Revenue Note for Guidance

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Revenue Note for Guidance

838 Special portfolio investment accounts

Summary

This section provides the tax regime for an equity/gilt investment product known as a special portfolio investment account (SPIA) operated on behalf of individuals by designated stockbrokers. The tax treatment of SPIAs is broadly similar to that which applies to special investment policies issued by life assurance companies and special investment schemes which are a type of unit trust – refer to the notes on sections 723 and 737, respectively. Certain investment criteria must be met by a SPIA, and income and gains – both realised and unrealised – arising from the investment are subject to an annual 20 per cent tax charge. This is a final tax.

These accounts can not be commenced after 5 April, 2001. In relation to accounts existing at that date, the requirement that investment be focused on Irish equities and bonds has been removed and there will no longer be a limit to the value of assets held in the account on every fifth anniversary of the date it was opened.

Details

Definitions and construction

(1)(a) “designated broker” defines the stockbrokers who operate the SPIAs.

“gains” means chargeable gains within the meaning of the Capital Gains Tax Acts and includes gains on gilts.

“qualifying shares” are ordinary shares listed on, or quoted on, the Irish Stock Exchange but excluding shares which are shares in an investment company or any kind of collective investment undertaking.

“relevant income or gains” identifies the investment return, net of expenses due to the broker, which qualifies for the 20 per cent rate – it covers, in addition to dividend income, capital gains (and losses) arising from a relevant investment.

“relevant investment” indicates the investments which may be held by a designated broker in a SPIA. These are either —

  • fully paid-up qualifying shares and specified qualifying shares (the latter being qualifying shares in companies with an issued share capital valued at less than €255m at the time when the shares are acquired for the SPIA), or
  • shares as above and certain securities.

It is a requirement that the broker acquires the relevant investment at market value by means of expending funds contributed by the individual investor by way of a specified deposit. Existing shares or securities held by the investor cannot be simply transferred to the SPIA.

(1)(b)(i) Various terms used in the legislation governing deposit interest retention tax (DIRT) set out in Chapter 4 of Part 8 are linked to terms used in this section so that by virtue of subsection (3) the DIRT collection mechanism can be applied in broad terms to the collection of tax in respect of SPIAs.

(1)(b)(ii) However, the provisions relating to the interim payment of DIRT are disapplied for the purposes of this section.

Special portfolio investment accounts (SPIAs)

(1)(c) & (2) Despite the provisions of subsection (3) (which apply the DIRT provisions governing special savings accounts to special portfolio investment accounts), the conditions under which special savings accounts operate do not apply in full to SPIAs since some of them have no relevance to those accounts. However, the following conditions are to apply to SPIAs —

  • each special portfolio investment account and all assets held in such an account must be maintained separately from any other investment accounts operated by a designated broker;
  • the amount which an individual can invest in a special portfolio investment account is limited to €53,500 - but this limit is increased by the amount invested in shares of companies quoted on the Developing Companies Market subject to a maximum increase of €12,700 (however, under section 839 these limits may be varied in certain circumstances – see notes on that section for details). This increased limit applies to accounts opened before 5 April, 2000;
  • on or after 1 February, 1995 and before 31 December, 2000 certain investment criteria must be met, namely, funds in the special portfolio investment account must be invested as to 55 per cent in Irish equities and as to 10 per cent in specified qualifying shares.

These accounts cannot be commenced on or after 5 April, 2001.

Application of DIRT legislation

(3) SPIAs are linked into the DIRT legislation as it applies to special savings accounts and in particular as regards the tax rate on those accounts.

Special tax rules

(4) & (5) Provision is made for special rules in relation to the tax treatment of SPIAs which apply so as to overrule any other provision of the Tax Acts or the Capital Gains Tax Acts. These rules are as follows —

  • any unrelieved losses of the SPIA at the time of its closing can be appropriated by the holder of the SPIA as if they were his/her own losses and offset against gains in the same year of assessment or a later year;
  • indexation relief, the exemption of Government securities and the annual capital gains tax exemption available to individuals do not apply;
  • there is to be no tax advantage from the timing difference between the generation of a capital loss on the disposal of securities and taking into account any income received in respect of those securities;
  • there is to be a deemed disposal and reacquisition of all assets of a SPIA on 31 December each year so that gains and losses – both realised and unrealised – can be brought into the computation of relevant income and gains for each year of assessment;
  • generally dividends received from Irish resident companies in a year of assessment are taken into account in calculating “relevant income or gains”;
  • income and gains arising from investment in certain BES type shares are not taken into account in computing the tax liability – losses, however, are allowable.

(6) A designated broker is deemed to have made a payment on 31 December in each year of assessment of the amount of relevant income or gains for that year of assessment. This triggers a tax charge on that amount to which the 20 per cent tax rate is to be applied. The tax is due on or before 31 October in the following year of assessment. The broker is indemnified against any claim that the income or gains should be accumulated without deduction of tax for the benefit of the investor. Furthermore, if there are not sufficient funds within the SPIA to pay the tax (this can arise since there is a tax liability on unrealised gains) any shortfall made up by the broker is to be a debt due from the investor to the broker.

Bar on BES relief

(7) Investments in shares held in a SPIA cannot in addition qualify for BES relief.

Relevant Date: Finance Act 2021