MONEY MATTERS: This week, DD’s Finance columnist Shona Chambers from John McColgan Financial Services explains how, with the October tax deadline almost upon us, you can pay less tax!
With the 31st October tax deadline looming, I have summarised 3 key Financial Planning measures that can help you pay less tax.
As I have written earlier this year, tax relief is available on pension contributions at your marginal rate of income tax. This means that if you are paying tax at the higher rate of tax you can claim tax relief at 40% and 20% at the lower tax rate
The top rate of tax in Ireland is 40%, and people generally start paying at this rate when they reach a salary of €33,800. Because the government allows tax relief on pension contributions, somebody who is on the higher rate of tax, and pays €500 a month into a pension, would save €200 in tax every month. This means that a 40-year-old would save in the region of €60,000 in tax between now and the time they reach age 65!
Pension Term Assurance a great alternative to a level term assurance policy also has the added benefit of tax relief available on premiums paid.
You may qualify for this kind of cover if you are self-employed or if you’re not included in your company pension plan.
The life cover is designed to last until you retire, usually age 65. At that point, you have the option to convert your policy into a new life cover policy, for the same lump sum, without providing medical evidence. That new policy will expire when you turn 75. You cannot extend cover past age 75.
You can take out Pension Term Assurance policy if you are sole trader or if you are not covered by a company pension scheme. You can use it to protect your family in the same way as a traditional level term assurance policy. However with the added benefit of tax relief, you will pay less for your cover.
And finally, Income protection a policy that pays out an illness benefit for those on long-term sick leave also qualifies for tax relief on premiums, again at the individuals marginal rate of tax. It usually pays out 66% or 75% of pre-disability earnings less the single person’s Social Welfare Disability Benefit and continuing income. There is usually a maximum cap of €250,000 on what will be paid out. Most Income Protection policies will have a waiting period or deferred period before it starts paying the benefit. This can be anything from 8 weeks to 52 weeks
Under Revenue rules, there is a limit to how much of your earnings qualify for tax relief, depending on your age. If you already contribute to a pension plan, your tax relief limits will apply to your pension contributions and life insurance or income protection premiums combined.
If you are thinking of making a pension contribution this October, it may be a good idea to combine it with an Income Protection policy or Pension Term Assurance depending on your circumstances.
Get in touch with me to organise your FREE consultation and pay less tax this October!
Shona Chambers QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor with John McColgan Financial Services. You can contact Shona on 074 9124366 to make an appointment.
