Hot Topic #9 : Protection for co-habiting couples

Protection for co-habiting couples

1 in 10 adults in Ireland are co-habiting.  Are you one of them?

Most people are aware that inheritances passing between married couples or registered civil partners are exempt from inheritance tax but this exemption only applies for “legal spouses” and “Registered Civil Partners”. 

All other co-habiting couples are treated as strangers for inheritance tax purposes.

• The 'stranger' tax-free threshold for Inheritance tax is €15,075.

• Inheritances (since 6 December 2012) that are in excess of €15,075 are subject to tax at a rate of 33%.

For example:

• John and Mary buy a home in joint names. They contribute equally to the deposit, the mortgage repayments and the joint mortgage protection policy. The home is valued at €300,000.

• John dies in the first year of their living together. The mortgage is cleared by the mortgage protection policy.

• Mary inherits 50% of the property, assuming it was owned as joint tenants.

• Mary's tax-free threshold is €15,075, with the balance of €134,925 taxable at 33% resulting in a tax bill of €44,525.

The belief was that the civil partnership legislation would fix inheritance tax and succession planning issues for unmarried couples, but it hasn’t.

Might you face an inheritance tax bill in the event of the death of your partner?

If you would like to talk about this or need any other financial advice, please call Michael on 086 844 0541 or email info@mkfinancial.ie  to arrange an appointment.

Michael Keville T/A MK Financial is regulated by the Central Bank of Ireland

Hot Topic #8: Agricultural Relief from Capital Acquisitions Tax

With effect from 1st January 2015 changes have been made to the conditions for agricultural relief from CAT which are designed to confine the relief to genuine farmers and ensure productive use of the agricultural property.

For gifts and inheritances taken on or after 1st January 2015 the beneficiary must satisfy the following additional conditions:

1•  Have an agricultural qualification (a qualification of the kind listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999) or obtain such a qualification within 4 years and farms the agricultural property for a period of not less than six years on a commercial basis and with a view to the realisation of profits  … or …

2• Spend not less than 50% of his or her normal working time farming agricultural property on a commercial basis with a view to making a profit for a period of not less than six years commencing on the valuation date.

         

Alternatively, where the beneficiary leases the agricultural property, the individual to whom the property is leased must also satisfy condition 1. or 2 above.

·     • The relief only applies to "agricultural property" which is defined as "agricultural land, pasture and woodlands situated within a Member State and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with lands occupied therewith) as are of a character appropriate to the property." The relief also applies to stock and farm machinery.

· • Any milk quota attaching to lands will also qualify for reduction as part of the market value of the lands.

· • The relief only applies to agricultural property acquired by an individual, domiciled in the State, who after taking the agricultural gift or inheritance not less than 80% of his gross assets are represented by the value of agricultural property, including livestock, bloodstock and farm machinery. For gifts or inheritances taken on or after 1st February 2007 a donee is allowed to offset borrowings for the purchase, repair or improvement of on an off farm principal private residence against the value of the property for the purpose of the 80% test.

The relief is withdrawn in certain circumstances:

· •  If within 6 years of the ‘valuation date’ the beneficiary ceases to qualify as a farmer as set out above and does not lease the land to a lessee who will farm the land for the remainder of the 6 year period. Or if within six years after the date of the gift or the inheritance lands acquisition where the land was compulsorily acquired on or after 25th March 2002.

·•  If the gift or inheritance consists of development land and is disposed of in the period commencing 6 years after the date of the gift / inheritance and ending 10 years after the date there will be a partial claw back of the relief.

We advise our clients to see professional tax and legal advice as the information given is a guideline only and does not take into account client’s particular circumstances.

Information is correct as at April 2015 but is subject to change.

Michael Keville T/A MK Financial is regulated by the Central Bank of Ireland

Hot Topic #7 - Let the taxman help pay for your life cover!

Let the taxman help pay for your life cover!

When it comes to life insurance for small business owners and executive employees, there is a more tax efficient way to buy it … an Executive Pension Term Assurance Plan. 

With a suitable life policy, it is the employer that makes the payments not the person covered, so the premiums usually qualify for tax relief. 

If the employee dies before retirement, the lump sum amount can help their family survive without having the employee’s income to rely on.

The benefits of an Executive Pension Term Assurance plan are …

➤ It provides affordable life cover 

➤ It is normally paid for by the employer

➤ The employer’s contributions usually qualify for tax relief and are not a benefit in kind for the employee (under current legislation) 

➤ The employee’s family/estate receives a cash lump sum if he/she dies during the term of the policy

➤ It provides peace of mind for the employee and financial security for the employee’s family. 

