Investing Tax Free in Ireland
"The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them, by means which the law permits, cannot be doubted.“ George Sutherland - US Supreme Court Justice.
Financial planner and coach Paul Overy joined us last week to speak about investing tax free in Ireland.
When we earn income we pay taxes – at a maximum of 52% (40% income tax, 4% PRSI & 8% USC)
When we spend money we pay taxes – VAT levied at between 9% & 21%.
We pay tax when we spend in shops, we pay DIRT on savings, stamp duty on investments and Capital Gains Tax when our investments grow
'If tax is the greatest liability, it is also the greatest OBSTACLE to any of us achieving our financial ambitions!'
Paul Overy, Financial planner and coach.
Irish Retirement Legislation allows all tax payers to:
Invest part of their income each and every year and claim a full tax deduction, effectively lowering the cost by up to 52%. Invest that money and pay neither Income nor Capital Gains Tax on the growth enjoyed.
Accumulate up to €2M in a retirement fund by normal retirement age with a zero tax liability
To access up to €500,000 in a lump sum at retirement, on which the total tax payable would be just 12.5% (€200,000 tax-free, plus up to €300,000 at 20% rate)
To continue to manage the fund post retirement with ONLY withdrawals taxed as normal income tax in the year of withdrawal.
The tax breaks are FABULOUS, so why do so many ignore them?
The answer may well be the COSTS of off the shelf pensions. The following is an abridged version of a table that appeared in Paul's book The Tactics of the Rich,(discussions are under way for a 2021 version) first published in 2008: -
“The Cost of Annual Management Fees as a percentage of the amount invested…….”
Allowable Investments:Term
It is easier to tell you what is NOT allowed than to list all of the investments than may be housed inside your “tax-free bubble”, the prohibitions fall under two categories: -
NO SELF DEALING – Basically you cannot buy from yourself, rent to yourself or to your company and/or family
NO PRIDE-IN-POSSESSION ITEMS – These tax breaks are designed to deliver future benefits, any immediate personal benefit cannot be allowed
All investments, from Property & Land to Stocks & Shares, from Precious Metals to Private Equity, from Government/Commercial Gilts to regular Deposit Accounts and ALL COMPLETELY FREE OF INCOME & CAPITAL TAXES.
Paddy Delaney of Informed Decisions touched upon these retirement funds in respect to purchasing property through your pension. You can read a summary of the key points of that webinar here.
It ain’t what you do, it’s the way that you do it
(comparison of returns, €200,000 apartment over 20 years, 7% rental yield & 2.5% p.a. capital increases)
200% more profit by changing nothing except HOW you make the investment.
Paul also discussed 'The BIK Rule'
If you buy a TV at a cost of €1,000, as a top rate taxpayer you had to earn €2,083.33 to pay the retail price. If you don’t own the company, it costs your employer an additional €224 in employer’s PRSI.
If your employer purchases the TV it pays €826.45 net of VAT for the TV which is an allowable expense, so the true cost is €743 or €1,564.33 LESS than earlier example
The BIK on loaning goods to employees is 5% per annum of the original market value, or €50 per annum in the earlier example, for the duration of the loan
If you own your business, then changing HOW you purchase certain items can, as the above illustrates, lower the upfront cost by 60%, with the additional BIK having to be levied for 25 + years for costs to be equal
If you are the employee, while most large corporate employers will not entertain remuneration changes, if you work for a small business maybe you can suggest some changes. The Cost to the employer of loaning you the TV is, in our example, 35% of the cost of paying you to buy it yourself.
If you would like to discuss the above further with Paul, he is happy to meet any prospective client on a “no foal, no fee” basis. He will follow up preliminary meeting with an outline of the services that can be delivered, their costs and benefits, in writing If any product/service does not deliver the promised benefits, he has a fee refund guarantee
Call Paul on 086-4103638 or email him at paul@dempseyfinancial.ie
*As always there are summary notes from Paul’s presentation and should NOT be taken as recommendations and as always please also do your own independent research and speak to your own financial advisor.*