20 Tax Saving Suggestions

Sep 03, 2018

Sunday Business Post, 2 September 2018
Lots of tax credits and reliefs go unclaimed every year.  Sometimes people don’t know what is available to help reduce their tax bill, or think they don’t qualify, or are reluctant to deal with the red tape with the Revenue.   

The tax reliefs for individuals are all there for a social or political reason, perhaps to support education and healthcare, to assist in the care of the elderly, or to help provide a decent standard of living for workers on retirement.  While the Department of Finance calls these tax reliefs “tax expenditures”, they achieve real savings for the Exchequer.  That’s because many tax reliefs encourage taxpaying citizens to spend their own money on services which arguably the State should be providing in any event.

When you couple that with the prospect of little or no tax help in next month’s Budget for many workers, you shouldn’t be shy about availing of anything on this list.

In recent times, claiming tax back has become a bit more straightforward due to improvements in Revenue’s technology.  You will find, as you read through the tax saving tips, that you can claim for most tax credits or tax reliefs using Revenue’s online myAccount service.  If you’re not registered on it, you should do so.  It provides facilities to claim tax credits and reliefs and submit tax returns.  This service is aimed primarily at PAYE taxpayers.  The self employed, along with some others who are obliged to file an annual return of income, can use ROS (Revenue Online Service).

Always remember you can only claim back on taxes for the last four years.  Even though Revenue can go back further to pursue underpayments, tax overpayments beyond that are gone for good.

Here is an overview of some of the most common tax reliefs that might be available to you with some guidance on how to claim them, whether you’re employed or self-employed.  None of these claims amount to aggressive tax planning – they are standard reliefs available to income tax payers in the tax code.  The information below is just a guide and cannot cover every detail and eventuality so check out your circumstances with your tax office or tax advisor.  All these are merely suggestions and not all of the tax reliefs I’ve described will apply to you.  Some of them involve making investment or spending decisions, and you should get professional advice.  Never make a claim for something not properly due – it can be an expensive mistake to fix.

Big Ticket Items

EII Scheme

The Employment and Investment Incentive (EII) scheme gives investors an income tax deduction on risk investments of up to €150,000 per annum in companies that qualify.   You initially get tax relief on your investment at 30% with a further 10% top up relief available if the company meets employment or R&D targets. 

How - Applications for the EII Scheme can be submitted through MyAccount or on ROS.

Pensions

No matter whether you’re self-employed or an employee, pensions remain one of the most tax efficient investments you can make.  Premiums paid by an employee to a Revenue-approved pension scheme, or by a self-employed person under a Retirement Annuity Contract (RAC) are allowed as an income tax deduction in the calculation of an individual’s income tax liability.

This is why the pension deduction is so valuable - it gives relief at the individual’s top rate of income tax.  Of course there are restrictions.  The maximum allowable deduction depends on both your age and your earnings, and there are special rules for calculating the earnings limits.  In general there is an annual earnings cap of €115,000. 

When it comes to pensions planning it is important to get professional advice to suit your circumstances.  It’s not just about tax but also about having an appropriate strategy for your retirement.

How – This depends on the type of scheme you sign up for and your pension adviser can help.  PAYE taxpayers in occupational schemes usually have the tax relief applied through payroll.

Employment of a Carer for an incapacitated person

If you employ a carer to take care of a family member who is totally incapacitated you are entitled to a deduction against your income tax paid of up to €75,000 at your highest rate of taxation.  Where this cost is shared by family members, each member can claim in proportion to the amount borne by each.  

How - You can use myAccount to claim the relief or you can make a claim on your tax return.

Start your own business relief

If you are long-term unemployed and wish to start your own business, this scheme means you don’t have to pay income tax on profits for two years up to a maximum of €40,000 per year.   You must be unemployed for at least 12 months prior to starting the business, and the scheme is due to end on 31 December 2018.  There are some conditions and requirements to this relief but in summary the business must be a new business and must not be set up through a company. 

How - This relief must be claimed on the self-assessment tax return Form 11.

Help to buy incentive (HTB)

This may apply if you are a first time buyer and you bought or self-built a new residential property since 19 July 2016.  You may be entitled to claim a refund of income tax and DIRT paid over the previous four years, subject to a maximum tax refund of €20,000 and some other terms and conditions.

