Calls to scrap savings levy that the rich already avoid
Published 08/09/2016 | 02:30
A LEVY on funds sold by insurance and investment companies does not apply to investments sold by stockbrokers and wealth mangers, it has emerged.
Insurance Ireland has called for the levy to be removed to help middle-income families invest for the college education of their children.
Top civil servants from the Department of Finance stated recently that the levy did not apply to wealthy investors. Outlining the case for its abolition, they wrote in the 2016 Tax Strategy Group paper that it does not apply to "higher net worth individuals who can invest directly, obtain legal and tax advice and fully utilise CGT [capital gains tax] losses."
Known as the life insurance levy, it was imposed in the 2009 emergency budget as a revenue-raising measure.
It applies to savings policies, mortgage protection and life assurance policies. The levy is calculated as 1pc of payments.
The Tax Strategy Group paper, on stamp duty, savings and other issues said ordinary people use life and investment firms to buy funds for saving.
"Life assurance investments were traditionally an entry route for new or ordinary investors to access investments in asset classes and areas which may not otherwise be accessible to them. These categories and SMEs have been put off by the levy, the industry maintains, and are investing directly themselves," the paper says.
It also points out that wealthy people who invest in funds directly through stockbrokers or wealth managers can pay lower taxes when they sell up.
This is because they are subject to capital gains tax (CGT) of 33pc. They can also use CGT provisions to offset any losses. There is a 41pc exit tax for middle-income people investing in a fund sold by a life company, in addition to the annual 1pc levy.
The chief executive of Insurance Ireland, which represents life and general insurers, Kevin Thompson, said: "The burden of this levy should be removed to incentivise long-term financial planning for middle-income individuals and families." Meanwhile, a report has found Irish people need to save an additional €27.8bn a year to close the gap between current pension savings and the income needed to provide an adequate standard of living in retirement.
Aviva said the size of the gap means the current generation of retirees - due to retire between 2017 and 2057 - will have to save, on average, an extra €12,200 a year. This takes account of the State Pension but excludes tax relief on pension savings.