Monday 17 June 2019

Two-tier taxation regime 'punishing prudent savers'

Brokers Ireland chief executive Diarmuid Kelly
Brokers Ireland chief executive Diarmuid Kelly
Charlie Weston

Charlie Weston

Tax on savings built up in investment funds is punishing prudent households and risks driving long-term savers into using less suitable short-term accounts instead.

The Government has been called on to lower the tax on the investment funds favoured by families.

The tax on investments used to be in sync with the Dirt tax on savings but it is now higher.

The Dirt (deposit interest retention tax) has come down to 37pc this year. It is due to fall to 33pc by 2020.

But the exit tax on life insurance investments, or funds sold by life insurance and investment firms, remains at 41pc.

It has been claimed this is punishing the prudent.

Industry group Brokers Ireland said there must be fair treatment for all savers.

Government policy should not give preferential treatment to certain investment types, the organisation said on behalf of its 1,300 members.

It called on the Government to reduce the exit tax to be fair to middle-income investors. The tax on savings accounts in banks and credit unions has started to come down.

The Dirt tax rate and the exit tax rate used to rise and fall in tandem, but the link between the two was broken recently.

The chief executive of Brokers Ireland, Diarmuid Kelly, said the high tax on investments was affecting responsible savers, such as families putting money aside to fund college costs for their children.

He said savings products generally subject to Dirt, as opposed to the exit tax, have yielded little or no growth for several years.

"With interest rates at zero, inflation erodes the actual sum saved by the amount of the annual inflation rate," he said.

Good legislation should not steer people towards short-term savings vehicles solely because of preferential tax treatment, Mr Kelly added.

"The tax regime should be neutral so that savers can invest appropriate to their short- and long-term needs," he said.

He said savings funds sold by life companies, those that are subject to exit tax, tend to be far better diversified and less risky than many of the products that are subject to Dirt tax.

"The link should be retained on the basis that it facilitates consumers in terms of choice, diversification and optimum outcomes, principles that underpin sound financial planning," Mr Kelly said.

His organisation is calling on Finance Minister Paschal Donohoe to reinstate the link between both types of savings in the forthcoming Budget.

"We strongly urge the minister to re-link the exit tax rate on savings to the Dirt rate," he said.

Brokers Ireland wants to see exit tax relinked to the Dirt rate from 2019 onwards, 35pc in 2019 and 33pc in 2020.

The group is also calling on the minister to abolish the 1pc life assurance stamp duty levy. It applies on each premium paid.

"This levy, introduced in 2009, was intended to be temporary," said Mr Kelly.

"It amounts to confiscation of savings, it is discriminatory and probably illegal under EU law by not applying to policies effected with insurers established in other EU member states and transacting business here on a cross-Border basis."

Last year, in the wake of the Budget, Mr Donohoe ruled out any provision in the Finance Bill to cut the exit tax on investments.

At an event organised by INM, which publishes this newspaper, the minister said he didn't disagree in principle with bringing the two saving tax rates back into line.

However, he said the State wasn't in a financial position to take the action needed. Mr Donohoe said he had limited resources so was restricted in what he could deliver.

Irish Independent

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