Offsetting unit fund gains and unit fund losses

Q&A: Dominic Coyle

Each unit fund investment is treated as an individual entity and the tax applicable is exit tax and not capital gains tax. Photograph: iStockPhoto

Each unit fund investment is treated as an individual entity and the tax applicable is exit tax and not capital gains tax. Photograph: iStockPhoto

 

Thank you for dealing with my recent letter and demolishing most of my arguments!

Concerning offsetting losses, such as are allowed under capital gains tax, I am not sure I made myself clear. I accept that Unit Fund losses cannot be offset against other asset gains, but I have had the eight-year deemed disposal taxes deducted from my gains. I also have similar Unit Fund property losses which I feel I should be able to offset against the gains exactly like the capital gains tax provisions. It just seems to be an inequitable ruling.

Mr JR, email

On the question of offsetting losses against capital gains, I had worked on the basis that you were looking to offset losses elsewhere against gains in your unit fund investment.

Unfortunately, the position is unchanged in your precise scenario – where you have losses in one unit fund investment, yet are being taxed on gains in another similar investment.

Each unit fund investment is treated as an individual entity and the tax applicable is exit tax and not capital gains tax. As such it operates under different rules.

You can claim back tax already deducted every eight years under “deemed disposal” on each individual unit fund investment if that particular fund subsequently falls back so that, when you eventually withdraw the funds, you are in a position that you have paid too much tax on the overall gain made by the fund over the period.

However, there is no similar provision where you have paid exit tax – either under deemed disposal or on the actual maturity of your investment – on one fund but have lost some money on another, separate unit fund investment.

Exit tax does share many features with capital gains but, before the current gross roll-up regime that allows gains to remain untaxed within funds for eight years, taxation of such annual gains in such funds was at the standard rate of income tax – an entirely different approach. If memory serves me correctly, higher-rate taxpayers were expected to file returns back then to pay the balance of tax due on annual unit fund gains, or income.

That probably explains why neither Revenue nor government has never addressed the issue of CGT-style offsetting provisions in relation to unit funds.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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