Have You Claimed all the Tax Relief You are Entitled?

During the discovery phase of the financial advice process,  we carry out a fact finding exercise in order to get a better understanding of a client’s current financial situation. This includes looking at income, saving, expenditure and everything in between.

We generally find clients, either may not be aware or simply do not take full advantage of the suite of tax reliefs and credits available to them. This is a good starting exercise when putting together a financial plan as it can save money without acually changing your income/expenditure.

In this article, we run through a few of the main reliefs and credits that are on offer. This is a general guide to reliefs and we would always recommend speaking to a tax advisor to any individual wishing to put appropriate tax planning and structures in place.

It is also worth noting that tax claims can be submitted for periods of up to four years ago so just because something is not applicable now, it doesn’t mean you can’t claim back for previous years. Please also note there are penalties applicable for false claims.

Pension

We start with the pension as this in our opinion, is the most tax-efficient investment anybody can make. Any personal pension contributions made by a self-employed person or a PAYE worker under their respective pension structures are allowed income tax deductions at the marginal rate (currently @ 40%).

There are of course some restrictions on the relief available depending on your age and salary. There is also an annual earnings cap of €115,000.

Example
An employee who is aged 42 and earns €80,000 can avail of tax relief on annual pension contributions of up to €20,000, which would equate to €8,000 which would have otherwise gone straight to revenue if taken out as salary.

When it comes to pensions planning, it is important to get professional advice to suit your circumstances.  It’s not just about tax but also about having an appropriate investment strategy and financial plan in place for your retirement.

How to Claim Relief?

This depends on the type of pension scheme you are paying into. Speak with your financial advisor who can advise accordingly.

Assigning tax credits correctly as a married couple

Joint assessment – This is where you combine your tax credits and thresholds and it allows you to share these between spouses. This is beneficial if one spouse is not working or on a lower income.

Separate assessment – This is very similar to joint assessment except the thresholds and credits are split equally between spouses.

Single assessment – This is where spouses elect to be treated independent of each other much like if they were single.

Other tax concessions made to married couples

There are a number of tax advantages for married couples:

• Assets can be transferred between each other without creating a Capital Gains Tax liability.
• Capital losses from one spouse may be passed to the other for Capital Gains Tax purposes.
• Gifts or inheritances between spouses are not subject to Capital Acquisitions Tax (CAT) – in the event of death assets can pass to the surviving spouse tax-free.

The last point is particularly important. For example; should a non-married couple own a house together, in the event of one of the couple dies, the surviving person may be left with a sizeable inheritance tax bill for receiving the deceased share of the house as well as further liabilities should any other assets be left for them as they will be treated as strangers from a Capital Acquisitions Tax point of view.

Check with Revenue that your tax credits are being allocated accordingly.

Health Insurance Tax Relief

Increasingly employers are offering health insurance as part of employee benefits packages. It is estimated that around 400,000 people in Ireland have their health insurance fully or partially paid by their employers.

Employer Group Schemes

Employees who participate in group health insurance schemes at work are charged benefit-in-kind (BIK) with income tax, pay-related social insurance (PRSI) and universal social insurance (USC) being taxed on the gross value of the cover.

However, if your employer pays all or part of your medical insurance premium, you do not automatically get tax relief.  The TRS has normally not been applied on the Employer portion.

The good news is that you can claim this amount back.

If your employer only pays a percentage of your policy cost, the relief you can claim is restricted to that percentage. This is because the portion of the policy you pay yourself directly will have been discounted.

How much tax relief can I claim back?

The amount of tax relief available to employees will depend on the specifics of their insurance cover and the premium. In general, TRS is calculated at 20% of the gross premium. The 20% calculation is limited to €1,000 per adult and €500 per child.Example
Brian renews his policy on 1 January 2018 for €2,500 gross premium which is paid by his employer.
This policy covers Brian and his wife.
The tax relief due for 2018 is calculated as follows: €1,000 x 20% x 2 adults = €400
As Brian has not benefited from the TRS arising on the premium paid by his employer, he is entitled to a tax credit of €200 in his 2018 tax return.

Private Health Insurance

Many people are aware that health insurance taken out privately will automatically get tax relief on their premiums through a system called ‘Tax Relief at Source’ (TRS).

Under this system subscribers pay a reduced premium to the authorised medical insurer. This reduction is the same as giving tax relief at 20%. Anybody paying for health insurance through this method doesn’t need to have any further contact with Revenue as the medical insurance provider will implement the necessary changes to the amount of tax relief due.

Tax relief will similarly be accounted for those who pay medical insurance through a deduction from wages.

Contact your health insurer to see if you would be entitled to claim any tax back. You can then put this credit through with Revenue.

Medical Expenses Tax Relief

A lot of people would claim their medical expenses through their health insurance provider depending on what is allowed under their policy, however, you can claim relief directly with Revenue.

You can claim relief on medical expenses that you have paid for anybody – you cannot claim relief if already claimed through insurance.

You generally receive tax relief at the rate of 20% once they qualify.

