Staff at IPF raised money for the Peter McVerry Trust on Friday by holding Funky Shirt Friday in our offices!
Many thanks to everyone who contributed!
Many thanks to all who attended our recent Retirement Planning Seminar in the Westbury Hotel and to our panel of speakers who provided useful information on the night.
To date, IPF have held 20 Seminars around the country for Public Sector employees. We have had over 2,000 attendees in total to these seminars.
These events prove to massively popular and are always oversubscribed.
Our next Seminar will be in The Kingsley Hotel in Cork City on the 5th October 2018. Those interested in attending should book their places as soon as possible through email@example.com.
Here is the usual agenda for the seminar:
“Retirement Planning and how your benefits work” Claire Hanrahan, Financial Advisor
“Keeping Safe in Retirement” Sgt. Dean Kerins, Crime Prevention Officer, An Garda Siochana
“General medical guidelines for over 60’s” Dr. Rita Galimberti, Consultant, Femplus Womens Health Clinic
“Taxation; Essential information for you pre and post retirement” Ray McGovern, Chartered Accountant, McGovern & Associates
“Investing in a Challenging World” Stephen Dixon, New Ireland Assurance
“Active Retirement and managing your newfound free time” Pat Murphy, Planning Consultant, Retirement & Life Planning
It’s something that frustrates, enrages and outrages in equal measure: inheritance taxes on the family home. For many people, having paid down a mortgage with after-tax income throughout their lives, leaving a legacy of a substantial tax bill for their children feels akin to double taxation.
And yet, despite the outrage, most of us are shockingly ignorant about just how Ireland’s inheritance tax regime works. A recent survey from Irish Life, for example, revealed that while a quarter of over 65-year-olds expect to leave estates of more than €500,000, half of adults think their family home is exempt from inheritance tax.
Unfortunately, for many families leaving homes valued at Dublin prices, having to write a large cheque to the Revenue Commissioners in the aftermath of a death can come as an unwelcome, and sometimes unaffordable, surprise.
So what do you need to know about death taxes on the family home in Ireland?
It is possible to transfer property to someone else – without incurring a tax bill – in a number of ways. Firstly, inheritance tax doesn’t apply if the value of the property falls within the tax-free thresholds.
“For the vast majority of people that would be the case, particularly outside Dublin, where properties wouldn’t hit the exempt thresholds,” says Darragh McCarthy, head of private client services at EY.*
This means, for example, that a property worth €400,000, shared by two children, won’t incur a tax bill, as the transfer to each is within the parent-to-child thresholds (€310,000).
Similarly, if five nieces and nephews inherit a house worth €162,500, no liability will apply, as it’s again within the thresholds (€32,500), while if you inherit a share in a property from someone who isn’t related to you, and it isn’t worth more than €16,250, again there will be no bill.
Should you go over these thresholds, however, tax at a rate of 33 per cent will arise – even on the family home. A property worth €600,000 inherited by one child will incur a tax bill of €95,700.
“Although many people intend to leave significant amounts to their children and grandchildren when they die, most of them are unaware that those family members could be liable for a very substantial tax bill on those inheritances,” says Kate Connor, protection manager with Irish Life.
For example, a property worth €600,000 inherited by one child will incur a tax bill of €95,700 (33 per cent of €600,000-€310,000), while a property worth €100,000 left by someone with whom you have no recognisable relationship with will incur a bill of €27,637 (33 per cent of €100,000-€16,250).
If you’re married or in a civil partnership, no tax is liable on asset transfers, which means that a family home or investment property can be transferred with no tax liabilities.
Remember, however, that it only refers to legally recognised partnerships; common law partnerships are not recognised by the Revenue Commissioners, which means that even if a couple have been together for 60 years, should one of them die, there will probably be a tax bill to settle. Yes, their life insurance may in fact pay off the mortgage on the property, but the surviving spouse will still incur a tax bill on the transfer of this property to their estate.
Another way of passing on a property tax-free is to avail of the so-called dwelling house exemption – but its use has been restricted.
Used by thousands of people to pass on properties to their children, free of tax, the dwelling home relief was once a very popular tax exemption. However, its use was tightened significantly from December 25th, 2016.
“In practice it doesn’t have wide application,” says McCarthy. “I wouldn’t expect to see it much into the future.”
