What limits apply to the new personal investment accounts?

The Finance Bill published last week puts further detail on and provides legislative underpinning for the new personal investment accounts. So we are taking the chance this week to run through in a quick-fire style a series of recent readers’ questions on various aspects of the personal investment account scheme as providers start working on the shape of products that they will offer under the scheme.

As a non-resident Irish citizen but with a PPSN, can I invest in the proposed investment scheme?

BP

No, you cannot open an account unless you are over 18, resident in the State and hold a PPS number. The fact that you are an Irish citizen is irrelevant. And if someone opens an account and subsequently moves outside the State, they can no longer contribute to the account during any period when they are non-resident.

Money you would put in the investment scheme would be money you had likely already paid tax on (maybe at 52 per cent or 55 per cent if you are self employed). Why should this money be taxed again? It makes more sense to tax gain, not original contributions. It isn’t like you are getting a tax credit or deduction with your contributions. This investment scheme doesn’t make sense to me. You could actually lose money and yet still pay the 1 per cent tax.

AM

Taxing money you have already paid tax on is nothing new in Ireland or other jurisdictions – think VAT, excise on petrol and even customs duty on online shopping outside the EU. Or deposit interest retention tax (Dirt), capital gains tax and exit tax on savings and investments.

You are certainly correct that you could be taxed at 1 per cent on part of your fund even if it makes a loss in a given year, as long as its balance exceeds €50,000. That is the outcome of the Government decision to follow the Swedish model for such investments rather than the UK individual savings account model. I can only assume that was done (a) for simplicity and (b) to allow the Government set the tax rate at as low an advertised figure as possible.

Can I invest overseas in the new scheme?

RW

You can as long as it is through an investment account provider registered with Revenue for the purposes of providing these accounts. A register will be available as the scheme gets up and running. What investments they offer and in which markets remains to be seen.

My wife and I will have approx €60k to deposit in the investment scheme next July. Are we limited to a total of €12,000 deposited annually or could we both take out a separate plan to let us deposit €24,000 during the year?

BN

You are each limited to contributions of up to €12,000 in any tax year. You cannot hold a joint account but you can each hold an account, allowing you to invest €24,000 between you.

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Can I transfer my existing vanguard ETF to this investment account (new one) without any tax if it’s less than €12k threshold? Or should I sell this and transfer?

AP

This has cropped up a few times. The purpose of the new personal investment account is to encourage new investment by people of savings largely held in deposit accounts.

There is nothing to stop you moving money from an existing investment – such as your Vanguard ETF – to one of these new accounts as long as you stay within the contribution limits but each will be treated on a stand-alone basis so you will have to settle any tax due on the Vanguard investment before lodging the money to one of the new accounts.

In sum, no, you will not be able to avoid existing tax liabilities on an investment simply by transferring it to one of the personal investment accounts.

Am I reading the rules wrong, or could investors do the following: build up gains under the €50k limit and when nearing it, withdrawing some funds (free of CGT). Rinse and repeat, like making bread from a sourdough starter?

BL

As long as the balance of the account stays below €50,000, no tax is due. The account provider will be obliged to keep tabs on the account balance each day over the course of the year and if the balance exceeds it on any day, the account starts being liable for tax.

But as long as the particular investment is liquid enough, there is nothing to stop you withdrawing funds from the accounts on occasion as you approach the limit to avoid tax, although you obviously are limiting your potential investment gains.

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Will dividend income within the personal investment account be tax free (up to €50k value), can you move existing investments to the new account without triggering a taxable event and finally will you be able to fully choose your own investments or will a fund manager do it for you?

OC

Dividend income on investments within the new personal investment account will be tax free subject, as you say, to the €50,000 tax free balance. Transfers from other investments will trigger any tax provisions attaching to those investments as stated above. You will be able to choose from the investment options offered by one or other fund provider. We don’t yet know how much flexibility that will offer though we do know that you will not be able to get interest in any uninvested cash held in your account.

Is there any age limit to the investment scheme? Myself and my wife plan to set up an account in each of my two kids’ names (ages 16 and 12). We want to fund this by the two of us giving them €3,000 each (€6,000 per child) as this is the limit of the small gift exemption. Is there anything preventing us from doing this and what, if any, tax liabilities apply?

GOC

There is an age limit and neither of your children will be eligible for at least a couple of years. No one under the age of 18 can hold one of these new accounts. You, as an adult, cannot open one in the name of your child and you cannot hold more than one account. However, you and your wife can each open an account in each individual’s name.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.