Exit tax should be equalised with Dirt - Standard Life
Tax on profits in an investment fund should be reduced to 33%, investment company says
Exit tax is payable on profits made on plans with life assurance companies. Photograph: iStock
Investment company Standard Life has urged Minister for Finance Paschal Donohoe to reduce the tax on profits made on a fund held with a life assurance company to bring it in line with the Dirt tax on deposit interest.
In a letter to the minister last week, Standard Life called for the Government to “begin the process of equalising exit tax with Dirt” in the budget, by reducing it from 41 per cent to 33 per cent over four years.
Exit tax is payable on profits made on plans held with life assurance companies. If a plan has a larger return than the amount invested, the difference is subject to exit tax.
Deposit interest retention tax (Dirt), meanwhile, is charged on deposit accounts but at a rate of 33 per cent.
Standard Life suggested that many people have to invest in funds because traditional bank deposits pay close to zero and “are not expected to rise any time soon”. The effect of the disparity between Dirt and the exit tax means those trying to secure a better return are being penalised, it said.
“The almost two decade history of exit tax and Dirt rates being equal for savers should be maintained,” Standard Life Ireland’s managing director Michael McKenna wrote in his letter. “Savers choices should be based on the underlying investment’s merits and not skewed by preferential tax treatment.”
Because returns from investment funds are typically higher than deposits, the exchequer would benefit as people moved money from deposits into higher-returning investment funds, Mr McKenna noted.
Standard Life said the cost of changing this was a “tiny proportion” of the budget, resulting in an estimated loss of €15 million per year to the exchequer, based on a Revenue estimate.
Insurance Ireland, Brokers Ireland and the Irish Association of Investment Managers all support Standard Life’s position, it said.
The reduction “would be a major move towards treating all savers fairly”, according to Standard Life.