Friday, November 21, 2008

Exit Tax - FAQs

What is Exit Tax? It is a tax on the gain/profit you earn on life assurance savings, investment bonds (Tracker/Guaranteed or Unit-Linked) and protection policies that have a unit-linked element.

What rate is it charged at? From 01/01/2014 the rate will be 41% 

When is it paid/due? It is paid/due when a 'chargeable event' takes place.

What is a 'chargeable event'? A claim, partial/full surrender, maturity or every 8th policy anniversary.

Who has responsibility for paying it? The Life Assurance Company pay the tax directly to Revenue. The company will write to you and notify you of the tax paid and quote the investment's current value.

I took out my investment policy before 01/01/2001, am I liable for Exit Tax? No. It only applies to policies taken out after this date. Prior to this date, the tax was deducted on an annual basis and paid by the life assurance company to Revenue.

My policy is worth less that amount invested on the 8th anniversary, is there any tax due? No.

Does my policy 'mature' on the 8th anniversary? No. Your policy will continue as before.

Can Exit Tax be offset against other tax liabilities in at the end of a tax year? No. However, where Exit Tax is paid as a result of a death claim it may be offset against an Inheritance Tax liability in the hands of the beneficiary.

Whats is the 'deemed encashment' date? The 8th Anniversary of the policy.

Is a 'deemed encashment' Exit Tax taken into consideration in calculating future exit tax liabilities on a policy? Yes.

Is the Exit Tax paid on a partial surrender before the 8th anniversary taken into consideration in calculating future tax liabilities on the policy? No. It is only taken into consideration for partial surrenders after the 8th anniversary.

Is anyone eligible to claim Exit Tax back from Revenue? Yes. The following people can reclaim Exit Tax a) a permanently incapacitated person who has invested a compensation payment from a personal injuries claim b) the trustees of a qualifying trust where the investment gains/profits are the sole or main income of the incapacitated person c) a thalidomide victim investing a compensation payment made by the Minister for Health.

If a client invested €10,000 on 01/01/2001 and then added €5,000 to the same policy on 01/01/2006, is the exit tax payable on the growth (if any) on €10,000 payable in January 2009 and on the €5,000 in January 2014? No. The tax is policy based so the allowable premiums (total premiums paid before the chargeable event) will be €15,000 in January 2009 for the purpose of calculating the Exit Tax due.

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