Michael Keville T/A MK Financial is regulated by the Central Bank of Ireland

Hot Topic #6

Turning Company Profits into Personal Wealth

Pension Opportunities for Company Directors

Many business people are still not aware of the financial benefits arising from pension legislation.

The legislation offers owner directors with more than 5% of the voting rights, an opportunity to convert company profits into personal wealth, in a tax efficient way.  If you have made little or no provision for your retirement, then using company profits as contributions to your pension could be an excellent means of ensuring that you can maintain your lifestyle in retirement.

As a director with more than 5% of the voting rights, your company can make significant contributions to your company pension plan.  These contributions are not subject to income tax, PRSI or BIK.  Your company saves on corporation tax, and your pension fund will grow tax free.

On retirement you can take:

• A tax free lump sum

• An income paid for life

• Cash sums

• Or a continuation of investments through ARF’s (Approved Retirement Funds).

Questions & Answers

Why shouldn’t I take the profits as income?

• You could do this but it is far less efficient from a taxation point of view.  You would be liable to pay the marginal rate of 41% plus income and health levies, on everything you withdraw as income. 

• Why shouldn’t I leave the profits in the business?

Again this is an option, but company profits are subject to corporation tax at 12.5% and after the tax is paid, you will still not have access to the funds.

Hot Topic #5

Capital Acquisitions Tax

If you are a business owner, you should also take a close look at the implications of Capital Acquisitions Tax if you are thinking about passing on your business to your family when you die. 

Inheritance tax can become a real burden where financial resources are tied up in a business.

Did you know?

• Your children can only inherit €280,000* from you tax free. 

• Anything in excess of this, per child, is taxable at 33%.

• Leaving assets to your children may result in them having to pay Inheritance Tax.

Source: Capital Acquisitions Tax Consolidation Act 2003 (as updated). *Group 1 Threshold available from 14 October 2015.

If you do not plan ahead, your family could be faced with a difficult decision between having to sell the business or borrow the money to pay the tax liability.

There are a number of solutions to this and Gift or Inheritance tax planning allows you to plan for the tax liabilities which could arise, thus ensuring that the business won’t have to be sold off to pay the tax bill.

Hot Topic #4

Do you see life through rose tinted glasses?

Most of us think that premature death, serious illness, accident or injury will never happen to us … Sadly, the chances of prematurely dying, suffering a serious illness or having an accident at a young age are a lot higher than you may think.

Statistics from one of Ireland’s leading insurers for 2015 is quite frightening …

	Life Cover	Specified Serious Illness	Income Protection
No of claims & total amount paid	1,051 claims totalling €103.1 million	763 claims totalling €48 million	3135 claims totalling €53 million
Average amount paid per claim	€66,462	€62,913	€19,380
Average age of claimant	64	53	47

LIFE COVER – GENDER VARIATIONS

·         Men accounted for 2 in 3 death claims with women accounting for 1 in 3

·         Higher percentage of women (48%) died from cancer than men (39%)

·         Heart related conditions were the cause of death for twice the rate of men (16%) than women (8%)

·         Rates for accidental deaths were higher for men at 8% compared to just 3% for women

SPECIFIED ILLNESS COVER - GENDER VARIATIONS

·         Men made up over half (55%) of Specified Illness claims, with women making up 42%

·         Breast cancer was the number 1 overall cause (15%) of all Specified Illness claims. Among women, cervical/ovarian was the second biggest cancer related claim

·         For men, prostate cancer was the main cause of cancer related claims (almost 10% of all specified illness claims) followed by lung and colon cancer

·         Men accounted for 4 in every 5 Specified Illness claims paid for heart related conditions – reflecting the significant gender difference related to heart conditions.

Source for all stats above is Irish Life 2016

Hot Topic #3

Protecting You & Your Business

Have you considered what would happen to your business and your family if you died prematurely?

• What might happen to your shareholding?
• How would your family survive financially?
• How would your business partner react?

This may be something you haven’t given much thought to … and it’s why Shareholder/Partnership and Keyman cover is so important.  It can be paid by the business, with the business or individual getting the benefits.

For further information please give Michael a call on 086 844 0541.

For further information please contact Michael at MK Financial on 086 844 0541.

MK Financial is an independent financial advisor with access to all main Insurance and Investments.

MK Financial has been offering independent, clear, professional financial advice for 18 years.

MK Financial, Boyle Enterprise Centre, Quarry Lane, Boyle, Co. Roscommon  :  Tel: 086 844 0541   |  071 966 6044  |  071 967 3100  | Email: info@mkfinancial.ie