A new scheme to help households get a better return on their savings is on the cards, according to Minister for Finance Simon Harris. He has said his officials are examining the experience in other countries to get ideas and a plan is due to go to Cabinet and then to consultation with the industry.
That plan could be announced in October’s budget. There are some vital questions for savers that will quickly become evident. Here is what they are.
1. How, broadly, might it work? The countries referenced by Harris in his RTÉ interview – the UK, Canada and Sweden – all give tax advantages to savers under schemes that have certain limits in terms of how much can be put into them each year or what amount in a savings pot is tax-free. Normally – within whatever limits are set – this means no tax on investment gains or on income from dividends on shares or other payments such as bond interest.
In the UK, the individual savings accounts (ISA) has an annual investment limit of £20,000 (€22,900). In Sweden, from this year, the first €300,000 built up in a fund (known as an ISK) is tax-free and exempt from a normal annual charge. In Canada, the annual contribution limit to a tax-free savings account (TFSA) is $7,000 (€4,300) but, unlike the UK’s “use it or lose it” approach for each year, the allowance rolls over. So someone in Canada who was over 18 when the scheme was introduced in 2009 and has not put a dollar into it, could now contribute more than $100,000 without any tax bill.
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For Irish savers, if these models were followed, the advantage would be products that would avoid capital gains tax on investment profits, now 33 per cent, or income tax on earnings from investments such as dividends, subject to certain limits relating either to the annual contribution or the size of the pot.
Investment in exchange-traded funds, which is one way to invest in a group of shares, would become much less onerous in tax terms. Currently, these require investors to pay tax every eight years at a rate of 38 per cent on any profits in their portfolio, even if they are not selling the investments – the so-called deemed disposal rule.
Of course, the Government could decide to levy some tax, just at a lower rate. Or it could follow the Swedish model – being examined across the EU – which for many years levied a fixed charge on savings pots regardless of whether they rose or fell in value. In recent years this charge was about 0.7 or 0.85 per cent – so a savings pot of €50,000 would have been subject to an annual charge of somewhere between €350 and €450.
This led to debate about the extent of the real tax advantage in Sweden. Last year, however, a new tax-free fund amount was introduced which has risen to €300,000 in 2026. So now no fixed charge is applied on the first €300,000 in an ISK account: only the balance over that figure is subject to an annual charge – but then no other taxes apply.
A common theme of the products internationally is that they are simple and do not impose any liability on the saver to make a tax return. The provider looks after whatever it necessary. Simplicity is key in attracting investors and, generally, money can be withdrawn whenever the saver wants.
2. What kind of savings or investments might be covered? This is a key decision. The UK and Canadian schemes include options that are just bank deposits – thus involving no investment risk. However, the UK cash ISA, while protecting people from tax on deposit income, has unsurprisingly not delivered a particularly large return as, like here, bank deposit interest rates are low. The UK has cut the annual contribution cap on cash ISAs for under-65s to £12,000 from April 2027, reducing the scope to park cash here.
In Canada, deposit savings are covered by the TFSA schemes -though again returns here are low – and banks also promote products which are partly deposits and partly shares, offering a guarantee on capital and some upside if shares rise.
In Sweden, however, the scheme is designed to give tax relief on listed investments, mainly in shares, bonds and funds. While cash is sometimes held in such funds, they are not designed to offer tax relief on deposits, as happens in the UK.
Whether to include cash deposits in any scheme is the first key decision facing Ireland. The gain for savers would be avoiding Deposit Interest Retention Tax (Dirt), charged at 33 per cent. But with a lot of money already parked in overnight deposits offering little or no return, encouraging that option may not be seen as a policy goal.
Banks, however, may argue for ISA deposit options to help them protect their savings books.
Shares, many investment funds and government bonds would certainly be included in any Irish scheme. Over time, these investments have offered higher returns than cash. They do involve risk, of course; in recent years, share prices have generally risen, bar a nasty fall when Covid hit.
The average annual return on a UK stocks ISA has been in the range of 6-7 per cent over the past five years – well ahead of inflation and the 2 per cent return on a cash ISA. However, within this average, there have been a lot of swings, including a 3 per cent-plus loss in 2022/23.
There is no guarantee and after the strong rises of recent years, a few years of a “bear market” cannot be ruled out. Savers need to be clear that, while they can cash in their shares, there is a risk and they need to see this as a longer-term investment.
3. Can other policy goals be achieved? Possibly. In the UK, for example, a special incentivised ISA helps people saving for a home – with up to £4,000 in annual savings and a 25 per cent government bonus. In Ireland, the Help-to-Buy scheme is effectively a tax refund for first-time buyers. The UK also has a retirement-linked scheme with incentives, though it does have restrictions on withdrawals. Canada has a separate track for pensions under a different scheme.
This all underlines how important it will be for any Irish scheme to fit in with existing policies. For example, if there is to be tax relief on investing in ETFs within the structure of the new scheme, do the current deemed disposal rules change as well? How does this fit in with pension savings? And what does this mean for tax revenues, with the Commission on Taxation having argued that, in general, capital taxes in Ireland are too low, not too high?
Some careful thinking is needed here. If a new scheme is introduced, will it encourage people to sell out of existing investments to avail of the tax break? Does it just end up as a few extra quid for the better off or a more fundamental recalibration of savings and investment tax which might involve increases in some areas, as well as cuts in others?
4. Where will the money go? Harris spoke of the need to help raise funds for Irish SMEs. This is difficult as few are quoted on the stock market and thus there are limited opportunities to invest.
Financial institutions could try to put together products channelling investment to private businesses, but this is difficult, as shown through the mixed record of schemes such as the Business Expansion Scheme – now called the Employment and Investment Incentive Scheme. The UK has an “innovative” ISA which covers investment in products such as business lending, but this is obviously higher risk. There was talk of a British Isa restricted to UK shares but it never emerged.
Harris also referred to the opportunity for savers to participate in the EU savings and investment union, a long-discussed idea to develop a large pool of savings across the bloc which businesses could access, to rival the opportunities available in the US. There is a new political push on this now as part of the EU’s competitiveness drive.
Industry lobby Banking and Payments Federation Ireland put its recent call for an Irish savings and investment product in the context of the EU move, calling for a simple, tax efficient system.
5. The bottom line: International experience shows such schemes can work and can attract a lot of cash, though consideration is needed of the cost of tax forgone. In the UK, 15 million accounts were open in 2024, in Canada it was 18 million while in Sweden more than four million people, not far off 40 per cent of the population, have ISKs.
Simplicity, low and transparent fees from product providers and easy withdrawals have been central in the UK, Canada and Sweden and will also be crucial in Ireland. Vital decisions will be what kind of investments are covered, what the tax rules are and the need to be clear with savers on products where risk is involved.
