Tag: tax reliefs

Holiday Homes

March 24, 2020

Holiday Homes for Personal Use

In these circumstances, there is no rental income from the property so it is ignored for income tax purposes. There will be no tax relief on any mortgage interest paid in respect of the property. If the property is sold it will be liable for Capital Gains Tax if a gain is made on it.

Holiday Homes for both Own Use and Rental 

In this situation, a rental income account for tax purposes will have to be drawn up and all expenses relating to the property e.g. mortgage interest, insurance etc. apportioned between the period of own use and renting to determine what amount of expenses will be allowed as a tax deductible expense against rental income. Any expenses specifically relating to the renting of the property e.g. letting agents’ fees will qualify in full as a tax deductible expense against your rental income. Investors may have purchased a holiday home using a limited company. This can give rise to benefit in kind situations based on the availability of the property for the personal use of the investor. Substantial tax liabilities can arise in this type of situation. We can provide advice on such matters by way of consultation.

Holiday Homes Tax Reliefs

“Section 48 Properties
Thousands of holiday homes, qualifying for a special tax relief, were built in many of our seaside resorts around the country. These became popularly known as “Section 48” properties. The cost price of same could be claimed against non-rental income e.g. PAYE earnings. In the first tax year 50% of the qualifying cost price could be claimed against PAYE and other sources of income. Thereafter, for ten years an annual claim of 5% of the qualifying cost price may be claimed against PAYE earnings and other sources of income.
“Section 48” Type Properties
In some cases the qualifying cost price of the holiday home was allowed as a tax deduction only against rental income from any property in the State. This relief was allowed in much the same way as “Section 48” relief.
Tourist Lettings
The holiday homes cannot be let for normal residential lettings. They have to be let to tourists to maintain their special tax relief. This rule applies for ten years from the date of first letting.

Disposal of Holiday Homes After 11 Year Tax Life

Many owners of holiday homes which qualified for the Seaside Resorts Tax Relief may now be considering selling their property as the 11 year tax life will be over very shortly.
The taxes that have to be considered are
1. Income Tax
2. Value Added Tax
3. Capital Gains Tax
We explain the tax treatment for each below.

1. Income Tax 
While the general view is that holiday homes may be disposed of without tax penalty after 10 years this is not the Revenue’s view for holiday homes which qualified for the Seaside Resorts tax relief.
It is current Revenue policy that this type of holiday home must be used for holiday lettings for a period of 11 years from date of first use.
Example:

Property bought and first let                       March 1999

End of Income tax claw-back period          March 2010

Once you have passed the 11 year mark you can make long-term lettings of the property instead of tourist lettings if you are not selling the property.
For a property bought and first let in March 1999 the change in the tax year from 5th April to a December year end means that there will be a fraction of the annual 5% claim to be allowed in the tax year ending on 31/12/2009. For most people a quarter of the annual 5% claim will be due in the year 2009.

2. VAT 
Many of the purchasers of these holiday homes registered for VAT to reclaim the VAT charged on the purchase and fit-out of the property and associated expenses. There were two ways in which this could be done:

Long Lease
You purchase the holiday home and let it to an operator who deals with the letting of the property on your behalf. The lease would normally be for a period of twenty one years with a facility to break the lease after 11 years to coincide with the end of the 11 year tax life of the property. The purchaser could then reclaim the VAT costs incurred when buying the property.
For VAT purposes this was a sale of the property and a value was put on that sale called the capitalised value of the lease. Generally speaking a procedure called the Section 4 system was used so that the VAT on the capitalised value did not have to be physically paid over to the Revenue.
However if the lease is broken before the 21 year term is over VAT will be repayable to the Revenue. The amount of VAT repayable to the Revenue will depend on when the lease is broken. If the lease is broken after 11 years approx 50% of the original VAT on the capitalised value could have to be repaid to the Revenue.
For the owners of the holiday homes who let them by way of long lease this is payable under our self assessment rules. If these rules are ignored interest and penalties could arise at a later stage in addition to the amount of VAT repayable to the Revenue.
We can provide more detailed advice on this matter subject to an extra charge.

