2024 Budget and Finance Bill – A Disappointment for the Industry
Tue Nov 14 2023
After months of the industry pointing out the inequalities of both the Life Assurance Exit Tax (LAET) rate and the 1 percent levy, it was disappointing that the 2024 Budget on the 10th of October failed to address these issues again.
Action 3 of the Capital Markets Union 2020 action plan is to support vehicles for long-term investments, yet the current taxation of Life Assurance Investments seems to act contrary to that objective.
When the life assurance gross roll-up taxation of savings and investment life assurance policies was introduced in 2001, the exit tax rate was set as [the standard rate of income tax + 3%], while the DIRT rate at that time was standard rate income tax (20%) and the capital gains tax (CGT) rate was also 20%.
The life assurance exit tax rate and DIRT rates became unlinked from the standard rate of income tax in April 2009 when they moved to a rate linked to the then CGT rate. However, by 2014 the DIRT and exit tax rates had both increased to 41% but the CGT rate was and still is 33%.
Following Budget 2017 the DIRT rate was reduced in 2% steps annually and reached the CGT rate of 33% by 2020, but the exit tax rate has remained at 41%.
There is no logical reason why deposit interest should be taxed at a lower rate than returns from savings and investment policies/collective investment funds or why returns from life assurance investment policies/collective investment funds should be taxed at a rate higher than the prevailing CGT rate which applies to direct personal investment in similar assets.
The Minister for Finance did however note that his department is undertaking a review of the Funds sector which would include consideration of LAET and the taxation of funds, including Exchange Traded Funds (ETFs), for Irish investors more generally.
Following the completion of the review, the minister will consider whether or not any changes to the current taxation framework are appropriate.
Brokers Ireland has contributed to the consultation part of the fund review and has welcomed any opportunity to discuss any aspect of our submission with the Department of Finance before the report is finalised.
The minister’s budget 2024 speech did not mention the current stamp duty levy of 1% which was introduced on life assurance premiums in the April 2009 Supplementary Budget.
Brokers Ireland continues to press for the removal of this 1% levy because it increases the cost to individuals of protecting themselves and their families through life assurance and serious illness cover, as the levy increases their premiums by 1% over what they would otherwise pay, and it amounts to a 1% confiscation of savings and investments made only through life assurance policies. It distorts the domestic savings and investment market by not applying to deposits, direct investment in property, stocks and shares, or collective investment funds.
The Budget also stayed silent on auto-enrolment and didn’t explicitly address funding of the new pensions system. This coincides with the timelines for delivery of the scheme being pushed out to the second half of 2024.
Overall, it was a disappointing Budget and Finance Bill for the industry and we hope that these issues will be addressed under the Funds review.
|SOME KEY CHANGES FOR BROKER CLIENTS