The Government said it was reducing the standard rate at which deposit interest retention tax (DIRT) was levied on savings, in line with the reduction in the standard rate of income tax. From April 6th, 2000, the rate will fall to 22 per cent from 24 per cent. Mr McCreevy said the cost of this measure had been included in the cost of reducing the standard rate of income tax, £205 million (€260 million).
The special tax rate for life assurance-linked investment is also being reduced to 22 per cent, in line with the standard rate of income tax. The same reduction will apply in respect of unit trusts and UCITS (undertakings for collective investment in transferable securities).
Mr McCreevy also announced technical changes to the way the proceeds of investment in life assurance companies and collective funds are taxed. The changes will be contained in the Finance Bill.
The current system of taxing these investments proceeds on an annual basis but will be replaced by an exit tax at the standard income tax rate plus 3 per cent on encashment or maturity.
Effectively, this means that capital gains will be charged at the standard rate of tax instead of 20 per cent as at present.
The Irish Insurance Federation (IIF) described the change as "a sea-change in the way domestic life funds are taxed" and said it would raise significant administrative and cost issues for life offices. IIF chief executive Mike Kemp said. "It is important in particular to ensure that policyholders are not disadvantaged."