Growing older to reduce taxation

Your Age and Irish Taxation

Some people are old at forty and some eighty year olds are as young as the grandchildren they babysit.

We all grow old it is the basis of life in the universe. From the time of the Big Bang forward the universe has been steadily aging, cooling, and converting its energy from ordered into unordered forms in order to eventually over billions of years to come to an end. If that didn’t depress you then the good news is that in Ireland your age can offer some tax benefits

(1)    Pension Contributions: the amount of money which qualifies for tax relief that you can invest in a pension as a percentage of your income increases as you get older:

Age	Amount which qualifies for tax relief
Under 30 years	15% of net relevant earnings
30 to 39 years	20%
40 to 49 years	25%
50 to 54 years:	30%
55 to 59 years	35%
60 and over	40%

This is subject to a limit of €115,000 of income which can be taken into account and the fund can only be €2 Million before any amount drawn from it is taxed at the high rate of tax (2016 Levels)

(2)    If you are over 65 then then the first €18000 of annual income is exempt from income tax and €36000 for a married couple (increased by 575 for first and second dependent child and 830 for each subsequent child) Perhaps when you are 65 it would be a good time for them to be leaving home but if they do stay then at least your tax is lower.

(3)    If you are over 65You get an extra tax credit called the Age allowance which is worth €245 if you are single or widowed and €490 if married or in a civil partnership.

(4)    Retirement Relief is available on the sale of your business once you reach 55 and over

(5)    You are exempt from DIRT if you are over 65 and your income is below the exemption limits above. (If you are over 65 and have been charged DIRT then get on to us and we can help you reclaim it.)

(6)    Young trained farmers, there are a number of tax breaks and stamp duty concessions available for young trained farmers. These are farmers who are under 35 and who have completed certain farm related qualifications.

Like everything in the tax code your treatment depends of very specific details. Taxation is based on detailed laws and regulations and not on fairness (even though it is meant to attempt to attain fairness which is hard to see in the current system with a 12.5% tax rates for the biggest of companies). It’s important not to miss out on any tax breaks you might have coming to you due to your age.

© Frank McGivney, Frank McGivney & Co. Chartered Management Accountants, 0469293891 27/04/2016

How to Save €5360 in income tax

How to Save €5360 in income tax

Reducing your tax liability using Standard Rate Cut off Point

Figures used are the 2016 ones.

In Ireland you pay tax at the lower rate of income tax (currently 20%) up to point you exceed your standard rate cut off point after this you pay the higher rate.

Examples

(1)    Single Person their first €33800 of income is taxed at 20% and the balance (anything from €33801 and above) is taxed at 40%.

(2)    Single parent the first €37800 is taxed at lower rate then rest at 40%

(3)    Married couple one income the first €42800 is taxed at 20% then balance at higher 40%

(4)    Married Person two incomes the €42800 is increased by a max of the lower income or €24800. So the maximum at lower rate is €65600 (€37800*2)

Implications and Tax planning to maximise the amount of Income taxed at 20%

(1)    If you are a PAYE worker then there isn’t a whole lot you can do in relation to tax cut off points because you generally can’t split your wages between yourself and our spouse.

(2)    If you are a PAYE worker with the joyous position of having your choice of jobs at different wages rates then the ideal situation to minimise tax is to have one income at €42800 or less and the other at whatever adds up to a balance of €65600. So wife on €40000 then husband on €25600. This allows for all your tax to be at 20%.

(3)     If you are self-employed and earn more than €42800 per year then there are two scenarios

a.       Your spouse works. If he/she is on less than €24800 then you should set up a partnership or employ her in your company and bring her/his income up to €24800 and therefore reduce your taxable income by the same amount.

b.      Your spouse doesn’t work and has no other source of income then you should have him/her as a business partner or company employee. Then split the profits so at least one earns €24800 and the other earns the balance (or indeed any split as long as one is above €24800).

(4)    The Maximum benefit from 3b is for someone earning €65600 or more. If the €65600 is all in one spouses hands then the tax is €42800x20%+€24800x40%= €18480 (less their tax credits). If the income is spread then the full €65600 is taxed at 20% so €65600*.2=€13120. This equates to a saving of €5360 (€18480-€13120). There are also saving in Universal Service Charge which I will analysis in a different article. However there is one bite in the tail in that you lose the Home Carers allowance of €1000 (but still well worth it). It also may not be suitable for some people in certain circumstances such as those on social welfare.

The above is for general information purposes. Each individual case is different and you should get advice from your accountant on all tax planning issues.

© Frank McGivney & Co Ltd (046)9293891  Date written: 22.04.16 

Tax Planning Exempt Income

Exempt income

Life is full of decisions one of the ones you can decide to make is whether you try to minimize the amount of tax you pay. This leads to a further decision of whether you do this legally or illegally.

Legally this is called tax avoidance or tax planning depending on the scale of how you organize your affairs. Both are perfectly valid means of minimizing your tax

Illegally this is called tax evasion, the shadow economy or sponging of the rest of society. It has high penalties for detection including hefty fines and prison sentences. Each time you evade tax then you end up driving the amount taken by other people to higher levels as they have to compensate for the amount you are not paying.

One of the ways to avoid income tax is through exemptions.

Within the Irish tax code there are various exemptions to income tax.

(1)   Exemption Limits:

Once you reach the grand age of 65 then any income you earn below €18000 is exempt from income tax. Once you reach 66 then you also avoid PRSI. If you are over 70 then you are charged a reduced rate of Universal Service Charge

 (2) Personal injury settlements (s 189), payments from the Haemophilia HIV Trust (s 190), Hepatitis C compensation (s 191), and payments in respect of thalidomide victims (s 192).

(3) Income of artists, writers and composers, subject to an overall annual limit of €50,000 (s 195).

(4) Interest on savings certificates (s 42) and instalment savings schemes (s 197).

(5) Income of recognised charities (s 207, 208).

(6) Income of amateur sports bodies (s 235).

(7) Rent from letting farm land (s 664). A claimant must be aged 55 or over, or unable through physical or mental incapacity to carry on farming. Exemption is given for the lower of:

(i) the farm rental income surplus, or

(ii) €40,000 where the lease is for more than 14 years, €30,000 where the lease is for 10 to 14 years, €22,500 where the lease is for seven to 10 years, or €18,000 in any other case.

(9) Rent-a-room relief (s 216A). Income from lodgers is exempt provided your gross income from such letting does not exceed €12,000 in the tax year.

(10) Home childcare earnings of up to €15,000 in the tax year (s 216C).

(11) Earnings of special assignees (s 825C). 30% of income above €75,000 in the case of employees assigned from a tax treaty country to work in their employer’s Irish operation.

(12) Start Your Own Business relief (s 472AA). Where a person previously long-term unemployed sets up a business, the first €40,000 of profits in a tax year are exempt. Expires 31.12.2016.

Frank McGivney www.meathaccountants.com 0469293891