But it might still be of use to some.
The key criteria that now allow someone to inherit a property tax-free is that the property must have been the “only or main home” of the person who died. In addition, and this is where it gets tricky, is that the person inheriting must now have also lived in this property as their main residence for the three years prior to the transfer. Other requirements mean that to inherit tax-free, they cannot have an interest in any other property, and they must also stay in the house for six years after the transfer.
But there are some ways of getting around some of these points.
First of all, the three-year rule as well as staying in the property for six years subsequently does not apply where people are aged over 65.
Moreover, people can avoid this requirement in a number of ways. Firstly, if they sell the property they’ve inherited and invest all of the proceeds in another property, the relief stands. It also stands if the successor has to move either somewhere else in Ireland, or abroad, for work reasons.
Another quirk is that even if the owner of the property goes into a nursing home in the final years of their life, the person inheriting can still avail of the relief if they were living in the house.
For many families, a discussion about what happens in the event of the parents’ death never really happens until after the fact.
Others, however, are more proactive, and may wish to downsize – particularly at a time of a housing crisis when children may be eyeing up enviously their parents’ home.
But according to McCarthy, while each case will be different, transferring the family home during your lifetime can be more expensive than waiting until your death. This is because Irish stamp duty applies to lifetime gifts to property, which would not apply to inheritances on death. This means, for example, that the transfer of a house worth €500,000 would incur stamp duty of €5,000, while a property worth €2 million would incur duty of €40,000 – enough perhaps to make you think twice. And the rate of duty on investment properties is 6 per cent.
And of course, if the parents pay the stamp duty on behalf of a child, this could give rise to a capital acquisitions tax (CAT) liability.
One way to deal with the transfer of investment properties would be to house them in a company structure, as the company cash could then potentially be used to settle CAT charges. As a related point, McCarthy advises families at the early stage of property investment to consider co-investing, as in the event of the deaths of the parents, the children’s CAT liabilities will be restricted to the deceased’s share rather than the entire portfolio.
There can definitely be a sting in the tail for individuals who have foreign property, as they can often completely ignore foreign estate issues
And be careful also of other implications when considering a transfer during your lifetime. While a parent can sell a home to a child at a discounted price, the difference between the sale price and the market value will be considered to be a “gift” by the Revenue Commissioners, and will thus attract CAT if the child has already exhausted their tax-free threshold.
A nifty way to approach this, says McCarthy, is to make use of the €3,000 annual small gifts exemption (unchanged since 2003, it should be noted, and thus ripe for an increase).
If the property exchange was funded via a “loan” from the parent, for example, the parents could then, potentially, pay off the loan to the order of €6,000 a year without a CAT bill arising – of course, depending on the size of the shortfall, this could take some time to pay off in this manner.
Another consideration is if capital gains tax (CGT) and CAT both arise, you can use the CGT you have paid as a credit against the CAT. In the context of the family home, this is unlikely to apply, as it won’t be subject to CGT, but may be appropriate for investment properties.
If so, McCarthy warns that the “sequence” of transfer/sale of assets is very important to maximise tax efficiency.
For example, in such cases he suggests that it can be more efficient to transfer the family home in the first instance and use up the thresholds, and then subsequent gifts that would give rise to CGT would be made after these thresholds are exhausted.
Finally, we’ve spoken so far of Irish-based properties – but property abroad can cause further challenges. Not something people think much about, perhaps, when buying a place in the sun.
“There can definitely be a sting in the tail for individuals who have foreign property, as they can often completely ignore foreign estate issues,” says McCarthy.
Given people’s general ignorance of potential inheritance tax liabilities, it’s helpful to learn that the Revenue Commissioners are willing to receive CAT bills in instalments. It’s less helpful, however, to learn that they’ll charge you an arm and a leg – 8 per cent interest – on such an agreement.
“This is something we’d like to see reduced,” says McCarthy, although he adds that “at least it prevents a forced-sale scenario”.
You could also consider starting to save for any potential CAT bills now, as the Revenue still allows two tax-efficient savings schemes to enable you to do this.
