Retail investors in Ireland face significant tax barriers, which leads to very few people participating in investing. As a result, Ireland holds tremendous amount of funds on deposit —accounts that generate low returns and lose further value due to inflation.
This situation arises just as the European Union aims to strengthen its financial and technological independence from the United States, highlighting wider challenges within Ireland’s investment system.
A major obstacle for retail investors is the country’s tax approach. The Deemed Disposal rule, for instance, requires taxes on assumed profits every eight years, even if you haven’t sold your assets. This undermines the benefits of investment growth through compound interest—a foundational principle for building wealth—which effectively gets cancelled out by the current rules.
Additionally, the exit tax on ETFs stands at 38%. When combined with the deemed disposal rule, this hefty rate makes retail investing unattractive, leaving many to question why they should give up so much of their gains.
Younger generations, especially those in their late twenties and early thirties, are finding it harder to build wealth. With a fraction of new homes being completed compared to 2006, and despite a surging population, many young people considering retail investing as an alternative are turned off due to the complex and punitive tax implications.
Key Issues: Exit Tax and the 8-Year Rule
Irish-based funds and ETFs carry a 38% exit tax, and the deemed disposal rule means investors must pay taxes every eight years, regardless of whether assets are sold. Not only can losses not be deducted from presumed profits taxed under this rule, but extra paperwork is required to declare those non-profits to authorities.
Recommendations for Improvement
A number of changes could create a more favourable environment for retail investors:
- Lower the exit tax to 18%.
- Remove the deemed disposal rule entirely.
- Allow losses to be carried forward.
- Set a tax-free allowance, for example €10,000.
Other Considerations
To promote saving, Ireland could introduce targeted tax-free incentives for education costs. Recent data from Technological University shows that higher education expenses range from €7,000 to €19,000, depending on accommodation needs.
Much of Ireland’s prosperity has come thanks to overseas investment, often supported by pro-retail investment tax regimes elsewhere. Making similar reforms in Ireland could encourage entrepreneurship and support personal wealth growth. Now is the time to revise the retail investment system sensibly.
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