Fixed term deposit accounts are available for holding sums of money for defined periods at fixed rates, Bank of Ireland for example offer the following very low rates (current as of March 2019):

  • 6 months 0.02%
  • 9 months 0.03%
  • 12 months 0.09%
  • 18 months 0.14%
  • 24 months 0.19%

The Competition and Consumer Protection Commission provides information as to current rates and terms available from local banks and building societies.

DIRT

Any interest on savings lodged in Irish banks is taxed – DIRT (Deposit Interest Retention Tax) Who is charged DIRT? currently at a rate of 35% (2019). (PAYE earners under the age of 65 will pay a further 4% PRSI (Pay Related Social Insurance) of any unearned income exceeding €3,174.

The DIRT rates for past years were:

  • 37% for 2018
  • 39% for 2017
  • 41% for 2016, 2015 and 2014
  • 33% for 2013.

The DIRT rate is set to decrease by 2% in 2020 to 33%.

Government savings

Alternatively, the government operates a scheme of so-called “bonds” which offer “reasonable” returns that are also tax free and are guaranteed by the government, for example:

  • National Solidarity Bonds – 1.5% AER tax free (10 year tenure maximum of 120,000 per person)
  • National Solidarity Bonds – 0.96% AER tax free (5 year tenure maximum of 120,000 per person)

Equities and fixed income

Irish investors can invest directly into stocks, ETF’s and funds, through traditional brokers or via online platforms. The attraction and simplicity of self-investment via index ETF’s is seriously eroded by the tax treatment of funds, see tax section below.

Banks and insurance companies offer their own packaged investment products.

Funds

The main providers of “investment funds” in Ireland are insurance companies. Local insurance institutions offer a range of packaged funds which might typically include the following:

  • Mixed or managed funds with traditional asset classes such as equities, bonds, property and cash are available.
  • Multi asset funds with traditional assets classes and in addition alternative assets and / or strategies.
  • Sector specific funds that invest in specific equity sectors.

The charges on these investments can vary and may be poor value for money and certainly higher than the underlying ETF’s or index funds that these wrappers invest in irrespective of taxation.

Products that offer capital protection are available sometimes labeled “tracker bonds”, “with profit funds” and “protected funds”. These can have high charges and with returns capped. Early redemption of these products can have a serious effect upon the overall returns.

Property

Due in part to the onerous taxation of the most easily available funds, property has become a popular asset class for investment in Ireland.

Taxation of investments in Ireland

The main dilemma facing an Irish resident retail investor is the effect that the local tax laws and the immature retail investment environment have on their potential choices especially where they wish to self invest in a bogleheads manner. There are a number of basic choices available:

  • Invest through a pension and take advantage of the tax relief and employer matching contributions (where available) on any payments.
  • Invest in a local investment fund where all tax matters are generally handled by the manager.
  • Invest in individual shares and report any gains and losses through your tax return.
  • Invest DIY in ETF's (UCITS) which are taxed at 41% of all gains every 8 years.
  • Invest in certain non regulated investment trusts that are not UCITS and which are treated as individual shares.

There are a number of considerations attached to each of the above choices for the retail investor that are exacerbated by the high tax rates, lack of transparency on costs for local institutional products, tied agents and immature investment market which must be carefully considered including:

  • Pension charges including entry and ongoing management charges.
  • Local investment fund charges including entry and ongoing management charges.
  • High tax rate on UCITS funds and inability to offset losses.
  • Risks of purchasing individual shares.
  • Higher fees on and perceived complexity of non regulated investment trusts.
  • Adviser fees where one is being used for pension, local investment funds or non regulated funds due to perceived complexity.

There are other ways to invest from Ireland however only the basic retail choices are included here. However it is worth mentioning that local government savings products with very low interest rates are often raised as a legitimate investment option for retail investors due to the poor outcomes on costs and taxes for the other options generally available.

US Estate Tax

Ireland has one of the oldest tax treaties with the USA, however the terms are not favorable for local investors in regards to estate taxes. Therefore for investments domiciled in the USA above $60,000 an Irish investor will be liable for the punitive US tax rate. Local estate taxes may also apply potentially raising the liability above 40%. There are potential avenues to explore that may protect a non resident US investor when using US domiciled products, these include joint tenancy arrangements and / or the establishment of on shore foreign grantor trust. Both these options have complexity and uncertainty attached.

