YouTube Transcript: ETFs in Ireland: The Tax That Could Derail Your Investments! | Patrick Hession | YouTubeToText
YouTube Transcript: ETFs in Ireland: The Tax That Could Derail Your Investments!
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exchange traded funds are a popular
investment vehicle for many investors
because of their ease and low expense
ratio but it's important to know that in
Ireland the taxes are very different for
ETFs versus any other asset in Ireland
there's a tax code deem disposal which
is by far the worst hacks you could
possibly be exposed to this is where
every eight years you are deemed for the
purpose of your taxes to have sold your
ETFs and are liable for 41 tax on all
profits you've made over the eight years
on this ETF this means you have to pay
41 on the amount the ETF has increased
plus the dividends you've received over
these eight years you must pay this
every eight year anniversary of the
purchase of this ETF for example if you
own eight ETFs you have to pay this tax
on all age ETFs and if you lose money on
any one of the ETFs you cannot set this
loss against any other taxes that you
owe whereas when you sell any other
asset in Ireland at a loss you can get a
tax credit that you can use against the
profits of any other asset that you sell
in that same year in Ireland there's a
capital gains allowance of 1 270 euros
per year which means if you sell it you
can make a profit of 1 270 euros
tax-free however there is no exemption
in Ireland for ETFs you also have to pay
25 on dividends earned in Ireland so it
makes a lot more sense to buy
accumulating ETFs instead of
Distributing ETFs for the purposes of
saving this 25 on your dividends because
this really adds up over a long time
there isn't much difference in the
performance of either here is a graph of
accumulating and distributing S P 500
ETF and as you can see they're very
similar even when all this taken into
account it's safe to say that while ETFs
are taxed incredibly highly in Ireland
they are still the best source of
passive income and protection against
inflation you can get the only other
passive income in Ireland that would
beat the performance in terms of
earnings is buying a property you plan
to rent out but doing this requires a
lot of upfront capital and taking on
debt for most people buying ETFs like
the S P 500 gives you an almost eight
percent annual return When adjusted for
inflation with essentially no effort the
only effort required is to set up a
brokerage account and to remember to buy
the ETF once a month and it's still a
much better investment than leaving your
money in the the banks in Ireland banks
are providing you at essentially a zero
percent return on your money and you
still have to pay dirt tax which is a
tax on the interest you earn on your
savings which is 33 even with this eight
percent difference in tax it still makes
sense to buy an S P 500 ETF instead of
leaving your money in the bank if you
were to save 500 a month for 40 years
you would have 240 000 in your bank
whereas if you bought 500 worth of an S
P 500 ETF you would have 1.5 million
assuming an 8 annual return however
because of this deemed disposal tax in
Ireland you would have just 500 000
after 40 years so doubling your money
and this is only if you sell 41 of your
ETFs to pay the taxes that you owe at
the end of every eight years in reality
you would be able to put some of your
own cash that you have from your job to
pay some of this tax off so now you
really see why I said this tax is the
worst tax to be exposed to it's also
very clear to see that buying ETFs in
Ireland isn't as good of an investment
as you may have taught before
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