Short Term Lettings
For VAT purposes this is the better option. Purchasers of the holiday homes obtained a full VAT refund when buying the property. When the first 10 years are over there is no amount of VAT owed back to the Revenue. This arises because the property was never let by way of long lease to an operator. The owner either let the property directly to tourists or engaged an operator to deal with the lettings on their behalf by way of a property marketing agreement.
Under these arrangements the owner is in the VAT system for 10 years and makes VAT returns in respect of the rents earned and expenses incurred. VAT is payable on the rental income at a rate of 13.5%. When the 10 years are up the VAT registration can be cancelled without penalty. This is done by notifying the Revenue of the position.
There is a conflict here between the 10 years VAT life and the Revenue view that for Income Tax purposes the required period is 11 years. Although you may cancel your VAT registration after 10 years because of the Income Tax rule you must continue letting the property for holiday lets for the 11 year period. If you have more than one holiday home the position is more complicated. You will not be able to exit the VAT system until all your holiday homes are over the 10 year period. We can provide advice on this matter subject to an extra charge.

3. Capital Gains Tax 
The normal rules apply and the gain/loss on the sale of the property is calculated in the usual way. Our Capital Gains Tax calculator will do all of this for you.

Holiday Homes Rental Income Accounts 

Just like any other rented property it is necessary to make a return to the Revenue each year of the amount of rents received and expenses incurred. This statement of account is prepared in the same way as any other rented property.
For individuals who reclaimed VAT refunds on the purchase of the property and did not let the property by way of long lease to an operator all rental income figures and expenses will be on a net of VAT basis for income tax purposes.

Married Persons/ Civil Partnerships Tax Credit

July 27, 2013

This credit is available for all married couples/ civil partnerships (referred to in future collectively as qualifying couples) living together that are not continuing to pay their tax as single persons. Qualifying couples have different options as to how they should pay their tax. There are 3 different options for known as Joint Assessment, Separate Assessment and Single Assessment.

Joint Assessment
The majority of couples pay their tax on this basis. One spouse/partner is responsible for completion and submission of tax forms to the Revenue and for paying any tax owed to the Revenue. All tax credits are normally given to this spouse/partner and if the other spouse/partner is working they receive basic tax credits only against their earnings e.g. PAYE allowance for PAYE earners.

Separate Assessment
This is not to be confused with separated couples. A qualifying couple can elect to be taxed as single people during the tax year subject to re-examination after the end of the tax year to see if they would pay less tax under the Joint Assessment basis. If so they will get a refund.

This option can lead to cash flow disadvantages between spouses if there is a substantial difference in their incomes. However, provided you claim the re-examination of your joint tax position after the end of the tax year any tax overpaid during the tax year will be refunded to you.

If you wish to use this separate assessment method you have to apply for it to your tax office before the 1st of April during the relevant tax year.

Single Assessment
As the name implies this option means each spouse/partner is taxed as though they remained single. Your tax affairs are never joined together. This can result in more tax being paid than under the Joint Basis and Separate Assessment Basis.

This option is not chosen very often by qualifying couples because unlike the Separate Assessment Basis there is no option for re-examining your tax affairs on a Joint Basis after the end of the tax year.

If you wish to use this single assessment method you have to apply for it to your tax office before the end of the relevant tax year.

Disposal of a Business upon Retirement – Retirement Relief

July 4, 2013

This relief is available to individuals who have reached the ripe old age of fifty-five and are disposing of all or part of their business assets. The business may have been carried on either in their sole name, in partnership or through the medium of a limited company.

While the relief from capital gains tax is called retirement relief you do not have to actually retire to avail of the relief. This means that the relief could be used by somebody trading in their own name or in partnership and deciding to trade through a limited company. The sole trader or partnership business could be sold to the limited company and provided all qualifying conditions are satisfied exemption from tax claimed under these rules.

Needless to say there are various rules and regulations attaching to the operation of the relief and we can provide advice on these for your own specific circumstances for which a separate charge will arise.

Sea Farers Allowance

April 29, 2013

A special deduction is available for seafarers against employment income where they are employed on a seagoing ship. However shipping boats are specifically excluded. The individual must be at sea on a voyage to or from a foreign port for at least 161 days in any tax year. The amount of the special deduction is €6,350 per annum. The special deduction is taken off your employment income in arriving at your taxable income.

Split Year Treatment

April 29, 2013

This tax treatment applies to people coming to reside here or emigrating during the tax year.

Dealing first with individuals coming to reside here they will normally be regarded as resident here for tax purposes from the date of arrival and liable to pay income tax on all income arising from that date on. They get the benefit of a full year’s tax credits although they may only be resident here for part of the year. This benefit applies provided the person will be tax resident here in the following tax year.