Section 72 policies, for example, cover the cost of settling an inheritance tax bill in the event of your death and, crucially, don’t incur a tax liability themselves. They allow you to save towards a life assurance policy, with the proceeds going to pay off an expected inheritance tax bill. The key advantage is that the proceeds of the policy is not subject to CAT. However, there are some downsides – they’re expensive (expect to pay about €218 a month for €100,000 of cover); they need careful planning to ensure they match the tax owed; they have no cash-in value; and they need to be taken out early to be worthwhile.
You could also consider a section 73 savings plan. Again Revenue-approved, this allows you to gift the proceeds of this plan to your estate to meet any tax bills – and again, this gift is not liable to inheritance tax. Moreover, you can choose to keep the funds yourself if you so wish. However, they again need careful thought and can be expensive.
Between spouses All tax free
Group A (parent to child) €310,000
Group B (relatives such as nieces and nephews) €32,500
Group C (stranger) €16,250
Fiona Reddan, irishtimes.ie
Set up a budget with three sections: essentials, savings, and social. Start allocating money to your essentials first, like rent, utilities, food, transport and loan repayments.
Next, allocate something — no matter how small — to savings. Your first priority should be an emergency fund, and you should think about your own situation (job security, health benefits at work, your personal support system) to determine a comfortable amount.
With the essentials and some savings covered, you can spend the rest however you please. Remember to update your budget periodically, since your financial picture will inevitably change.
Retirement may seem like a long way away yet, but the earlier you start contributing to your pension, the more options you will create for yourself in the future.
IPFs Additional Voluntary Contribution Scheme for Public Sector employees offers the following benefits:
Full tax relief on contributions at your top rate
Tax-free growth on your savings
A wide range of investment options
*Assumes 3% growth & higher rate tax payer. Unit prices may fall aswell as rise
It might make sense for you to save some tax now and begin to build a supplementary pot of money for your retirement.
A meeting with a Financial Advisor can help you identify your priorities and build a Financial Plan. To arrange an appointment, you can call 01 8298500 or email firstname.lastname@example.org.
A guide to the financial issues facing young people and what they can do about them
Tue, May 8, 2018, 06:00, Fiona Reddan, www.irishtimes.com
It has become much more difficult for today’s 20-somethings to buy their first home.
“Generation rent”, the “lost generation”, or wasters who throw away their money on avocado toast: accurate descriptions of today’s 20-somethings or media hyperbole? The truth, perhaps, is somewhere in between.
Eoin Magee, a financial adviser with Prosperous Financial Planning, has buckets of sympathy for this age cohort. “I’d say people in their 20s have been dealt the worst cards possible,” he says, “It’s a very difficult environment to be starting out your life in.”
Magee points to the lower salaries of many 20-somethings as being a key challenge.
“When they came out of college, jobs weren’t freely or readily available, so they took whatever job they could get, but started on a lower salary than they would have otherwise done.
So while someone could have previously expected to start on 30,000, they might have started on €25,000. “And you don’t make up that gap again,” says Magee.
At the same time, house prices and rents started running away from them.
“They have got caught in a perfect storm,” he says, noting that the generation behind them might have it a bit easier. They will have auto-enrolment in their favour for one, which will help with retirement planning, and perhaps a different view of the property market.
“People in their 20s, they’ve seen house prices being decimated, so they may not work hard to save a deposit because they have a different perception of what normality is,” he notes.
But just because things are tough doesn’t mean 20-somethings should shy away from doing what they can to make their own circumstances that little bit better. The huge advantage 20-somethings have is their age though this only works in their favour if they take some steps now. So what are the typical mistakes you might make?
Not paying yourself first
How you establish your savings habits in your 20s is going to have a huge impact on your future financial health. Do you put whatever you’ve left over at the end of the month into a separate savings account? Or do you just leave whatever is left resting in your current account?
Maybe you’ve agreed a savings plan with a parent, whereby you cough up some rent and they save on your behalf. Whatever approach you take, the critical point is that this money goes into your savings when you get paid – and not at the end of the month when your accounts may have been decimated.
Magee suggests you target a figure of 20 per cent of your income, including pension savings.
“My priority is that you start to build a savings pot and you’re very disciplined in doing so,” he says, noting that this will then give you options, and can be allocated to a deposit on a house, or a masters, or whatever financial goals you may have.
Going the other route of planning a budget and trying to live by it over the month can prove challenging.
