Keep tabs on tax and new reliefs

While the tax landscape is constantly changing, certain basic principles should be applied, to ensure one is tax compliant, and minimises taxation for themselves and the next generation.

Annual budget and finance acts are continuously introducing new tax reliefs, curtailing existing reliefs, and closing tax loopholes being exploited, writes Andrew Guerin, of chartered tax advisers Andrew Guerin & Associates.

From a tax perspective, the Revenue ROS system and in particular the ‘MyAccount’ portal are extremely efficient, and it is important that all taxpayers have access to the ‘MyAccount’ portal, to ensure they can keep their tax affairs up to date. Changes were introduced, in relation to share options whereby the employer now deducts tax at source.

However, it is still important for the taxpayer to include details of any such shares acquired, when completing and filing tax returns.

Revenue closely monitor such taxpayers when reconciling employer companies’ tax returns in respect of such share schemes.

Anyone who hasn’t complied in this area, should be encouraged to get up to date sooner rather than later. It is more tax efficient and cost effective to make a voluntary disclosure, rather than wait for the day of reckoning, and be subject to a Revenue intervention, which would incur substantially higher penalties.

Regarding income tax, one of the most valuable reliefs available continues to be tax relief on qualifying pension contributions, including additional voluntary contributions. Relief at up to 40 per cent is available in respect of qualifying pension contributions. Changes were introduced in relation to pension rules in recent years, particularly in relation to PRSAs.

There is considerable scope to maximise pension contributions in a very tax efficient manner. It is possible to have pension funds of up to €2 million under the current legislation.

The current favourable tax treatment of PRSA pension contributions is likely to change in the not-too-distant future.

Many taxpayers incurred substantial losses on shares in financial institutions. Currently, some Irish banks are buying out thousands of legacy shareholders with modest holdings in the banks, for a nominal amount, with minimal transaction costs.

We would encourage such shareholders to take up these offers, as later it will be difficult to offload these shares, without incurring substantial brokers’ costs, relative to the value of the shares.

There are a number of invaluable capital tax reliefs available including Retirement Relief and Entrepreneur Relief, which is the 10 per cent CGT rate potentially available on the disposal of qualifying business assets. Business Relief is an inheritance rax relief, whereby the value of certain qualifying business assets can be reduced by 90 per cent.

Professional tax advice should be sought well in advance of the expected transaction, to ensure the qualifying conditions are satisfied.

Inheritance tax exemption thresholds are very modest. Consequentially, many taxpayers face substantial liabilities.

There are a number of reliefs which can be used to minimise taxes including the annual €3,000 small gift exemption threshold, Dwelling House Relief, which is available in limited circumstances, and special purpose life assurance policies (Section 72 policies).

Specific clauses might also be included in wills, to ensure that certain assets are gifted to certain individuals, who might benefit from specified reliefs.

We are always surprised at the number of high net-worth individuals who haven’t executed a will, or reviewed their existing will. It is crucial that wills are reviewed regularly. Individuals naturally find it difficult to address succession planning, as it is a sensitive area and can be difficult to discuss among family.

It is not always possible to execute enduring powers of attorney, if an individual’s health has deteriorated.

However, new legislation was introduced, in the Assisted Decision-Making Capacity Act 2015, which came into force in April 2023.

Under this act, an individual can be appointed a ‘Decision-Making Representative’, for someone who is unable to look after their own affairs, due to an incapacity.

Many Irish individuals who have shares in US companies and/or other US assets, need to be aware of a potential exposure to US estate tax. If such individuals are not US citizens, they could be liable to this tax, which can be as high as 40 per cent, where the value of the assets exceeds $60,000.

To conclude, tax laws and regulations are continuously changing, and taxpayers need to be proactive to minimise taxation and avoid any unnecessary encounters with the Revenue Commissioners.