For individuals emigrating during the year the reverse treatment applies. They will be given the benefit of a full year’s tax credits for the year in which they leave. For individuals taxed under the PAYE system this would generally give rise to a tax refund being due. Their PAYE would have been calculated by dividing their tax credits evenly throughout the tax year. However if they emigrate half way during the year they have a half year’s unused tax credits to claim against their earnings up to the date of leaving. This relief only applies provided the person will be non-resident in the following tax year.

For people working here on a short term basis they will likely be due significant tax refunds when they leave, assuming they qualify for this relief.

Is it worthwhile making Pension Contributions?

April 29, 2013

This is one of the best ways of receiving significant tax relief while investing for your future. There are now a great variety of pension investment structures that provide a lot more choice and control over your pension fund. Generally speaking, employees will be involved in a company pension scheme. If your employer does not provide one you can set up your own pension fund.

You should always seek independent professional advice in this area before committing yourself to paying into a pension fund to ensure it will meet with your requirements.

We recommend that individuals make provision for their pension contributions on an ongoing basis, as it can be difficult to source the required lump sum payment on a once a year basis. Where monthly contributions are being made individuals in nonpensionable employment can arrange to get the benefit of the tax relief through their tax credit certificate. This means their income will be reduced for tax purposes through the PAYE system and they will benefit immediately from the tax relief due on the pension contribution.

For self-employed individuals, they will be able to factor in their monthly payments as a deduction when calculating their normal preliminary tax payment on account.
We can provide more detailed advice on the potential tax benefits for you by way of consultation for which an extra charge would arise.

The earlier you start funding your pension the better. You are missing out on valuable tax relief when you are not making contributions to a pension fund.

If you are self-employed and relying on the state pension you should ensure that you make voluntary contributions for any tax year for which you incur a loss as otherwise you will not have paid any PRSI for the year. Voluntary contributions are paid separately from your tax payments and must be organised through the Social Welfare section that delas with voluntary contibutions. There is a certain minimum number of PRSI contributions to be made in order to qualify for the full state pension.

Self Employed

April 29, 2013

Pension Planning for Retirement

All self employed individuals need to consider their retirement as early as possible. It may involve the transfer of the business within the family or a disposal of the business or its assets. The object of the exercise is to ensure that there will be sufficient resources available to provide some form of pension to the owners of the business.

Pension funding will be a major part of the retirement planning process. Needless to say the more you have invested in your pension scheme the better. Unfortunately a lot of self employed overlook the need to set aside funds for their own pension funding as cash can be a scarce resource when running a small business.

When and How to Claim Tax Relief 

Normally you will take account of your pension contributions when calculating your preliminary tax payment each October. Many self employed individuals pay their pension contributions once a year by way of a lump sum payment rather than monthly contributions. This lump sum payment can be claimed against the preceding tax year provided it is paid by the end of October following the end of the tax year.

The making of a lump sum payment at the end of October to coincide with your normal preliminary tax payment date and filing of your tax return can give a double benefit for cash flow purposes. The pension contribution can be claimed as a tax deduction in the earlier tax year. This reduces your tax liability for that year, which in turn allows you to reduce the preliminary tax payment being made on account for the current tax year.

Example of pension contributions reducing preliminary tax payment 

Assume the following:

Taxable profit for year 2016

€       60,000
Tax/PRSI due on profit

€20,000
Maximum Allowable Pension Contribution

€15,000
Preliminary Tax paid on account for 2016

€0
  Pension Payment
€

2015
€

2016
€

      Total Paid
€
No Pension Relief Claim
Pension Payment on 31/10/16

0

0
Tax Payments

20,000

   20,000

40,000
Tax Due on 31/10/16

40,000
With Pension Payment
Pension Payment on 31/10/16

 15,000

15,000
Revised Tax Payments

14,000

    14,000

28,000
Total Due on 31/10/16

43,000

 

Result: 
For more or less the same outlay our client has satisfied their liability for tax payments on the 31/10/2016 and also saved €15,000 into their pension scheme.

*The preliminary tax payments for 2016 tax year are based on paying 100% of the tax liability for year 2015. Whatever balance of tax liability is owed for year 2016 will become due for payment on 31/10/2017. The tax liability for tax year 2016 can be reduced by making another pension contribution in October 2017.

Pension Contributions General Info

April 29, 2013

Arrangements for making pension contributions have never been easier following the introduction of PRSA’s, Self Administered Schemes etc. This is also one of the few remaining areas where there are very generous tax reliefs available. It is also possible to make pension contributions after the end of the tax year and still get the benefit of the tax relief against the earlier tax year. This is a very important tax and financial planning arrangement which should be considered every year.

