I hold a number of units in a range of Unit Funds, such as those retailed by stockbrokers in Ireland and, up to recently, by Rabo Direct. These are held by me personally and not in any investment vehicle, just like personal shareholding in public companies quoted on the stock exchanges.
As a personal taxpayer, are the gains and losses to be accounted for:
(1) under Capital Gains Tax rules of offsetting losses and net gains (after exemption allowance) at the prevailing rate of 33 per cent, or;
(2) are holdings of unit funds regarded as “investment undertakings” and gains charged at 41 per cent, with no offsetting of losses?
My unit fund holdings are not time-bound or linked to an index tracker, and can be freely bought or sold like shares. I cannot find a clear guideline on the Revenue site.
Mr P. McM, email
The issue of unit funds has not cropped up for some time and suddenly two appear almost at the same time. I can see why you might think they would come under the capital gains tax regime as they are essentially a financial asset and are subject to potential gains or losses. But, as it happens, they don’t.
They are, as you possibly suspect, treated as investment undertakings and, assuming they were acquired since the start of 2001, are subject to exit tax. This is currently levied at 41 per cent although there is a growing campaign to have this figure reduced – at least to bring it in line with Dirt Tax on bank deposits.
The reference to 2001 is important. Before that date, funds were taxed every year (assuming they made a profit). The investment net of this tax then rolled over to the following year.
In 2001, the regime changed and, on any funds marketed for the first time since that date, a “gross roll up” regime applies. Under this, no tax is levied at the end of each year and the full fund, including all profits rolls over to maximise the investment.
However, when you exit the fund, you pay exit tax. Furthermore, if you decide to hold the funds long term, this tax will be deducted on any profit in the fund after eight years – and on every subsequent eighth anniversary. This “deemed disposal” is a measure introduced in 2006 to avoid what Revenue considered to be use of such funds for aggressive tax planning.
The tax is deducted from the fund by the fund manager and passed on to Revenue. If, when you eventually exit the fund, the gain you make is less than that already taxed, you are entitled to claim a refund of some or all of the tax paid.
However, beyond that, there is no provision to offset losses on a unit fund investment against any other capital gain.
The reason I mention the older “net” funds (pre-2001) earlier is that, although they are no longer marketed for new business, there are legacy investors whose money is still in them. Thus, you need to know which type of fund your money is invested in in order to ascertain the applicable tax treatment.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
