Minister for Finance Jack Chambers has backed a recommendation from his own officials to cut the rate of tax on certain investment funds from 41% to 33%.
Civil servants who conducted a review of the funds sector proposed reducing the levies to simplify taxation and encourage more members of the public to invest.
The decision would require a change in legislation which would be left to the next government.
Minister Chambers said there were “real opportunities” that changes could allow for a “reset” for involvement of the public to invest in funds.
He specified cutting the 41% rate of tax to the same rate as Capital Gains Tax which is charged at 33%.
“I think a future finance minister in the next government should positively embrace some of the wider recommendations.”
He added: “I think the tax policy changes merit consideration next year.”
A key concern is that many investors are leaving deposits in accounts which carry little or no interest.
Officials have suggested aligning taxation of Irish-domiciled funds with other savings and investment products.
This would change investment undertaking tax and life assurance exit tax.
The measure would also bring Ireland’s regime closer to other countries in the EU.
The review, called Funds 2030, has also recommended scrapping an eight-year deemed disposal requirement, allowing for a limited form of loss relief and repealing the 1% life assurance levy.
The report was brought to Cabinet this morning by Minister Chambers.
There are almost 57,000 people working in the international financial services sector in Ireland.
Funds and asset management employ 20,000 directly.
The review follows a public consultation and engagement with the funds sector.
It received 140 submissions from the public.
A key issue which emerged is that the funds sector is subject to 12 different forms of taxation making it more complex than other EU countries.
James Costello, Head of Portfolio Management at Davy said the report is thorough and includes several forward-thinking recommendations to strengthen Ireland’s position in the global funds industry.
“Importantly, it emphasises the need for the government to address taxation issues affecting Irish investors,” he said.
“While supporting the broader investment fund industry is essential, it was particularly encouraging to see the Department of Finance recognise that the current tax structure discourages fund investments compared to direct investments in stocks and property.”
“This tax disparity undermines the goal of encouraging investors to save and invest in a diversified manner.”
He added that the existing eight-year deemed disposal rule, which taxes investors every eight years regardless of whether they have sold their fund holdings, discourages long-term investment.
“Imposing higher tax rates on fund investments contradicts the Irish government’s efforts to promote saving and investing for future needs,” he stated.
“Instead, the government should prioritise encouraging Irish investors to invest through funds, as this approach offers more appropriate diversification for the majority of investors compared to other investment types. Aligning tax rates is a significant step forward in achieving this goal.”
While Brokers Ireland said if implemented the report “will mark a new opportunity for Irish consumers to diversify their savings and not leave them languishing in low yielding deposit accounts.”
“It is about time savers were treated equitably when investing in funds that generally perform better,” said Rachel McGovern, deputy chief executive.
“The current situation meant, in effect, that State policy through taxation was disincentivising, this approach.”
She added that the recommendations should now be included in the Finance Bill.