Who Can Claim?

Any individual who is either Self Employed or in non-pensionable employment. In addition employees in a company pension scheme can also make Additional Voluntary Contributions (AVC’s) to maximise their pension funding and save tax.

What Tax Relief is Due?

If you pay tax at the top rate then your tax relief is worth 40% of whatever premium you are paying. If your tax rate is 20% then the tax benefit is at a rate of 20%.

Example: 

Premium Paid Rate Tax Relief Net Cost

€12,000

40%

€4,800

€7,200

€12,000

20%

€2,400

€9,600

 

 

Is there a Limit on the Amount of Pension Contribution Qualifying for Tax Relief?

There are two limits which restrict the amount qualifying for tax relief, based on earnings and age. Our calculators work out the maximum allowable amount for tax purposes.

The limit on the amount of earnings which can be taken into account when calculating the relief is €115,000.

The amount of pension contribution qualifying for tax relief is further restricted to a percentage of your qualifying earnings. The allowable percentage amount depends on your age. The scale is as follows;

Tax Year
Under 30 Years 15%
30 to 39 20%
40 to 49 25%
50 to 54 30%
55 to 59 35%
60 and Over 40%

 

Therefore the maximum allowable pension contribution that can be made for a tax year is

 Under 30  €17,250
30 – 39 €23,000
40 – 49 €28,750
50 – 54 €34,500
55 – 59 €40,250
60 + €46,000

 

Only income from employments or self employed earnings qualifies for pension tax relief. Pension tax relief is not allowed against Rental Income, Investment Income or Capital Gains.

The income of spouses is treated separately for tax relief purposes.

Pension tax relief can be claimed for contributions made by an individual until they reach 75 years of age.

Certain charges on income are deducted from your earnings, e.g. maintenance payments, before applying the allowable percentage applicable to your age.

Tax Saving Tip

Self employed individuals should, if married, consider trading as a partnership with their spouse (assuming spouse has no other income). This will double the allowable limits for pension tax relief and reduce the effect of the reductions in the rate of tax relief which applies for 2011.

Pension Contributions General Info

April 29, 2013

Arrangements for making pension contributions have never been easier following the introduction of PRSA’s, Self Administered Schemes etc. This is also one of the few remaining areas where there are very generous tax reliefs available. It is also possible to make pension contributions after the end of the tax year and still get the benefit of the tax relief against the earlier tax year. This is a very important tax and financial planning arrangement which should be considered every year.

Who Can Claim?

Any individual who is either Self Employed or in non-pensionable employment. In addition employees in a company pension scheme can also make Additional Voluntary Contributions (AVC’s) to maximise their pension funding and save tax.

What Tax Relief is Due?

If you pay tax at the top rate then your tax relief is worth 40% of whatever premium you are paying. If your tax rate is 20% then the tax benefit is at a rate of 20%.

Example: 

Premium Paid Rate Tax Relief Net Cost

€12,000

40%

€4,800

€7,200

€12,000

20%

€2,400

€9,600

 

 

Is there a Limit on the Amount of Pension Contribution Qualifying for Tax Relief?

There are two limits which restrict the amount qualifying for tax relief, based on earnings and age. Our calculators work out the maximum allowable amount for tax purposes.

The limit on the amount of earnings which can be taken into account when calculating the relief is €115,000.

The amount of pension contribution qualifying for tax relief is further restricted to a percentage of your qualifying earnings. The allowable percentage amount depends on your age. The scale is as follows;

Tax Year
Under 30 Years 15%
30 to 39 20%
40 to 49 25%
50 to 54 30%
55 to 59 35%
60 and Over 40%

 

Therefore the maximum allowable pension contribution that can be made for a tax year is

 Under 30  €17,250
30 – 39 €23,000
40 – 49 €28,750
50 – 54 €34,500
55 – 59 €40,250
60 + €46,000

 

Only income from employments or self employed earnings qualifies for pension tax relief. Pension tax relief is not allowed against Rental Income, Investment Income or Capital Gains.

The income of spouses is treated separately for tax relief purposes.

Pension tax relief can be claimed for contributions made by an individual until they reach 75 years of age.

Certain charges on income are deducted from your earnings, e.g. maintenance payments, before applying the allowable percentage applicable to your age.

Tax Saving Tip

Self employed individuals should, if married, consider trading as a partnership with their spouse (assuming spouse has no other income). This will double the allowable limits for pension tax relief and reduce the effect of the reductions in the rate of tax relief which applies for 2011.