How - Use myAccount or ROS.  There are two stages to the online process; the application stage and the claim stage. For the application, you must complete a declaration, selecting the years you want to use the refund. You will receive an application number and a summary of the maximum amount you can claim – keep these safe as you will need to provide them to your lender, contractor and/or solicitor. You can then make your claim once you have signed the contract for your home or drawn down the first part of your mortgage, if you are self-building.

Home Renovation Incentive (HRI)

Improving your home?  You may be entitled to claim an income tax credit of 13.5% of the money you spend on painting and decorating, plastering, plumbing, tiling, extensions and garden landscaping.  Landlords may also be able to claim a tax credit under this incentive. 

The tax credit can be claimed on expenditure over €4,405 up to a maximum of €30,000 (before VAT) spread over two tax years.  Some conditions apply, the main one being that the contractor must submit details of the work done via the Revenue online HRI system before you can make the claim.  The relief is expected to run out at the end of 2018.

How - To claim the credit, use the HRI online system through myAccount or ROS and make a claim on your tax return.

Rent a Room

If you rent out one or more rooms in your home you can take in up to €14,000 each year free of tax.  The €14,000 limit also apples to money you receive for food, laundry or similar goods and services, so student digs are covered.  The relief applies on the gross amount you receive, before deducting any amounts for your own expenses.  But beware of going over the €14,000 limit. If you do, the entire income is taxable.

How - You must file an income tax return to claim this relief.  Go to the ‘Exempt income’ section of your tax return. 

Life Assurance to help with Inheritance tax

The proceeds of certain life insurance policies, known as Section 60 policies, can be exempt from inheritance tax.  Think of it as a way to help your beneficiaries to pay their inheritance tax without having to break up your estate to meet the tax bill. Just make sure that the insurance policy is in a form approved by Revenue.

How – Discuss this one with your financial or legal adviser.

More routine credits and reliefs

Tax Saver Commute

Your employer can buy a monthly or annual travel pass for use on the bus, train, Luas, DART and ferry for you, thereby saving up to 52 percent (tax, USC and PRSI) on the regular cost of your travel ticket depending on your tax bands. 

How - Check that your employer is participating in the scheme and follow any conditions or procedures your employer might have in place. 

Cycle to Work

Tax relief is available under this scheme for the cost to the employer of providing a bicycle and safety equipment for the employee.  The maximum cost qualifying for relief is €1,000.  So if your employer purchases a bicycle, helmet and lights for a total of €1,000 on your behalf, the net cost to you (assuming 40% tax, 8% USC, 4% PRSI) will be €480. 

How - Depending on the way your employer operates the scheme, the tax relief is usually operated through payroll. 

Work expenses

Revenue have arrangements in place to grant so-called “flat rate” expenses for employees working in a range of activities.  Nurses, optometrists, panel beaters, grooms, musicians, journalists and air crew, to name just a few, may claim for a fixed amount of expenses provided certain conditions are met. 

How - The easiest way to check if you are eligible is to search for “List of Flat-Rate Schedule E Expenses” on the Revenue website.  There is no need to keep receipts to claim this relief.   You can claim this relief on your tax return.  In limited circumstances, other expenses of employment can be claimed if you run them up “wholly, exclusively and necessarily” as the rule puts it.  But this can be very difficult to establish to Revenue’s satisfaction.  

Medical Expenses

Relief may be claimed as a tax credit for medical expenses paid by you for yourself or for others.   Where you pay expenses for someone else, you don’t have to be related to the person; as long as you paid for them you can claim relief.

Expenses qualifying for the relief include doctors’ visits, consultants’ fees, prescription medicine, physiotherapy, and routine maternity care.  Some expenses incurred abroad, including certain travel costs can also qualify for the relief.  The tax credit is 20 percent of the amount of medical expenses incurred which have not been reimbursed, so you can’t include amounts refunded by the likes of VHI, Irish Life Health, GloHealth or LAYA Healthcare in your claim. 

How - To claim, log onto myAccount and enter the amount incurred in a particular tax year; or make a claim on your tax return and remember you can go back and claim for the last four years.  There is no need to send Revenue your receipts.  Just make sure you keep them somewhere safe for at least six years, because Revenue may ask for them at a future stage to back up your claim.  A handy way to keep a digital record of receipts is by using Revenue’s Receipt Tracker on “RevApp”.  You have an option to store them on your device or in Revenue cloud storage.   If you keep the receipts in cloud storage, you do not need to keep paper copies.

