Colette Sexton, news correspondent at The Sunday Business Post, on clever ways to reduce your tax burden.
In my last piece, I told you how to claim back some of the income tax you pay – I assume you have all claimed back tax on your medical expenses by now, right? Now it is time to look at the other ways to reduce the tax you pay. It might seem like a lot of effort but the payback will be worth it. There are several simple ways to plan your finances to minimise your tax liabilities.
- Small gift allowance
Not many people out there will refuse a gift of money from family and friends but they might be forced to pay tax on that gift if the amount goes over a certain threshold.
“With some careful planning by giving smaller amounts over a longer period of time donors can maximise the value of that gift and help legitimately avoid gift tax,” Maeve Corr, Chartered Tax Advisor and Head of Private Client Services at Crowe Horwath, said.
There is an annual small gift tax exemption where anyone can receive a gift of up to €3,000 from any other individual in a calendar year without having to pay tax on it. Maeve said this might seem like a small amount but it can add up over the years.
“Grandparents could give €3,000 per grandparent which, in five years would equate to €30,000,” she said. Sometimes parents can be confused by this allowance and they think that it is cancelled out for the years they pay for their children’s education. This is not the case. Once a student is under 25 and in full-time education parents can fund education without giving rise to any gift tax implications.
- Make a Will
As the saying goes, there are only two certainties in life: death and taxes. By creating a tax efficient will, you can pass assets to the next generation in a more tax efficient way, Maeve said. The inheritance tax rate in Ireland is levied at 33 per cent. This could leave your family with a large tax bill to pay but good planning can help minimise tax liabilities.
“Not only is it tax efficient but a well planned will can also deal with other practical issues, such as who will take care of the family,” Maeve said.
She suggests using a discretionary trust under your will for your children. A discretionary trust places the assets to be given to a beneficiary or beneficiaries in the hands of trustees who must distribute the assets subject to the trust for the benefit of the beneficiaries.
- Rental Property and Rent a room relief
The country is in a housing crisis so if you have a spare room in your house you could make it gather some cash instead of gathering dust. The government has made it very attractive to rent rooms by allowing homeowners to earn up to €14,000 annually tax-free from room rental in their main residence.
“That means many people are sitting on untapped revenue potential of up to €1,167 a month. Put another way by earning the full amount tax free it is the equivalent of a pay rise of around €25,000 a year,” Maeve said.
Be careful with this one – Airbnb rentals do not qualify for the Rent a Room relief scheme.
- Home Renovation Incentive
Fancy new windows or that new kitchen? There is still time to claim back tax on some upgrades to qualifying properties under the Home Renovation Incentive scheme. This initiative available to both homeowners and landlords and gives you a refund of the VAT paid at 13.5 per cent. In general work must be completed by 31 December 2018, or where planning permission is needed by 31 March 2019.