The Irish Government has once again ducked in this week’s budget the chance to fix one of the most irritating quirks in the tax code: the ETF deemed disposal rule.
Despite a 2024 review recommending its abolition and a cut in exit tax from 41 to 33 per cent, the latest budget left the rule unchanged.
Under deemed disposal, investors in exchange-traded funds (ETFs) pay a 41 per cent (soon 38 per cent) exit tax every eight years, even if they haven’t sold.
The rule, introduced in 2006, undermines compounding and penalises prudence. It treats diversified investors more harshly than stock-pickers: profits on a speculative share are taxed at 33 per cent and only when sold, yet a low-risk global ETF gets hit earlier and harder.
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Losses can’t even be offset.
Minister of State for Financial Services Robert Troy, while admitting deemed disposal is an “anomaly”, hailed the rate cut and said it’s “really important that Irish investors invest in ETFs”.
However, the real deterrent isn’t the rate; it’s the rule. Deemed disposal brings needless complexity, forcing investors to frequently calculate notional gains and pay tax on profits they haven’t realised.
Most savers will avoid ETFs entirely rather than face that hassle. The Government insists reform will come “eventually”.
For now the anomaly endures, a policy that undermines the very behaviour it should encourage.