“I don’t believe in budgets” says Magee, likening them to a calorie-controlled diet – and we all know how well they work for most of us. Yes, we’re good for five days of the week and then splurge and ruin all our progress.
Relying too much on deposits
But if how you save is important, so too is where your money is saved. With savings rates on the floor – and nearly underneath it – earning less than 0.5 per cent a year can make saving an almost joyless experience.
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“You can’t save for more than five years in a bank account, as you won’t even beat inflation,” advises Magee, saying if you don’t invest in a well-diversified equity portfolio, “you’re going to have to save harder”. And that may be just too much for people already strapped for cash.
Moreover learning about investing, funds, shares, exchange-traded funds, etc, at a young age – even if you make the occasional mis-step – will undoubtedly improve your financial health over time.
Not talking to friends/family about money
One of the best financial resources you have is the people that you know. Carty gives example of people locking their savings away in notice accounts so they can’t access them – with one 20-something taking it so far as to put their savings in a credit union 20km away so it’ll be difficult to withdraw.
Magee has another tip for parents and live-at-home children alike; parents could charge the market rent to their offspring – less any savings they contribute. So if it would cost them €500 to rent a room, charge them €300 if they can put away €200 a month, and so on.
However, Carty notes that while 20-somethings might share their life on social media, they can still be shy when it comes to talking about money.
“It’s a bit of misnomer that they share so much,” he says.
But try and shrug this off as you’ll pick up some great tips long the way.
Thinking pensions are for later on
OK, so your 20s may not be the time to get in deep with pensions. But if you can do one thing, make sure you’re maximising contributions from your employer. If they match your contributions, try and put in the most you can to get the maximum contribution from them. It’s (almost) free money.
Not planning to buy a home – well in advance
As the resident financial planner on RTÉ’s Crowded House, which aims to help 20- and 30-somethings move out from home, Magee is keenly aware of the challenges facing today’s younger generation.
Whereas their predecessors may have bought their first home during this decade, it has become much more difficult for today’s 20-somethings to do so. A recent study from the UK-based thinktank Resolution Foundation found that about a third of millennials will never own their own home.
So if you want to be in the 66 per cent that do, it may require considered planning. “You may never want to buy a house; but you don’t want to wake up at 29 years of age and think ‘I definitely want to buy a house’ and have done nothing about it,” warns Magee.
Magee has crunched the numbers and found that it will take nine years for someone on the average income to save a deposit to buy the average house in Dublin, or seven years in Galway.
“So if you’re 21 years of age today, and if you’re not saving for a deposit for a house, you won’t be buying in your 20s,” he says.
Some 20-somethings are well ahead of the curve in this regard; Rory Carty, head of youth banking with Bank of Ireland, has fielded questions from second and third year college students about how they can save to buy.
“They are quite savvy and are saving quite early,” he says. And for people fearful of a preparatory chat with a lender about getting a mortgage, Carty says “don’t be”.
“People should come in and speak openly around their financial situation and get advice,” he says.
Thinking renting – and not saving – is viable
Maybe you’ll never own your own home; maybe you don’t want to. And don’t worry, never owning a home can be a legitimate financial decision. Look at the example of Germany, or France, where people are content to rent forever. Just 14 per cent of those living in Berlin, for example, own their own home.
However, years of experience have meant that these take a different view; yes they’re not forking out €4,000 to upgrade the boiler, but they are also aware that in retirement, unlike a homeowner, they will always have rent to pay on their home. So they take the money they would otherwise have spent on maintaining a property and save it for this eventuality.
And as Magee notes, while renting long-term can make sense, “you need absolute discipline for that”.
Spending what you don’t have
There are always temptations to spend more, but Magee is clear: “Don’t spend more than you earn”.
Given the proliferation of easy credit, such as through credit cards or car loans, urging us to upgrade our lifestyle, this can be more difficult than it sounds – particularly when it comes to the temptation of a shiny new (ish) car.
“There is no doubt that 20-year-olds are getting caught up with it ([extended purchase arrangements like] PCPs), and are driving better cars than they would have otherwise,” notes Magee.
He also cautions against saving, while you have a considerable balance on your credit card. Saving at 0.4 per cent while owing €1,000 on a credit card at 20 per cent, doesn’t make sense. If you use your savings to clear this debt, you can still fall back on the credit card should an emergency arise before you get a chance to rebuild your rainy day fund.
