Inversions, corporate reorganisations, migration of tax residency….

While such transactions may be seen by many as the ‘trendy’ areas of tax to advise on, the fact of the matter is that our members are not being asked to advise on these issues on a day-to-day basis. More often our members are advising on more routine issues such as personal tax planning and are asked to offer advice on CAT and CGT matters. Advising on these ‘routine’ tax issues is often where the value is created for clients – assisting them in meeting tax deadlines, reducing a gift or inheritance tax exposure, setting up a means by which clients can pass assets to children in a tax efficient manner and so forth.

This article serves as a refresher of some of the new and not so new tax incentives and reliefs out there which may be of some value to members advising personal tax clients.

Transfer of property to children

Passing land to children can be a costly and painful affair if we get it wrong. One way to avoid a potentially large inheritance bill for children is to pass them title to the property now, while retaining a life interest in the property.

Why wait for a will to dictate how assets are transferred? By passing the property now, clients may significantly reduce or, in certain cases, eliminate the gift tax that their children will pay on gifts of property from parents. For example, if a parent passes a house to their child and that child has lived in the house for three years prior to the gift; they may be able to claim full relief from gift tax. There are other conditions they will need to satisfy, such as living in the house for at least six years from the gift date.

Gift and inheritance tax stands at 33% and applies when an asset passes from one person to another. With property prices starting to bounce back, now may be the time for some clients to transfer title to their children. Passing the property now would mean that any further growth on that property would be in the child’s name. Therefore, they would not have to pay tax on the increased value, as they potentially would if the property passed to them on a parent’s death via an inheritance. This gives parents the peace of mind that, once the property has been transferred to a child (and the child satisfies the necessary conditions), they will not be hit with a huge gift/inheritance tax bill down the line.

Many clients may not have considered this form of asset transfer, assuming that such transfer could only take place via a will.

Home renovations

The Home Renovation Incentive (HRI) scheme was first introduced in 2013 by Finance Act (No. 2) 2013, offering a tax credit of 13.5% to owner-occupiers who renovate their homes using the services of a qualifying contractor.

Finance Act 2014 extended the scope of the HRI scheme in two ways. Firstly, the scheme was extended to 31 December 2015 and secondly, individual landlords now have scope to get in on the action. This may prove a beneficial incentive for those with a second property who are interested in offering the premises for rent but need to carry out significant repairs or renovation.

The HRI scheme runs from 25 October 2013 to 31 December 2015 for homeowners and from 15 October 2014 to 31 December 2015 for landlords. As mentioned previously, a 13.5% tax credit is available for those who repair, renovate or make improvements to homes. So what do we need to be aware of when advising clients? Firstly, there is a minimum spend of €4,405 (excluding VAT) required in order to claim the credit. Any spend over €30,000 (excluding VAT) will attract a maximum tax credit of €4,050. Secondly, the credit is payable over 2 years following the year of the work being carried out. There is clearly a time lag – this may impact a client’s decision to proceed with the work.

In order to qualify for the incentive both homeowners and landlords must be LPT (Local Property Tax) and Household Charge compliant. In addition, landlords must be registered with the Private Residential Tenancies Board. Before a client commits to any form of home repair or renovation on the basis of qualifying for the 13.5% tax credit, ensuring the above conditions are met are key. This is where our members can add value for their clients.

The Revenue website (www.revenue.ie) provides an overview of the HRI scheme along with useful guidance for homeowners and landlords.

Wedded bliss or a tax miss?

Being married brings many wonders – joint decisions, constructing flat-pack furniture and, of course, tax savings.

A couple who are jointly assessed for tax purposes benefit from an increased standard rate band, married tax credits and the ability to transfer an unused portion of their rate band to their spouse. There may be a tax advantage for clients who are married to be jointly assessed for tax purposes. Are all of your clients who are married aware of this? In the example there is a tax saving of €1,800 by moving from single assessment to joint assessment.

Example

Joe and Sally have been married for a number of years. In 2015, Joe will earn €45,000 and Sally will earn €24,000. If Joe and Sally are taxed under joint assessment (rather than single assessment) they will have a combined tax saving of €1,800.

If Joe and Sally were taxed jointly, they would pay:

Joint Assessment
Income	Joe			45,000
	Sally			24,000
				69,000
Taxed as follows:	66,800	×	20%	13,360
	2,200	×	40%	880
				14,240
Less: Tax Credits	Married			(3,300)
	PAYE × 2			(3,300)
Total Tax Payable				7,640

If Joe and Sally were taxed as single individuals, the result would be:

single Assessment
	Joe			Sally
Income	45,000			24,000
Standard Rate Cut-off Point	33,800	× 20%		24,000	× 20%
	11,200	× 40%
	11,240			4,800
Less: Tax Credits
Personal Tax Credit	(1,650)			(1,650)
PAYE Tax Credit	(1,650)			(1,650)
Tax Payable	7,940			1,500
Combined Tax Payable		9,440

What client would not appreciate being told that they could save €1,800 by changing their method of assessment?

Satisfaction comes from solving a problem. Whether it be advising on inversions, reorganisations or aspects of the HRI scheme, the key will always be to find ways to deliver true value to clients – that value comes in many shapes and forms and includes the simplest of tax advice.

Deborah Casey is a Tax Manager with Chartered Accountants Ireland.

Email: Deborah.casey@charteredaccountants.ie