BY JOHN ELLIS, FINANCIAL ADVISOR
WE work hard and try to save for a rainy day, our retirements, and other eventualities like our children’s education. We look for guidance as to the best way to save our money with as little risk as possible but feel pressed from every side
According to Deloitte the taxation system for individuals and entrepreneurs remains quite complex and there remains a significant burden on the individual tax payer.
The hope in future Budgets and Finance Bills is that consideration will be given to changing the tax system so the tax burden can be more equally spread instead of it continuing to fall most heavily on a relatively small group of people.
For instance, in the Finance Bill, something that won’t affect everyone, but the change signifies the Government feels there is extra to be found. It’s the change to the tax treatment for capital acquisitions tax purposes on what is called the “free use of money”.
For example, you give your child an interest-free loan. Previously where an annual gift was deemed to be taken, the “cost” was determined by reference to the amount you would expect to earn if your money remained in a deposit account.
But given the very low levels of interest on deposits over recent years this meant that the gift was very low. The proposal is that the gift to your child will be the best rate available as if your child borrowed from their own Bank! Therefore, there is a significant increase in cost as lending rates are significantly higher than current deposit rates.
The bank levy has been extended for one more year, with a review of the scheme to be completed next year.
There was no specific mention of DIRT in the Budget – the last reduction in DIRT tax was 2020 when the rate was reduced to 33%, the same as the rate of Capital Gains Tax – 33%.
The 1% Insurance Levy remains on Life Assurance Policies and Investment Funds and the exit tax is still 41%.
The current corporate exit tax rate remains at 25%, in line with corporation tax for non-trading income. (Maybe instead of taking money personally from your Company and saving it an Investment Bond with returns taxed at 41% leave it in the Company and look at a Corporate Bond, where returns are currently taxed at 25%)
But it’s not all bad news if you know where to look.
The Bill allows for the Pandemic Payment to student nurses to be made tax-free. This is worth about €100 per week to those who are eligible.
A tax credit of €1,500 to Naval Service personnel who are at sea for over 80 days a year has been extended.
The Bill builds on the Government’s commitment of achieving Net Zero by 2050, according to PwC Ireland, It Includes several positive measures to tackle climate change and reduce Ireland’s overall greenhouse gas emissions. For example, the introduction of a tax relief for micro-generation of electricity by households who sell residual electricity (which they generate) back to the grid.
To some this might even be a ray of sunshine – from next year before your name goes on the tax defaulters register the settlement must be over €50,000, previously €35,000.
There are significant pension changes which will allow the implementation of some of recommendations detailed in the report by the Inter-Departmental Pensions Reform & Taxation Group (IDPRTG).
Should you be in an occupational pension scheme you can now decide in the event of your death in service, how your spouse and or children are provided for as either an annuity or the benefits transferred to an Approved Retirement Fund (ARF). And where benefits are transferred to an ARF for a spouse or for dependants of a deceased member of a scheme who dies in service, the legislative rules applying to ARFs and the conditions relating to ARFs shall apply.
The requirement to have an Approved Minimum Retirement Fund (AMRF) will be removed. on 1 January 2022. At which time current AMRF plan shall become an ARF and the legislative rules applying to ARFs shall apply.
For those who have taken out Approved Retirement Funds (ARMF) remember how you had to put up to €63,500 into an AMRF and could only take 4% per annum from the fund. Now you will be able, if you wish, to take some or all the funds, paying tax at your marginal rate. These are significant and welcome developments and allows control of funds in way not possible up to this point
John@ellisfinancial.ie – 086 8362633