What do shareholders in the former Waterford Crystal and Anglo Irish Bank have in common with shareholders in Eircom and other Irish banks? They all suffered a loss on their shareholding. This situation also applied where the shareholders were employees of the relevant company and obtained the shares via an employee share scheme. For many people, the losses were considerable.
Where evidence of the loss can be shown, it is possible to carry those losses forward as a tax credit against future investment gains from other relevant investments. For example, a person holding Anglo Irish Bank shares which they purchased and then lost all their money when the bank was liquidated can carry forward that loss against future gains in other investments such as shares or unit trusts. A loss only becomes a loss when it has been crystalised, in other words the asset has been sold. A fall in value of an investment you continue to hold is not regarded as a loss for tax purposes.
The tax treatment of investments made through an insurance policy is quite different. On death, Insurance investment policies usually pay out the higher of the original amount invested or the net current value of the policy. Insurance investments are subject to exit tax, currently 41%. Exit tax is paid on exit or on the eight anniversary of the policy, whichever occurs first. Most other investments may be liable for Income Tax, USC, PRSI or CGT and the investor must file and pay the appropriate tax each year.
The advantage for the insurance investment is that it can defer the payment of tax and the rate charged may be lower at the date of encashment. The disadvantage of insurance investments is that losses in one policy cannot be offset against gains in another policy, even if both policies are with the same Insurer.
Investors nursing investment losses of any kind should take professional investment advice to examine how they could structure their investment portfolio to benefit from future growth while maximising tax efficiency.