Government is accused of discrimination against savers
Dirt on savings in banks coming down but no move on investment exit tax, says Minister Noonan
Published 08/11/2016 | 02:30
THE Government has been accused of discriminating against people who save through an investment policy issued by an insurance company.
The tax on savings in banks and credit unions is coming down, but not the exit tax on savings policies bought through an investment or insurance firm.
Deposit interest retention tax (Dirt) on interest earned on savings is 41pc, but is due to fall to 38pc next year, Finance Minister Michael Noonan said in the Budget. The Dirt rate on interest earned on savings will then fall by two percentage points each year over the next four, until it falls to 22pc by 2020. But the exit tax on life insurance investments or funds sold by life insurance and investment firms remains at 41pc.
These policies are also subject to a 1pc levy on each contribution made into them.
Insurance Ireland chief executive Kevin Thompson said savings and investment policies sold by life companies were a key element of long-term financial planning for middle-income individuals and families.
Now investment group Standard Life has called on Mr Noonan to level the playing field for investment products and cut exit tax in line with the reduction in Dirt on savings.
"The Minister and his government cannot want to unfairly penalise people prudently saving for a home, their children's education, a rainy day or other life necessities," said head of Standard Life Ireland Jennifer Richards.
She said this was especially the case when the Government's stated policy is to "encourage saving and improve the return to the small saver".
Fianna Fáil finance spokesman Michael McGrath said people saving though life assurance policies were being discriminated against compared with those saving in a bank or credit union. "The effect of what is being done is essentially to discriminate between different forms of savings for no good policy reason," he said.
In a Dáil reply to Mr McGrath, the minister said he decided not to cut the exit tax rate on life policies in a bid to save money.
Mr Noonan said: "I am aware that in the past the rates payable on a series of other taxes, including exit tax on life assurance policies, have tended to move in line with Dirt. However, on this occasion I took a decision that those other rates would not be reduced."
He added that the Revenue Commissioners estimated that it would cost €14m a year to match the exit tax rate cut with the Dirt one, and about €56m a year by 2020. "It was, therefore, too costly to the Exchequer to reduce the rates applying to these taxes in the same manner as the reduction in Dirt."
The exit tax paid on life assurance policies has spiralled from €43m in 2012 to €247m last year.
Mr McGrath said: "The Government needs to have a clear policy in respect of such policies and a tax treatment that is fair and consistent."
There is no levy applied to investments sold by stockbrokers and wealth managers, even though it applies to funds sold by insurance and investment companies. Insurance Ireland has called for the levy to be removed to help middle-income families invest for the college education of their children.
The Department of Finance recently acknowledged the levy does not apply to wealthy investors.