Exit Tax

If you are the holder of a unit-linked savings or investment product (non-pension) you will be liable to pay Exit Tax when a 'Deemed Chargeable Event' takes place. A 'chargeable event' can be a full or partial encashment, a maturity or claim, an income draw-down facility or every 8th policy anniversary. This Exit tax is charged on the 'gain/investment profit' element of your policy.

Exit Tax was introduced on 1st January 2001 as the taxation system for all policies issued on or after this date. The current rate of tax is 41%. Prior to its introduction, the tax on the funds was paid, to Revenue, on an annual basis by the life assurance company. If you ever see the fund prices in the media, you will notice that there are 'Net' and 'Gross' prices quoted. The 'Net' prices are for policies issued before 01/01/2001 and the 'Gross' prices refer to policies issued after that date.


As far as the individual investor is concerned, there is no obligation on you to do anything about the tax, as it will be deducted by the life assurance company and they, in turn, pay it to Revenue. A non-resident is exempt from Exit Tax but they must complete a specific Revenue Declaration and provide the life company with proof of non-resident status, at the inception of the policy.

It may be possible to reclaim Exit Tax from Revenue, in certain circumstances. These specific circumstances relate to certain compensation payments invested i) from personal injury claims (assumes permanent incapacity) or ii) from awards made to thalidomide victims by the Minister for Health. It may also be possible to offset Exit Tax against Inheritance Tax (if applicable) on the death of the policyholder.

Case 1.

You invested €10,000 on a date after 01/01/2007. The investment is now worth €12,000 and you wish to take €1,000 as a partial encashment on 01/01/2014.

The 'chargeable amount' is calculated as follows:

€1,000 - [€10,000 x €1,000/€12,000] = €166.67

Exit Tax @ 41% (current) = €166.67 x 41% = €68.33

The €68.33 is paid to Revenue by the life company.

Case 2.

You invested €10,000 on a date after 01/01/2006. The policy is now worth €14,000 on the 8th Anniversary (01/01/2014).

As the 8th anniversary is deemed a 'chargeable event' , the gain of €4,000 is taxed @ 41% = €1,640

This €1,640 is paid to Revenue and the value of your investment is now €12,360.



This is written as a very basic guide. There are various subsequent scenarios on chargeable events for partial and full surrenders. It will up to the life company to calculate and pay the correct taxes due.

Paying for Financial Advice

If you need to get financial advice in respect a pension or investment product then it is worth bearing in mind that there are a few options open to you. It is probably best to explain these by way of a few practical examples.

Case 1.

You want to buy a low-cost product, that you have researched, on an 'Execution Only' basis (no advice) but you do need some help with selecting funds, general information on the risks involved or the tax implications of the transaction.

It would be prudent to contact a few advisors and ask them how much they will charge, per hour, for their advice. I am not aware that your local bank or building society will be able to provide you with this service so you should seek a recommendation on an advisor, from a friend or family member. You should make it clear at the outset that you are not in the market for a product recommendation. Expect to pay in the region of €150 - €250 per hour for this service.

Case 2.

You know you need to start a pension or want to invest some money. You need someone to guide you through the process and make a recommendation on a suitable product.

If you go to a Bank or other Tied Agent, they will be able to offer you this service. However, they will be restricted to offering you a product from the one company that they are 'tied' to. The remuneration for this service, in the vast majority of cases, will be paid for out of the commission generated on the sale of the product. There may also be more suitable products on the market that do not have to be brought to your attention.



If you elect to go to a 'Multi Agency Intermediary' or 'Authorised Advisor', you will get broader advice on suitable products and you should also be able to negotiate whether you want to pay for the advice/product recommendation by paying a fee, having the advisor paid from the commission generated on the product, or a combination of both of these.

Case 3.

You just need some general advice on financial planning but you do not want to buy a product from the advisor.

It is possible to get a vast amount of information, for free, on various financial discussion forums on-line. If you cannot find what you are looking for there, you might be able to avail of a 'free' consultation from an advisor. 'Free' consultations do not generate any income for the advisor so be aware that a product recommendation may be forthcoming, at some stage. Alternatively, you should be able to negotiate a fixed fee, for the advice.



It is important that you define what type of service that you are looking for, from an advisor. This should determine the method of remuneration that both you and the advisor are agreeable on. You should read the advisors 'Terms of Business', as this will give you details on the 'Remuneration Policy' that they operate.

Don't be afraid to negotiate on fees or commissions.

The 'Hunger' for Money!

I was reminded recently of an episode that took place in my life when I was about 11 years of age. I'm a bit fuzzy on the exact details but I put a 10p coin in my mouth and I accidentally swallowed it.

I can't remember the dimensions of the coin but it was no mean feat to swallow one of these, without choking. For some strange reason I decided no to tell anyone. After a few hours had passed my mother became a tad suspicious as she could obviously see that there was something bothering me. Later in the evening I eventually cracked and told my parents what had happened.

I was brought to the local GP and he advised that I should go to the hospital and get an X-ray done. This we did, and they decided that they should keep me in for a few days. They wanted to see if I would 'pass' the coin through the digestive system but they were also concerned about the possibility of the coin getting stuck somewhere along the way.

After a week in hospital there was no sign of the coin. The nurses had a good laugh at my expense, as they used to come in every day and ask if there was "Any change?". Another X-ray was done and they confirmed that the coin was stuck. They then decided to operate as they were fearful of the internal damage that the acid in the stomach would do to the coin if it was left in there any longer.

The surgeon duly operated to recover the coin. I did wonder, later, why he had to make the hole so big, as the scar is about five inches in length. It is not something that would enter your mind at that age but the coin could have been no more than an inch in diameter.

Following another week recovering in the hospital I was allowed to go home. Before I left the hospital the surgeon came in with the coin, black from the acid, and asked if I wanted it. I said "Yes" and his reply was "I think I should keep it because I found it". The last thing I needed was to start laughing with a belly full of stitches.