Neale Richmond (Dublin Rathdown, Fine Gael)
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190. To ask the Minister for Finance his views that the gap between the exit tax of 41% and the capital gains tax of 33% with an inclusion of a €1,250 exemption is to be maintained; his further views that the 41% rate of exit tax should be lowered; and if he will make a statement on the matter. [33292/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy should note at the outset that, while I acknowledge that there is a range of perspectives on the issue of exit taxes, I currently have no plans to make any change to either the exit tax or capital gains tax regime.

Capital gains tax (CGT) is a tax you pay on any capital gain (profit) made when you dispose of an asset. It is the chargeable gain that is taxed, not the whole amount you receive. The gain is usually the difference between the price you paid for the asset and the price you disposed of it for or the market value at the time of disposal.

There are a number of investment products which are subject to exit tax including life assurance policies, collective investment funds and ETFs. The normal tax treatment afforded to these products is that the funds invested are allowed to grow on a tax-free basis within the fund. This is known as the ‘gross roll-up’ regime. The income is taxed at the level of the investor rather than the fund, as is standard international practice.

The general thrust of the regime is that there is no annual tax on income or gains arising to a fund. However, a fund has responsibility to deduct exit tax in respect of payments made to certain unit holders in that fund when a ‘chargeable event’ occurs.

Finance Act 2006 introduced the concept of a deemed disposal as a new chargeable event. A disposal is deemed to occur 8 years following acquisition of a fund and then every 8 years thereafter. Any gain on the investment which arises from the date of acquisition to the date of the deemed disposal is subject to tax. This ensures that income cannot be rolled up indefinitely in the fund without being taxed. On the ultimate disposal of the investment any tax paid which arose as a result of a deemed disposal is allowed as a credit against any final tax liability on disposal.

Comparison of the rate of CGT and exit tax on a headline rate basis does not account for the fact that individual disposals within a fund are rolled up which allows the gross income earned or gains made to be reinvested by the fund until the occurrence of a chargeable event.

As the Deputy will be aware, as with all taxes, both CGT and exit tax are subject to ongoing review which includes the consideration and assessment of the rate along with any associated reliefs and exemptions. Tax policy and legislation are reviewed by the Tax Strategy Group as part of the annual Budget and Finance Bill process.