Paul O'Donoghue

PICTURE THIS – YOU live in Ireland (a stretch for our readers, granted). And you want to invest. What’s the best way to do it?

Here, there are two clear winners, if you can afford them.

One – housing. An obvious one, between the various schemes to help people buy, to its practical function, to the political will in aiding homeowners.

Two – have a pension. Again, a clear one due to the tax relief for contributions.

But say you already have a house and a pension. Or you have neither, but want to invest in the stock market. What’s the best way to do it?

In many countries, this is where you’d probably start looking at putting money into the likes of ETFs (exchange-traded funds).

Without getting too detailed, an ETF is essentially a fund which tracks the value of a specific asset. The most well-known ETFs are those which track the S&P 500, a market of the biggest US companies listed on stock exchanges.

The reason people look at ETFs for investing is because they’re simple and straightforward.

The S&P 500 tends to go up in the long term – it’s averaged a return of about 9% per year over the last 30 years. An ETF which tracks it, rises in value along with it.

This is much, much better than the returns Irish banks offer to savers – which normally hovers close to a nice, round 0% for on-demand accounts – which is overwhelmingly where Irish people keep their money.

So over a period of, say eight years. If person A puts €10,000 into a savings account with an Irish bank, and person B puts the same amount in an ETF tracking the S&P 500.

If the S&P maintained its annual 9% increase (a big ‘if’, but bear with us for the hypothetical), person B would have about €20,000 by the end of year 10. While person B would still just have about €10,000.

So, with an ETF, you double your money. Sounds great – why doesn’t everyone do it?
Besides the inherent risk of investing (stock markets can of course go down), there’s an Irish-specific problem here.

You see, Ireland has a rule called ‘deemed disposal’ which applies to most ETFs.
This is a tax on fund gains, which is applied every eight years. The rate is a whopping 38% on gains (slightly reduced in Budget 2026, from 41%).

So going back to our person B who invested €10,000. He made a gain of €10,000. Which means he has to pay €3,800 in tax at the end of year eight.

You still own an ETF worth €20,000. But the tax has to be paid. This can be done through either selling the ETF, or through your own cash.

Maybe you can spot the problem here.

The whole idea of investing is that wealth builds over time via compound interest.

Having to pay a 38% tax every eight years significantly hobbles how much money will compound over the years.

It also creates an admin headache for investors, who need to track when exactly they buy ETFs to calculate when ‘deemed disposal’ payments are due.

Investing in ETFs can still be a good way to make money in the long run. But the vast majority of Irish people don’t invest at all, outside of their home or pension. For a large number, the complexity of the deemed disposal rule is just another barrier.

Why does Ireland have the deemed disposal rule at all?

Before 2001, the situation was arguably worse. A 22% tax applied to fund gains, whether they were sold or not, every year.

Again, to stress – the whole idea of investing in funds is that your investment compounds over time. An annual tax significantly hampers this.

After 2001, this was changed to allow ‘gross roll up’. In this case, an ETF owner wouldn’t pay any tax on their gains until they sold the ETF.

According to the government, this led to concerns about “indefinite or long-term deferral” of the exit tax.

For example, someone could keep investing in the same fund for 30 years, and would only pay exit tax at the end of that period.

So ‘deemed disposal’ was introduced in 2006. It’s also worth noting the tax rate has increased significantly since, going from 25% to 41% – before the aforementioned slight reduction to 38% in Budget 2026.

If people invest in funds, and the fund makes lots of money, why shouldn’t they pay tax?
The big thing to note here is the eight-year rule.

Almost every country has an exit tax on funds. Or has a tax when a resident moves abroad. But Ireland’s is notable in that it applies every eight years to unrealised gains.

If we apply the logic to a different asset, we see how odd it is. Say we did the same with property. If someone bought a house worth €300,000, and by year eight it was worth €500,000. That’s a €200,000 gain – if there was a similar ‘deemed disposal’ rule at 38%, the home owner would have to come up €76,000 in cash at the end of year eight.

This, of course, sounds absurd.

And yet, that’s about how things are if you’re a retail investor (ie, a normal person, not a business) in Ireland buying into ETFs.

Now, the ‘deemed disposal’ rule doesn’t apply to individual stocks.

A different part of the tax code applies to them – Capital Gains Tax of 33% applies instead, which only triggers when the stock is sold.

So, why don’t Irish people just invest in stocks instead of ETFs?

It’s because it’s more of a pain logistically. And you’ll likely get much worse returns.

For most people, so-called ‘passive’ investing tends to work best. This is where you just buy a fund which tracks the wider market – usually the S&P 500.

People who buy individual stocks rarely beat the market. Especially not over the long term. It’s estimated that 92% of large ‘active’ funds (those which actively pick stocks) underperformed the S&P 500 over a 15-year period.

And these are professional stock pickers – so what hope do normal small investors have?

On top of that, there’s normally a fee for buying and selling individual stocks. Often 1% – 2% of the stock value, which will cut into your gains.

In short – if you’re buying individual stocks, you’re very unlikely to beat the market.
Which is why ETFs are such a good option – or they would be, without deemed disposal.

Now, all of these issues are well known in finance and investing circles. It’s why there’s been a major push in recent years for the government to scrap ‘deemed disposal’ altogether.

Ahead of Budget 2026, many small investors had high hopes. Especially seeing as, just weeks before, the European Commission specifically said governments should make investing simpler for retail investors.

That didn’t happen, with the tax rate instead just being slightly reduced. Former Finance Minister Paschal Donohoe instead promised that the government will publish a ‘roadmap’ in 2026 to improve investment options for normal people.

It’s something which should be sorted out ASAP. Irish people have an estimated €165 billion in savings.

Most of it is just sitting in on-demand bank accounts, losing value over time due to inflation. Having a simple way to invest it is a no-brainer, and gives ordinary people the opportunity to build wealth – outside of the property market.