Irish Inheritance Tax

The current rate of inheritance tax or CAT in Ireland is 33%. Amounts under certain thresholds are tax-free. There are 3 different threshold levels (groups) depending on the relationship between the recipient and the donor of the gift or inheritance.

Taxation of investments

Note: Due to the PRIIPs (Packaged retail investment and insurance products) requirements it is not feasible for an Irish domiciled retail investor to purchase US ETF’s or funds in any case.

  • Shares – gains are subject to tax at your income tax rate + PRSI (4% ) + USC (Universal Social Charge) (4.5% ).
  • UCITS ETFs – gains are subject to tax at a flat rate of 41%. This tax has to be applied every 8 years either through a sale or a deemed sale.
  • Certain close ended investment trusts that are non-regulated and operate outside 7-10% of the gross price are taxed in the same way as shares. F&C Trust

Note:

  • Standard rate of income tax: 20%
  • Higher rate of income tax: 41%

Please review the table below for general taxation practice, this is subject to change and amendment and is subject in particular to the budgetary process.

Irish Investment Taxation
Irish Tax DIRT 41% STAMP DUTY 1% INCOME TAX RATE CAPITAL GAINS 33% LOCAL PROP TAX EXIT TAX 41% LIFE INSURANCE 1% PRSI USC
DEPOSITS YES YES YES
INSURED FUNDS YES YES
SHARES YES YES YES YES YES
RESIDENTIAL PROP YES YES YES YES YES
PRINCIPLE RESIDENCE YES YES
GOVT BONDS YES YES YES
INVESTMENTS HELD IN PENSION YES YES

ETF Taxation Treatment

The following table is based upon advice provided by the Irish revenue commissioners as part of a guidance note on this issue.

Domicile of ETF Tax Treatment
1. Ireland No exit tax. Irish resident individuals are subject to income tax at a special rate of 41% on all returns (dividends and gains) on a self assessment basis every 8 years either as a sale or deemed sale. No social insurance (PRSI) or universal social charge (USC) are applicable. Any losses are ring-fenced and and are not available for offset
2. EU UCITS Taxed in the same way as Irish ETFs (see above). Therefore Irish resident individuals are subject to income tax at a special rate of 41% on all returns (dividends and gains) on a self assessment basis every 8 years either as a sale or deemed sale. No PRSI or USC. Any losses are ring-fenced and are not available for offset.
3. EU Non UCITS In the majority of cases these are taxed in the same way as Irish ETFs (41% tax no PRSI or USC and losses are ring-fenced every 8 years either as a sale or deemed sale. However the Revenue authority note that it is possible that some EU ETFs are which are non UCITS may due to their legal set up fall outside the 41% income tax regime. Instead they may be subject to normal capital gains tax (33%) and income tax rules, see below. Revenue are willing to consider submissions on a case by case basis in this regard and acknowledge that tax payers may decide to take such a position in appropriate cases.
4. Non EU OECD (eg US) Generally subject to normal capital gains tax and income tax rules. Marginal rate income tax (up to 40%) plus USC (up to 11%) and PRSI (4%) as applicable on dividends received by Irish residents and 33% capital gains tax on capital gains on the disposal of shares. Capital losses may usually be used to offset gains. Dividends will generally be taxed at a higher rate that European ETFs (1-3 above) but gains will generally be taxed at a lower rate.
5. Non OECD (eg Singapore) Subject to a different tax treatment again. Both income and gains will generally be taxed at marginal income tax rate (up to 40%) plus USC (up to 11%) and PRSI (4%) as applicable.

Taxation of funds outside of Ireland

Regulated funds which are located in EU or EEA countries or countries with whom Ireland has a Double Tax Agreement (DTA) are taxed in a similar way to Irish regulated funds such that: All payments of income and gains from the fund are taxable at 41% for individuals.

Taxation of US ETFs

As noted above, Irish retail investors have been restricted from purchasing US domiciled ETFs since the introduction of the new PRIIPs regime on 3rd January 2018. Should access be attained to US ETF’s by an Irish tax resident (through a qualifying adviser for instance) then the risks associated with US estate taxes would apply. US domiciled funds are subject to tax at your income tax rate + PRSI (4%) + USC (Universal Social Charge) (4.5%). There is some continuing confusion with regards to this tax regime. The ETF firm will withhold (US) tax on any dividends paid to you at a rate of 30% (15% if you complete a W8-BEN form) but you can claim a credit for this withheld (US) tax in your Irish tax return which results in no net impact. A Form 11 personal tax return should be completed.

See also

Notes


References

External links