The Minister for Finance, Mr. Charlie McCreevy has revised legislation in the Finance Bill 2001, as and from September 26, 2001, to prevent investors from taking advantage of a loophole which allowed them to use life policies to gain tax advantages.
The Minister said he had been made aware that the new gross roll-up tax arrangements for life companies, which came into effect in January of this year, were being used as so-called wrappers for direct personal investments.
Ireland’s life assurance companies, banks and stockbrokers have been retailing personal investment portfolios, known as wrappers, for some time now. In the case of a property fund wrapper, an insurance company buys a property and this is held within a life policy taken out by an individual. The wrapper is not liable to income or capital gains tax throughout its life, the only tax being levied is exit tax at 23 per cent. Therefore, rental income may accumulate in the fund tax-free.
Historically, the special tax treatment afforded to life insurance investment was based on the idea of collective funds and pooled investments. The Minister said it was never intended that the same beneficial tax treatment would apply to purely personal direct investments using life policies as a wrapper.
In future, such personal portfolio policies will be taxed an extra 20 per cent on top of the normal exit tax. As the loophole has been closed retrospectively, investors who chose wrappers over the past year will see their investments decline significantly. The Minister is confident that this 20 per cent surcharge will effectively close off this particular tax loophole.
But, while the new legislation has effectively put an end to wrappers in their existing form, it is still possible to use this vehicle for collective investments. Therefore, there may be scope for a tax effective product on this front in the future.
The new arrangements will also apply to personal portfolio policies taken out by Irish residents with companies in an EU or EEA State, or in an OECD country with which Ireland has a tax treaty. |
