Brokers Ireland have called on the Minister for Finance, Paschal Donohoe, to relink the rate of exit tax on savings and the DIRT rate in next week’s budget, so as not to penalise savers who plan for the longer term and attempt to make a better return on their savings.
The 2017 Finance Act gave more favourable treatment to DIRT on savings by reducing it from 41 percent to 33 percent by 2020 while leaving exit rate on life assurance based savings at 41 percent.
Savings products, generally subject to DIRT as opposed to exit tax, have yielded little or no growth for several years. Brokers Ireland say this is hugely disadvantageous to those who want to save for such contingencies as children’s education, a house deposit, or a rainy day fund. Consumers cannot make enough on deposit with returns close to zero and not expected to rise any time soon.
With interest rates at zero, inflation erodes the actual sum saved by the amount of the annual inflation rate, they say.
In a letter to Minister Donohue Brokers Ireland have outlined that 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; it’s not equitable that people who invest in individual shares should be granted disproportionately better tax treatment, i.e. 33 percent on any gains made compared with those who invest in a 100 percent equity fund who are taxed at 41 percent. A typical equity fund holds 50-300 different shares which is much safer than buying a single company’s shares; long term investment fund returns are typically higher than deposits, savers would be better off and the exchequer could expect a higher tax take, as people moved their money from deposits (c€100bn ) into higher returning investment fund, knowing they were taxed equally.
Diarmuid Kelly Chief Executive of Brokers Ireland, said good legislation should not steer people towards short term savings solely because of preferential tax treatment.
“The tax regime should be neutral so that savers can invest according to their individual needs. Taxing people at a higher rate for making a more prudent investment just doesn’t make sense. That is why we’re strongly urging the Minister to take the opportunity of the forthcoming budget to reinstate the link between exit and DIRT tax,” he said.
