Friday, 24th February 2017
Social media Waterford Today on Twitter Waterford Today on Facebook

John Smiles

Why did commodities do so well in 2016?

John Smiles

Qualified Financial Advisor

Why are there different tax rates on savings?

There are different type of taxes depending upon the type of savings vehicle used. Deposit Interest Rate Tax or DIRT is imposed on the interest paid on deposit accounts. Exit Tax is levied on profits made on pooled funds such as investment bonds and UCITS.

Up until 2016 the rate of both taxes tended to be the same. In 2008, the government raised the rate from 20% to 41%, the equivalent to the highest rate of income tax. At that time, longer term deposit accounts were paying close to 5% pa as troubled banks sought to attract deposits in order to shore up their broken balance sheets. The increased tax was an irritant because savers were still receiving a net rate of 2.95% after tax.

The reason for the sudden large increase was that the government was broke and needed to collect every possible euro in tax to maintain services. Since then, we have seen an improvement in the economy; in the condition of the banks and the interest rate scenario has changed for the worse.

Short term deposit interest rates are now close to zero and 5-year rates are paying 1% pa. Savers in deposit products had suffered a double whammy.

In Budget 2017, the DIRT reduced from 40% to 39% and further decreases of 2% pa to 33% by 2020 are promised. The rate of exit tax on life office investment bonds / UCITS remains at 41% for the moment.

In response to requests for a level playing field from the Investment industry, the Minister for Finance’s response was interesting. The DIRT cut, he said, was to encourage savings and boost returns to small savers. He estimated the cost of DIRT reduction to be c. €36M by 2020. A corresponding reduction in Exit Tax would be too costly at €56M for same period.

Investment products are providing a decent return and the Minister’s conclusion was that savers and investors in life office bonds and UCITS are getting far superior returns and do not need to have their tax reduced yet.

Facebook

Letters to the Editor

  • OUR VIEW

    Travel chaos as strike likely to go aheadWith the Bus Eireann strike for February 20th looking as if it will go ahead it seems that the workers in that particular section of the C.I.E. company will get the overwhelming support from their co-workers in Bus Eireann and Irish Rail. This will mean that public transport in the country will effectively come to a standstill next week. Considering that some bus stations share the same facilities between Bus Eireann and Dublin Bus it is understandable that some p …

    read more »

Weekly Poll

sarıyer evden eve nakliyat,şişli evden eve nakliyat,kağıthane evden eve nakliyat,avcılar evden eve nakliyat,