Investments in Ireland are subject to various taxation rules and regulations, some clear, some not so clear, and all of which can seem daunting at first glance. My summary below aims to inform you of the exact type of tax on investments that applies to individuals in Ireland, depending on the type of investment product.
Bank Accounts
Interest earned on bank current and deposit accounts in Ireland is subject to Deposit Interest Retention Tax (DIRT). Financial institutions deduct DIRT at the prevailing rate (33%) before crediting interest to the account. There are exemptions for certain accounts, mainly charities, non-residents and individuals aged over 65 – as there are for a related product, State Savings.
Property
Both Irish and non-resident individuals are subject to marginal rates of Income Tax (up to 55%) on Irish investment property rental income (with allowable deductions for expenses), and 33% Capital Gains Tax (CGT) on disposal. Property owners must also pay Local Property Tax (LPT) based on the market value of their property on its the sale, with exemptions and reliefs available in certain circumstances.
Bonds
Interest income from individual bonds is subject to Income Tax at the individual’s marginal rate, with deductions available for qualifying expenses. Gains made on sales are subject to 33% Capital Gains Tax (CGT). Losses in CGT assets can be carried forward and offset against realised gains in other CGT assets, and crystallised gains up to €1,270 are tax free each year. Note that gains made on Irish Government Bonds, aka, Gilts, are tax free.
Shares
Dividends received from company shares are subject to marginal rates of Income Tax, minus credits such as (25%) Irish Dividend Withholding Tax (DWT) already paid. Gains on the sale of shares in publicly listed companies are subject to 33% Capital Gains Tax (CGT). Losses in CGT assets can be carried forward and offset against realised gains in other CGT assets, and crystallised gains up to €1,270 are tax free each year. Other ‘securities’ that come under the CGT regime include foreign exchange, (certain) investment trusts, REITs, commodities, and cryptocurrencies.
Funds
Any and all growth and income from ‘Funds’ is taxed in Ireland at the 41% Exit Tax rate, irrespective of whether you are a Standard Rate or Marginal Rate income tax payer. This tax is chargeable on all paper gains every 8 years, or, if earlier, any realised profits taken. Domestic Funds administer and deduct this tax at source on behalf of investors but individual are responsible for Offshore Fund Exit Tax payments. This category also includes (most) ETFs, Property Funds, Bond Funds, Commodity Funds, and Money Market Funds.
Pensions
The beauty of pensions is that, as well as tax relief on the way in, no tax on investment gains or investment income applies – but of course pension withdrawals in retirement, post lump sum, are subject to Income Tax at the individual’s marginal rate.
In conclusion, understanding the tax on investments in Ireland is not easy, but still very necessary for investors. Having this knowledge allows us to optimize investment strategies and minimise tax liabilities. And of course, seeking professional advice from tax advisors and/or financial planners can help provide guidance that is tailored to individual circumstances.
And if you like this article, you should read this one: Tax on Shares and Options and RSUs