Allowing your lifestyle to inflate
This can be a major danger – or opportunity – to how your life is going to be. If you’ve just started work, you won’t be used to earning €400-€700 a week for example.
“So don’t get used to it,” Magee advises, urging 20-year-olds to try to put away 20 per cent of their net savings (this includes pension savings) each month. “And if you’ve never gotten used to spending a certain amount of money, you won’t miss it either. You’ll be just as content a person,” he says.
Not only that, but he wants you to bring this lesson with you through life.
“If you get a pay rise, don’t get used to it,” he says, cautioning against “lifestyle inflation”, whereby your lifestyle expands to fit your income. This is the biggest thing they can to help themselves financially,” he says of 20-somethings.
The challenges facing today’s 20-somethings
Soaring rents: Average Dublin city centre two-bed is €2,000
Priced out of the property market: Average age of first-time buyer 2006: 29 Average age today: 34
Unaffordability: Average house: average income 1995: 2.5 (national); 3 (Dublin) Average house: average income 2016: 4.7 (national); 6.6 (Dublin)
This March, Irish Pensions & Finance hosted two Retirement Planning Seminars in The Glasshouse Hotel, Sligo and The Westbury Hotel Dublin.
These Seminars were greatly received by the 300+ attendees.
Speakers covered topics such as Financial Planning, Health & Wellbeing and Safety in the Home.
We would like to thank all the speakers and attendees for their participation on the night.
Pensions can seem complicated, but they don’t have to be. People have common questions when starting to plan their pension and at Zurich we like to help with simple yet informative answers.
Putting a little aside today could help you live an active and enjoyable life when you retire. There is more than one way to enjoy your retirement and there is more than one type of pension. We can help you choose the one that is right for you, but most importantly, you have full control when it comes to deciding how your pension is invested – after all, it’s your money. With tax relief, employer contributions and optional lump sum payments, you may be able to save more than you think.
When choosing a pension having all the information you need is key. By answering some common questions we hope this helps explain pensions and how they work.
Each payday, each year or as often a you like, you save some money into a retirement fund. Your fund is put away and invested and is encouraged to grow over time so that when you finally decide to retire you’ll have enough saved to live out your life, happily. Essentially, a pension is a way of saving for the long term. But its different for two reasons: tax and time.
When you save money in a pension you may get tax relief on it, so the real cost could be less than you might think. Secondly, any returns you earn on your investment are reinvested over-and-over. Of course it all depends on how your investment performs but even a small amount saved in a pension when you are young could become very large by the time you retire.
How much you put into your pension pot depends on the type of lifestyle you would like to have and the length of time you will spend in retirement. Obviously, no one knows exactly how long they will live for and therefore how long their pension will need to last for. One thing we do know is that the sooner you start a pension, the bigger it should grow.
Due to better health for an ageing population, life expectancy is increasing. Most of us can now look forward to around 30 years in retirement, which is great news. How you support yourself financially during those years is the big question. It is important when planning your retirement to ensure you have built up a substantial pension fund by the time you retire.
A key factor in helping you grow your retirement fund is the investment return you could earn on your pension contributions. Any contributions you make into a pension will be invested in a fund, with a view to growing your money. Where your money is invested and how much risk you are prepared to accept is completely up to you. However, a general rule of thumb is the further you are from your retirement, the more adventurous you can be with your investment choice. An expert such as a financial broker or advisor will be able to help you work out what investment choice might best suit you. Zurich Life offers you access to a wide range of investment funds and choices – from very low risk options such as cash funds, medium risk options like multi-asset or managed funds, and higher risk options such as equity and property funds.
Saving for your retirement is down to you, but to encourage you to save for you future, you will receive valuable support from the government in the form of tax relief. It’s one of the most compelling reasons to save through a pension. Other forms of savings, like bank accounts or savings plans, do not attract such generous incentives.
Every contribution you make to a pension plan receives tax relief based on the rate of income tax you pay (most of us pay income tax at a rate of either 20% or 40%).
