Taxation of investments
Individual Investment Account
The Bill provides for the introduction of a new Individual Investment Account (IIA), aimed at simplifying the taxation of retail investments and encouraging greater participation by Irish resident adults in listed capital market investments.
Under the new regime, tax will generally be charged by reference to the value of the IIA rather than the returns generated by the investments it contains. A 1% annual investment account tax (IAT) will apply to the portion of the average value of investments and cash in the account above €50,000, while income, profits and gains from eligible investments held within the account will not be taxed separately.
Who can open an account?
An IIA will be available to individuals who are Irish tax resident, aged 18 or over and have a PPSN on the date the account is opened. An individual will only be permitted to hold one IIA at any time and may contribute up to €12,000 per annum. An individual will not be permitted to make contributions to an IIA during a period of non-residence.
The range of investments which can be held in an IIA will include shares and bonds admitted to trading on regulated markets, units in UCITS investment funds (excluding structured UCITS) and certain insurance-based investment products.
How will the account be taxed?
Where the average value of an IAT exceeds a €50,000 tax-free threshold, an annual IAT will be charged at a rate of 1% per annum on the excess.
Importantly, IAT will be a final liability tax, meaning that income, profits and gains arising in respect of eligible assets held within the IIA will be otherwise exempt from tax. A number of the existing taxes which can apply to investment returns, including dividend and interest withholding taxes, investment undertaking and life assurance exit taxes and encashment tax, will be disapplied for eligible investments held through an IIA.
The 1% stamp duty levy on gross premiums for insurance-based investment products will also be disapplied where such products are held as eligible investments through an IIA.
Qualifying account providers and administration
An IIA may be held only with a qualifying account provider. To qualify, an entity must hold specified regulatory authorisations from the Central Bank of Ireland or another EEA regulator and register with Revenue before offering an IIA. Eligible providers will include certain investment firms, banks and credit institutions, insurance undertakings and UCITS management companies. Revenue will establish and publish a register of qualifying account providers.
Although the individual investor will be liable for IAT, the account provider will generally be responsible for calculating, reporting and paying the tax to Revenue, thereby reducing the investor’s administrative burden.
Account providers will calculate the IAT arising for each calendar year as at 31 December and, by the following 31 March, notify Revenue of the amount due and provide the prescribed information. Revenue will then issue a statement of the IAT due. The statement will be deemed to be a return on 14 April, when the tax becomes payable. Providers will also be required to issue annual statements to account holders.
If the provider does not deduct sufficient funds from the account to meet the IAT liability, the individual may ultimately be required to pay the shortfall.
Other provisions
The Bill contains detailed provisions governing the establishment and administration of IIAs, including the transfer of accounts between qualifying providers, the treatment of an account following the death of an account holder and record-keeping requirements.
Specific penalties will apply for non-compliance, including where an individual contributes more than the annual limit, makes contributions while non-resident or holds ineligible investments through an IIA.
The Bill also makes a number of consequential amendments to the Taxes Consolidation Act 1997 and to the Stamp Duties Consolidation Act 1999 to facilitate the new regime and, where appropriate, disapply existing taxes and reporting obligations.
The new IIA regime will come into operation on a date appointed by order of the Minister for Finance.