Nursing Home Expenses Tax Relief

Any family faced with nursing home costs will realize how expensive it is and how quickly these can drain the finances of a family. Revenue allows tax relief at the highest rate (up to 40%) on these expenses. Like medical expenses, this can be claimed should you be paying the costs on behalf of somebody else.

It can often make sense for children to pay costs if they can claim tax relief rather than coming out of parents’ savings where no relief is available if they are due to eventually inherit these monies down the line. Estate planning advice should be sought.

The fair deal scheme should also be considered to see if this may be more beneficial rather than paying privately.

Income Protection Tax Relief

This is an insurance policy that gives you a replacement income if you can’t work because of an illness or injury for one month or more.

Income protection can pay up to 75% of your normal income less social welfare payments allowing you to protect your family’s lifestyle.

Income protection premiums qualify for tax relief at the marginal rate however there are certain limits such as the contribution limit does not exceed 10% of the employee’s income.

If you are employed, the life assurance company will deduct tax and social insurance payments from your benefits in the same way your employer would.

If self-employed, it may be paid gross and the cost is deductible for corporation tax purposes as it is a legitimate business expense.

Pension Term Assurance

This is a life assurance product that provides a lump sum to your family in the event of death.

Eligible policyholders pay their full premium to a life assurance provider and then claim tax relief at their marginal rate from Revenue. Based on current tax rates, this means that for a higher rate tax payer a saving of 40% of the premium may be available. This is subject to age-related revenue limits.

Speak to your financial advisor to find out more.

Small Gift Exemption

The small gift exemption may not seem like a lot but it can make a considerable impact on your estate planning over time. This exemption allows people to transfer €3,000 to another person in a calendar year without having to pay Capital Acquisitions Tax.

That means that parents and grandparents (as couples) can each give €6,000 to each child/grandchild or any other person (including partners and spouses).

Parents could potentially gift a total €12,000 to their child and their child’s partner in each calendar year which would help a young couple with a house deposit or simply getting a start in life.

There is no obligation for these gifts to be spent in the year it is received, so such gifts could potentially accumulate year by year into a substantial tax-free sum, underlining the value of planning and incorporating all available reliefs into any inheritance plan. These exempt gifts are also excluded from calculating whether the tax-free threshold has been reached, meaning the tax liability of the remaining estate on inheritance is unaffected by giving them which makes for prudent family wealth transfer planning.

Section 73 policy

It is possible through a Section 73 Savings Plan.

This is a savings plan which is taken out through a life assurance company where the value can be used by beneficiaries to pay for a Capital Acquisitions Tax (CAT) liability.

The policyholder must save for a minimum of eight years for the policy to qualify for this.

If the owner of the Section 73 Savings plan dies within an eight-year period the value of the plan will not qualify to be used against either gift or inheritance.

These policies can be particularly useful should a parent plan on gifting an asset such as a property in a period over 8 years.

Please speak to your financial advisor for more information on this type of policy.

Section 72 Life Assurance policies to pay inheritance tax

An inheritance tax bill can be the cause of a lot of heartache for grieving families. Children are often left with a massive tax liability and are more often than not forced into selling the family home or else to delve into family savings to meet this bill.

Individuals should consider putting prudent tax planning in place to avoid a substantial tax liability at a later stage.   One option is to take out a section 72 life assurance policy. The proceeds of this policy are tax-free if used to settle an inheritance tax bill.  It’s a life assurance policy to cover inheritance tax.

Section 72 insurance must be taken out on the life of the person leaving the inheritance and the premiums must be paid by that person.

Example:

Let’s say you calculate that on death your assets will result in an inheritance tax bill (CAT) of €100,000 for your children. You can put a Section 72 whole of life assurance policy in place for €100,000.  On your death, the proceeds of this plan will pay the inheritance tax bill so your children can inherit your estate tax-free.

This type of estate planning / family wealth planning can be complicated and should be discussed with your financial advisor.

Help to Buy Incentive

The Help to Buy (HTB) incentive is a scheme for first-time property buyers. It will help you with the deposit you need to buy or build a new house or apartment. You must buy or build the property to live in as your home.

This can give a refund of up to €30,000. Please see the full terms

Who can Claim?

To claim HTB, you must:

• be a first-time buyer
• buy or build a new property
• live in the property as your main home for five years after you buy or build it
• be tax compliant, if you are self-assessed you must also have tax clearance.

Other terms and conditions apply so check with Revenue if you are entitled to this scheme

Rent a Room

If you rent out one or more rooms in your home, you can earn up to €14,000 each year free of tax.  The €14,000 limit also applies to money you receive for food, laundry or similar goods and services, so student digs are covered.  The relief applies to the gross amount you receive, before deducting any amounts for your own expenses.  But beware of going over the €14,000 limit. If you do, the entire income is taxable.

More details on this scheme can be found here.

How do I Claim  Tax Relief?

Most claims can be made through the Revenue’s MyAccount online portal. If you’re not registered on it, you should do so.  It provides facilities to claim tax credits and reliefs and submit tax returns.  This service is aimed primarily at PAYE taxpayers.

The self-employed, along with some others who are obliged to file an annual return of income, can use ROS (Revenue Online Service).

Want to find out more?

Contact us if you would like to implement a financial plan or if you have any other financial queries.