Oireachtas Joint and Select Committees

Wednesday, 6 November 2019

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach

Finance Bill 2019: Committee Stage (Resumed)

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I move amendment No. 77:

In page 84, between lines 22 and 23, to insert the following:“Report on link between DIRT rate and exit tax rate on Life Assurance policies

38.The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the breaking of the link between the rate of DIRT and the rate of exit tax from Life Assurance policies, including the impact of this on life assurance savers.”.

I have raised this issue in the past and I do not intend to labour the point. It relates to the divergence over recent years between the rate of DIRT, which is being reduced to 33% in 2020 and the rate of exit tax that applies to certain life assurance investment products.

The two rates were aligned until a number of years ago. I raised this issue in the past and the Minister, in fairness, committed to a review which was completed in December of last year. It examined these products under a number of headings, specifically fees and costs to the client, the taxation treatment of the products, and the different characteristics of risk and return associated with them. The thrust of the report's conclusion is that the products are not necessarily comparable and the Minister or Department do not see a compelling case for the tax rates to be aligned. As time goes on, this issue will have consequences. If one has an 8% differential between dirt tax and life assurance exit tax, returns are so low at the moment that the yield from dirt tax is modest in any event. We have also seen a fall-off in the return from the life assurance exit tax. The long-term effect of an 8% differential in the application of tax is that, as individual savers and investors are being advised on appropriate products for them, whereas they might have otherwise considered a long-term product such as a life assurance investment vehicle suitable for them, this might steer them towards a more short-term deposit based saving, which attracts a 33% rate.