Dear Minister for Finance…

If we had the ear of the Minister of Finance, this is what we would say to him today.

Dear Minister,

This is a letter for you to consider a number of important requests that will assist people as they seek to build and manage their own wealth, with the objective of removing their dependence on the state, particularly in their later years. Each of these requests will support savers and investors, as they take ownership for building a brighter future for themselves.

Equalise Exit Tax with other taxes on investment gains

As you are aware Minister, the Central Bank advised that there was €155bn in household deposits in March 2024[1], most of which is earning derisory levels of interest within the Irish banks, who enjoy a very unhealthy lack of competition. These meagre interest returns are taxed at the current Deposit Interest Return Tax (DIRT) rate of 33%, the same rate that is applied to investments under the Capital Gains Tax regime.

With a view to seeking superior returns to those on offer from banks, many investors have turned towards the large and innovative range of investment products that they can access through financial advisers and life assurance companies, including using low risk money market funds as an alternative to bank deposits. However, the gains on these products continue to be taxed on an Exit Tax basis of 41%, a significant disincentive for investors. We respectfully suggest that savers should be enabled to make choices based on the underlying merits of investments, rather than the tax treatment of that investment. We request that Exit Tax be brought in line with the DIRT and CGT rate of 33%.

Review the Standard Fund Threshold on pension funds

The Standard Fund Threshold (SFT) was introduced in 2005 to effectively cap large pension funds.  At that time, the SFT was set at €5m, with any excess pension assets subject to a very penal tax treatment, which is understandable, to disincentivise people from abusing the generous pension tax breaks available on retirement savings.

However, since the financial crash, the SFT was reduced to €2.3m in 2010 and further reduced to €2m in 2014, where it has remained since. We think that this level should be substantially increased to support pension savers seeking to secure their future in retirement. Today, the SFT is not reflective of economic, social or demographic changes that have occurred over the past decade, nor is it reflective of the Irish State’s current fiscal position as compared to the fiscal position in the years following the financial crisis. The Standard Fund Threshold has not even been indexed in line with inflation.

We welcomed the government’s review that was commenced in December 2023 to examine the current deficiencies of the SFT and look forward to positive developments on this front in the upcoming budget, with a meaningful increase being applied to the SFT.

Maintain the current PRSA environment

Minister, we have heard in some commentary in relation to the budget that there may be some “rowing back” of the changes introduced in relation to PRSAs in Finance Act 2022. We firmly believe that removing the flexibility provided by the changes would be a retrograde step. There is no real cost to the exchequer of having policies in place that promote people making contributions to build savings to fund their retirement, once there is a lifetime limit (the SFT) in place. We are trying to build a wealthy, self-sustaining society, where people are encouraged to succeed and take responsibility themselves to save for their future.

The ability to de-link PRSA contributions from salary & service allows people the opportunity to receive catch up pension contributions, often later in life. This levels the playing field for entrepreneurs & owners of (or shareholders in) small businesses, to make pension contributions in years that the business can afford to do this.

The existing salary & service limits for employer contributions, & maximum % of salary (subject to €115k max) were designed for a traditional landscape where people start working in their early 20s, and keep working steadily until their mid 60’s, with a salary that increases over time, and probably have a decreasing cost of living in retirement, due to having their children raised and mortgage paid by then. However, this does not reflect the world we now live in, where people have portfolio careers, often including periods where they try to set up their own business or work for an SME with high growth potential, but a need to invest all surplus resources to achieve that growth, often meaning low salaries and benefits for key employees for extended periods of time. These people need and deserve the flexibility to make higher contributions in “good years” or later in their working lives, to make up for the years of being unable to afford pension contributions as they built up their businesses.

Review the Capital Acquisition Tax thresholds

As you are aware Minister, anyone receiving gifts or bequests during their lifetime are potentially subject to Capital Acquisitions Tax (CAT). However, there are minimum thresholds, below which the tax is not applied.

In early 2009, the Group A threshold (that applies to children receiving gifts and inheritances from parents) stood at €542,544, with any receipts in excess of this amount being taxed at the CAT rate at that time of 20%. Because of the financial plight of the country at that time and in order to increase the tax receipts from these gifts and inheritances, the thresholds were significantly reduced and the rate of tax increased.

Ireland as a country has thankfully fully recovered from the financial crash. However, even though GDP has more than doubled in that period[2], the tax treatment of gifts and inheritances has not been restored to the levels before the financial crash. Today, the Group A threshold stands at only €335,000 (and has not been reviewed at all since 2019), and the tax rate remains at 33%.

This tax environment has very serious implications for people receiving inheritances. With average house prices today above the previous high point of 2007[3], family homes often need to be sold today by children, simply to pay a tax bill. This particularly applies in situations where there is only one child receiving the inheritance, where the family home is the sole asset inherited and/or the family home is situated in an area where house prices are higher. This surely is not the intention of this tax – to force the sale of a family home, the value of which in many urban areas exceeds the CAT thresholds?

We request that you substantially and immediately restore fairness to the tax treatment of gifts and inheritances.

Thank you for taking the time to consider our thoughts, we look forward to the upcoming budget with interest.

Yours sincerely,

The team at Acuvest (on behalf of our valued clients).