Total income shelters are in short supply now that Section 481 film relief is no longer available to individuals looking to reduce their income tax liabilities. This article considers some of the reliefs that remain available and includes some ideas for year-end planning now that the November income tax filing deadline is just around the corner.

Pension contributions

Pensions are still the most efficient way of investing cash today to provide for your future. When you consider that you may have up to 30 years life expectancy post-retirement, it makes sense to build up your pension fund while you are working. Employer and company contributions are the most efficient method of funding the pension if cash-flow permits. They are not taxable benefit in kinds in the hands of the employee, are exempt from employer PRSI (a Finance Act 2015 change introduced parity of treatment for both occupational pensions and PRSAs from 1 January 2016 in this regard) and, for occupational schemes, they are not taken into account in the percentage of non-pensionable salary or net relevant earnings that an employee is limited to when making an AVC. For example, if an employer contributes 5% to an employee’s occupational scheme and the employee’s age bracket allows them to make a total contribution of 25%, the employer’s contribution is ignored and they can make the full 25%. Beware however: this is not the case for employer contributions to PRSAs. If, in our example, the contribution had been into a PRSA, the employee could only top it up by an AVC of 20%.

A further benefit of pension contributions is that they are an excellent way of extracting cash from a company, particularly coming up to retirement or sale of the business. For succession planning, creating an asset outside and independent of the business is a worthy exercise.

If a contribution is made before the income tax filing deadline (10 November 2016 for online returns), it can relieve either 2015 or 2016 income from tax – you can choose. Watch out for clients changing jobs. If they are no longer in a scheme, they cannot make an AVC into a former employer’s scheme and qualify for tax relief on it. Also be mindful of ex-gratia termination payments that include a pension contribution. If not structured properly, they can be treated by Revenue as salary sacrifices and deemed income. If paid after the termination date, they may not even qualify for pension relief.

EIIS- Employment & Investment Incentive Scheme

Finance Acts 2014 and 2015 introduced significant changes to the EIIS to bring it into line with new EU General Block Exemption Rules (“GBER”). In broad terms, an individual can invest up to €150,000 in a qualifying company and obtain up to 40% tax relief, reducing the net cost of their investment to €90,000. The relief is given in two tranches: 30% in Year 1 and a further 10% in Year 4 if the company meets certain conditions relating to increases in employment numbers and salaries in the interim.

In an era where SMEs are finding it increasingly difficult to raise funds from other sources to fund their business start-up and expansion, EIIS is a real opportunity for them. Companies can raise up to €15m in total, limited to €5m in a 12 month period.

For individuals looking for a 2016 tax shelter, there are a number of designated funds, which comprise lots of EIIS qualifying companies, and individual companies looking to raise expansion finance. The shares need to be issued before the end of the year for a 2016 income tax deduction.

Loans to Acquire Interest in Partnership

The relief available for interest on a loan taken out to enter into a partnership is being phased out. Only 50% is allowable in 2015, 25% in 2016 and nothing from 2017.

Insurance Contracts

Whilst tax relief is given at source for our health insurance premiums, there are also some life insurance-type policies that are tax deductible. Premiums for certain permanent health insurance, income protection and mortgage protection on rented properties can sometimes be tax deductible. If you are taking out this type of insurance, make sure you enquire about the tax treatment of the policy and, if it’s not tax deductible, ask whether there is a similar insurance product that is.

Home Renovation Scheme

If you are thinking of renovating the family home or rented dwellings, the Home Renovation Scheme is an opportunity to recover VAT charged by your building contractors. This relief, which was introduced in 2013 and extended to 31 December 2018 in the recent Budget, gives an income tax credit of 13.5% over two years for VAT paid on renovating or repairing a residential property.

There is a significant level of paperwork required to make the claim, most of which is the responsibility of the contractor you engage. The bulk of the form-filling needs to be done before the work commences so you need to make sure your contractor is (a) VAT registered and (b) au fait with the scheme before the old wallpaper is stripped from the walls.

The credit is given for works costing between €4,405 and €30,000 (net of VAT) provided the homeowner is both household charge and LPT compliant. The claim is made through MyAccount or ROS, depending on whether the claimant is PAYE or self-assessed.

