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.
