A 'complex' 38% tax on investments will not apply to the government's new savings scheme

The Irish government is preparing to review changes to the 38 per cent tax levied on investment funds under the deemed disposal regime, with officials indicating the issue will be addressed in the coming weeks. This follows recent announcements by Tánaiste Simon Harris regarding a new savings and investment scheme aimed at boosting retail participation in capital markets. Ireland currently holds one of the lowest levels of retail engagement in these markets within the European Union. The deemed disposal tax applies to collective investments such as exchange-traded funds (ETFs) and is imposed every eight years. Under current rules, these investments are treated as though they have been sold, even when no actual transaction takes place. This results in a tax charge based on the value of the investment at the time of the deemed disposal. In 2024, a government report highlighted concerns around the rule, recommending its abolition. As part of the 2026 budget, the tax rate was reduced from 41 per cent to 38 per cent. Harris, during a speech in the Dáil earlier this year, expressed doubts about the relevance of the deemed disposal tax, calling it outdated. He stated that the existing framework does not align with modern financial practices and that an overhaul was necessary. His comments reflect growing pressure on policymakers to adapt taxation policies to evolving market conditions. As part of a broader initiative to enhance financial inclusion, the government is introducing a new savings and investment scheme. This plan, initially outlined in March, will be formally launched in Budget 2027, with investment accounts anticipated to open the following year. The scheme aims to provide individuals with a structured way to manage their savings while offering incentives through a tax-free threshold and a low flat-rate tax structure for amounts exceeding that threshold. Participants will have the option to invest in a range of financial instruments, including shares, bonds, funds, ETFs, and insurance-based products. However, crypto assets such as cryptocurrencies, derivatives, and interest-bearing cash will not be included in the scheme. The government has emphasized simplicity in the design of the program, aiming to minimize administrative burdens for first-time investors. Harris confirmed on social media that further details of the scheme will be released on October 6th, coinciding with Budget day. These details will include specifics on the tax-free threshold, the flat-rate tax structure, and annual contribution limits. Importantly, there will be no requirement for a minimum annual contribution, although a maximum limit will be established. Additionally, there will be no minimum lock-in period for contributions, allowing flexibility for participants. The new scheme is intended to address the challenge of low retail participation in capital markets, with estimates suggesting that approximately €175 billion in household savings is currently held in Irish banks. By providing a simplified and accessible platform, the government hopes to encourage greater involvement in investment activities among the general population. The Department of Finance is working closely with financial service providers to ensure the implementation of the scheme is both efficient and user-friendly.