You can still have your own pension and receive the State pension as long as you meet the criteria. To qualify for the contributory State pension you must have started paying social insurance before reaching 56 years of age. You must have paid at least 520 full rate social insurance contributions and have a yearly average of at least 48 paid and/or credited full rate contributions from the year you started insurable employment until you reach 66 years of age. If you don’t have the above then you must have a yearly average of at least 10 paid and/or credited full rate contributions from the year you started insurable employment to the end of the contribution year before you reach the age of 66.
Planning for retirement is an important step to take, and it’s never too soon or too late to start planning your pension, which will help you to have the lifestyle and financial stability you desire in your retirement.
Although it’s never too late to start saving for your retirement, obviously the sooner you start the better. Regardless of your age, whether you’re self-employed or an employee, we’ve created pension plans for all circumstances. See which pension is right for you.
In Ireland, tax relief is given for saving for retirement, therefore withdrawing your funds ahead of time is not encouraged and is often only allowed if there is a case of ill-health, such as that caused by a long-term disability. If this is the case and you are experiencing a serious illness, then you can access your personal pension at any age. Otherwise, if you want to access your pension early, you must wait until you’re 50 to draw it down if you are in an occupational pension scheme and you must be 60 if you have a PRSA (50 if you’re an employee and leaving service) or a retirement annuity pension.
After you have taken your retirement tax free, cash lump sum you can choose between an annuity and/or an Approved Retirement Fund (ARF). An annuity is whereby on retirement you receive a regular income for the rest of your life. Annuities may be more suited to people who wish to avoid potential risks such as stock market volatility, and would prefer a guaranteed income for their retirement.
There are several choices you need to make when purchasing an annuity: A single life annuity is payable for the rest of your life only. With a joint life annuity, a percentage of your pension is payable to your spouse after you die. If you choose to include a guaranteed period, your pension will be payable for a minimum of the guaranteed period, even if you die during that time. A level annuity means payment of the annuity remains the same throughout your life and an escalating annuity means payment of the annuity increases at a fixed rate each year.
An ARF is a personal retirement fund where you can keep your money invested after retirement. You can withdraw from it regularly to give yourself an income, which will be subject to income tax, PRSI (up to age 66) and USC. Any money left in the fund after your death can be left to your next of kin.
There are certain restrictions to investing in an ARF. A Financial Advisor will help guide you on the option that might best suit you.
Company pensions can generally be categorised as being either defined benefit or defined contribution. A defined benefit pension plan (DB) sets out the specific benefit that will be paid to a retiree. This calculation takes into account factors such as the number of years an employee has worked and their salary, which then dictates the pension and/or lump sum that will be paid on retirement.
A defined contribution pension (DC) is an accumulation of funds that makes up a person’s pension pot. A person contributes a portion of their salary to a pension scheme. Ideally, although not always, their employer also contributes and these contributions are invested in a fund in order to provide retirement benefits. There is tax relief on this type of pension and the benefits at retirement will depend on a number of different factors such as the contribution levels, how the investment fund performs, plan charges and fees and the annuity rates available when you retire.
The main difference between a defined benefit scheme and a defined contribution scheme is that the former promises a specific income and the latter depends on factors such as the amount you pay into the pension and the fund’s investment performance.
There are different sets of fees depending on the type of pension you take out and which organisation you hold your pension with. The Pension Authority advises that consumers get to know the typical charges that can apply. These might include entry fees, contribution charges or bid/offer spreads, annual management charges (AMC), policy charges/per member fees, switching charges and Pension Authority fees.
We know talking about pensions won’t get your pulse racing. And of course, you’d rather be living your life than worrying about your retirement. But we also know that the sooner you deal with it, the better off you’ll be come retirement.
As this is your money and your future, it’s always advisable to speak to a financial advisor. You can call us on 018298500 to arrange an appointment with one of the IPF team.
The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at November 2017 and may change in the future.
Congratulations to the winners of our staff awards on Friday night, Jennifer Fitzgerald (Administrator of the Year), Marcin Czekalski (General Insurance Advisor of the Year), Louise O’Brien (Manager of the Year) and John McEntee (Assistant Financial Advisor of the Year).
These awards are given to those who have excelled in their fields over the last twelve months and have gone above and beyond to support their colleagues and clients.
Well done to all!
Also, voted Colleague of the Year by her peers was Brid Holligan. Congratulations!