MORE DETAILS HAVE been announced for the government’s upcoming savings scheme, with the latest update proposing that the new regime will see the scrapping of a 38% tax on investments.

The awkwardly named ‘deemed disposal’, which taxes certain investments even when there has been no sale of shares, is being reviewed according to Tánaiste and Finance Minister Simon Harris.

In his latest update on the new scheme, on Sunday, Harris also confirmed that deemed disposal would not apply to the new state-backed investment accounts it plans to introduce next year.

“Deemed disposal will not apply to this account and we will take a broader look at deemed disposal overall in the coming weeks too,” Harris said on social media.

What is deemed disposal?

Currently, this particular tax kicks in every eight years and treats investments as if they have been sold for tax purposes.

The tax, introduced in 2006, was designed to prevent tax avoidance.

However, it has long been unpopular with industry groups, as they have argued that it disincentivises investment.

It has also been criticised for complexity, partly arising from requiring people to self-assess when reporting to Revenue.

The Banking and Payments Federation Ireland (BPFI) has contended that the rule would risk undermining “steady, long-term investment behaviour” if it was included in the government’s new savings scheme.

A 2024 report by the Department of Finance on the wider funds sector recommended ending the deemed disposal rule, finding that it could help many save for major life events or for retirement.

A small step was taken in the last budget when the deemed disposal tax was cut from 41% to its current 38%.

How much would be lost by ending the tax?

Figures vary but, speaking in the Dáil last April, Harris said the amount that the tax currently sees in the exchequer amounts to somewhere between €142 million and €284 million.

However, Harris told TDs that “there is not an exact science” in calculating how much the tax actually brings in to government coffers. This is because Revenue is not able to isolate the deemed disposal tax intake against other tax returns.

Ralph Benson of online investments and pensions adviser Moneycube said that it makes sense to end the deemed disposal tax given the “surprisingly small” sum it achieves.

“It’s a few hundred million in the overall context,” Benson told The Journal, referring to the annual budget for the government.

Why the government may want to avoid the tax in its new scheme

The deemed disposal tax applies to individual investors in exchange-traded funds (ETFs).

An issue raised by Benson is that ETFs are the type of investment scheme that the government may hope people invest in.

This is because inexperienced investors are able to spread risk by investing in a basket of stocks bundled together, rather than betting on individual shares.

“Getting rid of this tax rate could simplify the rate and could help to make it more accessible for ordinary punters,” Benson added.

Catriona Coady, head of tax at Goodbody, agreed that the plan would be a “significant development for Irish savers” if deemed disposal is ceased.

“By simplifying tax administration and removing the deemed disposal regime within the account, it should make investing more accessible for individuals who have traditionally viewed the tax treatment of investments as overly complex,” Coady said.

Dublin MEP Regina Doherty, who is vice-chair on a European Parliament subcommittee on taxation, said that it is “crucial” that the government tackles deemed disposal.

“It makes little sense to tax people on gains they have not actually realised, particularly when they are trying to invest for the long term,” Doherty said.

The Fine Gael MEP added that while the government has now acknowledged that the rule can discourage people from choosing diversified investment products, the review “must ultimately lead to reform” of the tax.

One aspect that remains unclear about the scheme is the exact tax rate, which has yet to be set. There will also be a threshold before which no tax will need to be paid.