If you are preparing 2015 income tax returns, it is worth asking your client if they got work done on their home in 2013/14 as 2015 will be the first year they will qualify for the credit. 2016 is the first year it is available for landlords.

Capital Tax Planning Before Year End

Investments are starting to recover some of their value again. Individuals should look at their portfolios to see if it would be timely to sell and rebase investments tax free, resulting in a higher base cost on a future sale. At a minimum, each individual can trigger gains of up to €1,270 tax free to use up their annual allowance, which cannot be carried forward – you use it or lose it. They may also have losses forward they can absorb, allowing them to generate higher gains tax free.

Example

Robert has losses forward of €5,000. He also has shares worth €12,000, which he and his wife bought 3 years ago for €4,460. He sells the shares and immediately buys them back the next day when they are the same price.

Sales proceeds	€12,000
Base cost	(€4,460)
Losses	(€5,000)
	€2,540
Annual exemption × 2	(€2,540)
Taxable gain	€0

He pays no CGT, the transaction is cash-neutral (other than perhaps a small amount of broker fees and stamp duty) and the shares’ base cost on a future sale will be €12,000 rather than €4,460.

Parents, grandparents and others should be making their €3,000 per person gifts before the end of the year. The annual small gift exemption can be given to anyone without using up their threshold. If everyone in the world gave me €3,000 (you never know!), I would pay no capital acquisitions tax on it. It is a very simple and effective method of reducing your future estate and passing wealth to the next generation tax efficiently. Take the example of two parents with three children. They can give each child €6,000 per annum; that’s €18,000 in total, amounting to €60,000 per child after 10 years. The grandparents could mirror it if cash-flow permitted. That is a nice nest egg for the child when they want to buy their first home, go travelling, have a medical emergency or other future financial need.

Income Tax 2015 Compliance Tips

If you or your tax advisor is facing into the task of preparing a tax return over the coming months, the following might be of interest to ROS users:

• 2015 was an unusual year for payroll: for people paid more frequently than monthly, there were 53 weekly or 27 fortnightly payments due to the leap year. Finance Act 2015 widened the USC bands to accommodate the extra payment so that it was not excessively taxed. When you enter the details in ROS, you will notice a widening of the lower rate USC band by 1/52nd or 1/26th, as the case may be.
• You cannot save or shut down the application without the income tax self-assessment section being completed properly. One of the boxes to be ticked on this relates to Local Property Tax (LPT) compliance. As most homeowners submitted their own LPT returns, agents should request proof of LPT compliance when completing income tax returns. Details of preliminary tax paid and surcharges also need to be completed before you can move off the page.
• Earlier this month, Revenue announced a new Jobs and Pensions Service, which allows employees and pensioners to register their new job or pension with Revenue through the MyAccount system. New tax credit certificates can be applied for, which will in turn be sent to their new payroll administrators. It effectively replaces the previous Form 12A procedure and transfers the obligation to register new employees from the employer to the employee/pensioner. Agents cannot currently access the new system.
• Finance Act 2015 increased the entry point to the self-assessment system from €3,174 to €5,000 for people with non-PAYE income. This effectively means that employees/pensioners with other income of less than €5,000 do not have to file tax returns or pay preliminary tax if that income is coded into their tax credits. It also means that someone with income of less than €5,000 is not liable to PRSI. People who wish to keep up their PRSI contributions by registering as a voluntary contributor can elect to do so before the end of the following tax year. For people with income below the threshold in 2015, they need to register as a voluntary contributor by 31 December 2016 to be entitled to keep up their contributions. Late applications are often refused.

Conclusion

With the impending income tax filing deadline and with deposit interest rates at rock bottom and, in some instances, banks penalising savers, it’s worth considering other options for investing your savings, particularly if there are tax benefits to doing so. Obviously, the usual caveats about risk, investments falling as well as rising etc. apply.

Laura Lynch is managing director of Laura Lynch & Associates, a Galway-based advisory firm providing personal and corporate clients with strategic and commercially focused tax, financing and structuring advice on issues such as wealth protection, succession planning, cross border matters and tax efficient employee remuneration.

Email: laura@lauralynch.ie