Updated: Oct 16, 2020
Catherine McGovern, Tax Partner at PKF returned on Tuesday 29th to give an excellent tax overview on ETF's, shares, pensions, Investment Property Taxation and Tax Reliefs for Business Owners for the Smart Money Series.
1. ETF's: Catherine discussed how the rate of taxation on an ETF depends on a number of factors such as where the fund is domiciled e.g EU domiciled funds are taxed as income tax at 41%, while some others including US domiciled are taxed at the marginal income tax rate up to 55% on dividend income but taxed at the CGT rate of 33% when disposed of. With Irish domiciled funds you pay 41% income tax on the income and the gain. Theres a deemed disposal after 8 years where you are deemed to have disposed of it whether you have or not and you must pay income tax on the gain.
2. Shares: the taxation of share dividends depends on their jurisdiction, You are taxed on the net amount you receive from the UK dividends, while there is a credit system with the US and you may get a credit for some of the tax held in the foreign jurisdiction. When selling shares you are taxed at the current Capital Gains Tax rate of 33%.
3. Pensions: The contribution you put into a pension is tax deductible up to a limit. So if you are a higher rate taxpayer paying €200 per month into your pension, it will save you income tax of €80 per month. Pensions are a double whammy of paying less tax and lining up more tax efficient reserves for the future as Pensions funds are exempt from Income Tax and Capital Gains Tax. As the tax deadline fast approaches now could be the time to make additional pension contributions and reduce your 2019 tax bill.
4. Retirement relief: If you are 55 or older, you might be able to claim Retirement Relief. This is a relief on CGT when disposing of any part of your business, trade company or farming assets. There are a lot of detailed conditions and an expert early tax review should be completed. Although this is referred to as Retirement Relief, you do not need to retire from the business or farming. More information on retirement relief can be found here.
5. Entrepreneurs relief: This relief gives a CGT rate of 10% on gains from the disposal of qualifying business assets. This is reduced from the normal rate of 33%. The rate is 20% for disposals from 1 January to 31 December 2016.
There is a lifetime limit of €1 million on the gains that you can claim relief on. Only gains on disposals made on or after 1 January 2016 are counted in the limit. There are a number of detailed conditions that must be satisfied before this favourable relief is claimed. More information can be found here on what is and isn't a qualifying business.
6. Tax on Investment Property: Catherine discussed how individual, company and group structures can impact the level of taxation paid on rental income. Below demonstrates how a group structure can impact a tax bill. Please contact Catherine for more details on how this operates and can be established.
7. Inheritance tax: a gift of €3k can be given by each parent, this can also be given to the spouse of that child or a grandchild, thus over time this can add up to a significant amount of wealth transferred tax free.
8. Transfer of property: as detailed by Catherine's slide below, the Parents will have a capital gains tax liability if the market value at the time of transfer is greater than their acquisition cost. There is a tax relief that provides that the child can reduce their Gift tax (on receipt of this property) by the Capital Gains Tax paid by their parents on the transfer. However the child must retain the property for two years to retain this offset relief.
These are some very brief notes on some elements of the tax strategies which Catherine and her team at PKF O'Connor Leddy Holmes can advise on. Please contact Catherine to review your property situation and to ascertain whether potentially there is an opportunity to restructure your assets.
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Catherine will also be hosting an extended webinar looking into the topics in more depth on taxation of investment income on Tuesday November 17th at 6pm as part of the Smart Money Series Investing Fundamentals Course. The course is available to book here.
As always these are not recommendations and please do your own independent research before making any investments.