Dental Expenses

Tax relief is also available for the cost of some dental treatments. Only non-routine treatments qualify for relief; for example crowns, veneers and orthodontics.  Routine check-ups and fillings unfortunately don’t qualify. Just like medical expenses, the tax relief is by way of a tax credit equal to 20 percent of the amount you pay excluding any amounts reimbursed.  Therefore, if you have paid €1,000 to have a crown fitted this year you could claim relief of €200 from Revenue. 

How - You can do this as part of your medical expenses application as described above.  Your dentist can provide you with a Form MED 2 setting out the dental treatments that qualify for relief.  You must keep this Form Med 2 as Revenue may request it to verify your claim. 

Nursing Home

In the case of nursing home costs, you can claim tax relief at your highest rate of income tax (40 percent) if you paid nursing home charges, to a home that provides 24-hour nursing care on-site, for yourself or on behalf of somebody else during the year.  Any amounts paid over and above the Fair Deal Scheme are also allowed at your highest rate of income tax.

How - You can claim tax relief for nursing home fees as you do for tax relief on medical expenses.

Annual Gift Exemption

Anyone who receives a gift from another person may be subject to capital acquisitions tax of 33%.  However, every individual is entitled to receive gifts to the value of €3,000 from another person every year without any tax consequences.  For example each parent can gift up to €3,000 per year in cash to a child to help them build up some cash.  

How - You can claim the annual gift exemption on your gift and inheritance tax return.

College Fees

Going to third level, or funding someone going to third level?  You may be able to claim tax relief at 20 percent for tuition fees paid for in respect of third level colleges, as long as the fees are fully paid and don’t exceed €7,000 per annum per student.  The relief applies to tuition only – it does not cover administration, examination, accommodation or registration fees.  Relief isn’t available if part of the tuition is funded by a grant, scholarship or employer.  If fees are paid in instalments, tax relief can still be claimed once paid.

Each claim (not each course) is subject to an annual disregard amount of up to €3,000.  If you have paid fees for more than one student, you only subtract the disregard amount once from your annual claim. 

Revenue publishes a list of colleges and courses eligible for this relief on www.revenue.ie, and they also publish some examples of how to calculate the claim. 

How - Log onto MyAccount and complete a Form 12 tax return for the year you wish to claim for.  If you make a claim for tuition fees, you must keep a record of the receipts for 6 years.

Incapacitated Child Tax Credit

This credit is available if you are a parent or guardian of a child who is physically or mentally incapacitated.   The credit available for 2018 is €3,300.  You may claim the credit for more than one child and where the child is maintained by more than one person, the tax credit is divided between them in proportion to the amount paid by each towards the maintenance of the child.  This credit is in addition to the relief you might be due for medical expenses you incur for the child.

How - Log onto MyAccount and enter the amount incurred; or make a claim on your tax return.  You also need to complete two forms; ICC1 and ICC2, and keep a record of these forms for six years.

Smaller reliefs, but better to have them in your pocket than not

Dependent Relative

If you care for a relative who is unable to look after themselves independently due to old age or illness, you may qualify for the Dependent Relative Tax Credit which is currently €70 off your tax bill.  For the current year, this credit cannot be claimed if the income of the relative exceeds €14,753. If there is more than one claimant, the credit is shared based on the amount each contributes to the maintenance.  You can also claim credit for any medical expenses paid for your dependent relative.

How - You can use MyAccount to claim this credit by completing a Form 12 tax return at the end of the year.

Training Courses

If you are thinking of taking a course in information technology or foreign languages, or have already done so, you may be able to claim tax relief on fees paid.  You can also claim relief for fees paid on behalf of another person.  Relief is given as a tax credit equal to the fees paid at the 20 percent rate of tax; the fee must be at least €315 subject to a maximum fee of €1,270.  The course must be an approved training course, less than two years’ duration, and award a certificate of competence, a certificate of attendance is not enough. 

Revenue publishes a list of approved foreign language and information technology courses and providers on their website at www.revenue.ie. 

How - The process to claim tax relief for training courses is the same as the process set out above for college fees.

Annual Capital Gains Tax Exemption

If you sell shares or other assets and make a gain, the first €1,270 of the gain is exempt for capital gains tax purposes.  Now that asset values are recovering while the CGT rate remains at 33%, don’t overlook this annual exemption as there is no formal process involved in claiming the exemption as with many of the other reliefs we have gone through.

How – Include the exempt amount as part and parcel of your CGT calculation

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland