In the latest Construction Magazine, Milestone Advisory’s Darragh Hogan reports. The Irish Government is taking steps to address the punitive tax treatment of exchange-traded funds (ETFs) and life-wrapped investment funds. Finance Minister Paschal Donohoe has confirmed that changes will be considered in time
for the Government’s first Budget, with an implementation plan set to be progressed and published ahead of Budget 2026.
The Programme for Government has pledged to act on recommendations from a comprehensive review of the funds sector, published last October. In response to a question in the Dáil in February, Mr Donohoe reaffirmed that these recommendations will inform the upcoming budgetary considerations.
Key Recommendations from the Review
The review proposed reducing the exit tax on certain investment funds from 41% to 33%, aligning it with capital gains tax (CGT) and deposit interest retention tax (DIRT). Such a move would make investing in ETFs and unit-linked funds more attractive, particularly for retail investors seeking cost-effective and diversified investment options.
ETFs and unit linked funds, have gained widespread popularity among investors. However, critics argue that the current tax regime discourages individuals from
investing in these products and instead pushes them towards riskier single-stock investments, where CGT is charged at the lower rate of 33%.
Addressing Key Tax Barriers
In 2023, former Finance Minister Michael McGrath commissioned a review of Ireland’s funds sector, including retail investment. Upon its publication on 22nd October, the recommendations received immediate backing from Jack Chambers, then Minister for Public Expenditure and Mr Donohoe’s predecessor in government.
Additional recommendations from the review include:
- Abolition of the eight-year deemed disposal rule – currently, investors are taxed on their gains every eight years, even if they have not sold their holdings. This reduces the impact of compound interest and can force investors to liquidate assets to cover tax liabilities.
- Limited introduction of loss relief – under current rules, losses from one ETF or unit-linked fund cannot be offset against gains from another, unlike CGT loss
relief for individual shares. - Repeal of the 1% life assurance levy – this levy further adds to the cost of investing in life-wrapped products.
Commenting on the Government’s commitment to reform, Mr Donohoe stated: “The Programme for Government has committed to progressing and publishing
an implementation plan for consideration in Budget 2026, taking into account the Funds Review recommendations to unlock retail investment and expand this sector in Ireland. Work on delivering this commitment has already begun.”
Implications for Investment Bonds
A more favourable tax environment would make life-wrapped investment products, such as investment bonds offered by life companies, a more attractive proposition for investors.
What is an Investment Bond?
An Investment Bond is a unit-linked, single premium investment vehicle designed for individuals looking to invest a lump sum.
It provides access to a broad range of funds, catering to different risk appetites and investment goals. These bonds are particularly suitable for investors seeking long-term capital growth.
Who Can Benefit from an Investment Bond?
Investment Bonds are ideal for:
- Individuals wishing to invest a lump sum and achieve potential growth.
- Those looking for an alternative to low interest deposit accounts.
- Investors seeking diversification across multiple asset classes.
Key Features of Investment Bonds
- Choice: A wide selection of funds, including equities, bonds, cash, and multi-asset portfolios.
- Flexibility: The ability to switch between funds as needed.
- Regular income option: Investors can opt to receive a regular income from their bond.
How Does Lump Sum Investment Work?
- Your capital is allocated across various investment funds, with risk and return potential aligned to your objectives.
- A financial advisor can help you determine the most suitable funds for your needs.
- Over time, your investment has the potential to grow, depending on market conditions and your fund choices.
With upcoming taxation changes, investment bonds are poised to become a more compelling option for investors looking for a tax-efficient, diversified, and flexible investment solution. As always, seeking professional financial advice is essential to
ensure your investment choices align with your long-term goals.
Here to help you navigate your way to financial security.
The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries. Our team will work with you to review your finances, explaining your options in clear English.
No jargon – just the facts.
For more information, contact Darragh Hogan (darragh@milestoneadvisory.ie).
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