Budget 2020

Small increase in self-employed and home carer tax credits

The Earned Income tax credit provided to the self-employed and proprietary directors who cannot qualify for the PAYE tax credit, will be increased by €150 in 2020 to €1,500. This will mean a minor income tax saving of €150 p.a. for most self-employed and proprietary directors.

The home carer tax credit will be increased in 2020 to €1,600. This credit can be claimed by a married couple who are jointly assessed for income tax where one spouse works in the home caring for a dependent person, e.g. a child.

Increase in the child CAT Threshold

The CAT Threshold which applies to gifts and inheritances taken by children from their parent has been increased by €15,000 to €335,000 with effect from 9th October 2019. There is no change in the other Thresholds or in the CAT rate of 33%.

The maximum Inheritance Tax saving from the increase is €4,950.

No increase in State Pension

However, the Living Alone allowance will be increased by €5 pw from €9pw to €14 pw from March 2020.

In June 2018 the Revenue confirmed that the State Pension Christmas Bonus could, once received, be counted as income for the purposes of the €12,700 specified income test to avoid having to invest €63,500 of retirement funds in an AMRF or annuity or to unlock an AMRF already held.

Increase in Social Welfare rates for children

Social Welfare benefit rates are increased to €36 per week for under 12 and €40 per week for 12 and over.

Increase in employer’s PRSI rates

Because of a 0.1% increase in the National Training Fund Levy (which is collected with PRSI) the employer’s PRSI Class A rate will increase from its current 10.95% to 11.05% in 2020, for employees earning more than €386 pw. For lower earners, the employer’s PRSI Class A rate will increase from 8.7% to 8.8% in 2020.

Help to Buy scheme extended for another two years

The Help to Buy scheme gives a rebate of income tax paid over the previous 4 years to first time buyers of 5% of the purchase price/value of their new home up to €500,000, subject to a maximum rebate of €20,000 per property. The scheme only applies where the mortgage is at least 70% of the home value.

Increase in Stamp Duty for commercial property

The Stamp Duty rate payable on the purchase of non-residential property will be increased from its current 6% rate to 7.5% with effect from 9th October 2019. This will impact on pension investors investing in non-residential Irish property after 9th October 2019.

The Early Bird...

In Ireland, 38 per cent of all working adults don’t have a pension. Of those people that don’t have a pension and don’t ever intend on starting one, 65 per cent plan to live off the State pension when they retire*.

These findings are revealed in Zurich’s latest research into pensions in Ireland. This is the second year of this comprehensive research study and highlights the concerns many people have about their future and how they will maintain their standard of living when they retire.

This year, 53 per cent of those surveyed that don’t have a pension, state that lack of spare money is the reason for it. Of those who have no pension, 31 per cent plan to start saving in one to five years, but more worrying is that 42 per cent think it is too late to start a pension at this stage in their lives.

In 2019, 62 per cent of working adults have a pension. They are contributing €220 on average to their pension scheme each month. Of these, less than half are happy with the size of their personal contribution and 76 per cent would like to be able to save more. According to those surveyed, the average annual income needed to lead a normal life in retirement is €26,747.

Longer life expectancy and working lives might lead some to think that retirement is a long way off, but the sooner you start saving the better. The picture of life in retirement is going to look different for everyone, but it’s worth thinking about what lifestyle you would like, how much that will potentially cost and the income you will need to sustain that.

The message is getting out there that there are tax incentives for people saving into a pension. Almost 60 per cent are aware that everyone who makes pension contributions is entitled to tax relief and 55 per cent know that part of their pension funds can be taken tax-free upon retirement. However, 61 per cent admit that they don’t understand how pension savings are invested, which is up 3 per cent on last year’s figures.

Pensions might seem complicated but they don’t have to be. Engaging with a financial adviser is a good starting point. They can help demystify pensions and investments and get you started on a savings journey that will work for you and planned life in retirement.

Safeguard your business with Key Person Insurance

Following on from last month, this article is aimed once again at business owners. As an employer, you know that running a great business means having a team of great people, but there may be one person who stands out as being a key player or central in the company's success. This person's knowledge, work, or overall contribution is considered uniquely valuable to the company. How would your business cope if that person were to pass away, or become seriously ill? 

What is Key Person Insurance?

This is a business-specific life insurance (also known as Business Protection) which can compensate a company for the financial loss and other consequences of the death or serious illness diagnosis of an important member of the business.

How does it work?

You can take out Key Person Insurance at any stage of your company's lifetime. You will pay a premium on a regular basis, based on the cover that is required. If the unexpected happens and this person dies, or becomes seriously ill, the policy will provide a lump sum to compensate for this event. This can be used to offset any financial losses incurred. It can also be used to contribute to bank loans where the key employee gave a personal guarantee, or to pay off loans made to the company by the key employees.

Product features

·         Protection: If a key employee dies, a cash sum is paid to help maintain the business.

·         Continuity: Can help minimise interruption to business activity.

·         Financial assistance: Can help with bank loans that involved the key person.

·         Staffing: Can help provide resources to find a suitable replacement for the employee.

Who is Key Person Insurance for?

This kind of life insurance can be taken out by a company of any size, where there is a need to protect against the loss of an extremely valued employee of high financial or strategic importance to the business. Deciding on the sum of money to insure the key person is dependent on the company and the reason for insuring that individual.

Why take out Key Person Insurance?

Availing of this kind of life insurance can give additional security to your business, as it safeguards against the loss of a key employee. As an employer, it can bring you peace of mind in the knowledge that you are protected from the financial fall-out due from the death or incapacity of a very important member of your staff.

Attention Business Owners……

If you own a percentage shareholding of any business, have you a plan in place in the event you pass away to ensure your estate or beneficiaries will get the full value of your shareholding? Can your company afford to compensate your estate/family or buy back this shareholding?

Shareholder/Directorship Protection is an arrangement between company directors, which allows for a deceased’s directors share of a company to be bought by the remaining Directors.

What are the advantages of Directorship Protection?

1. In the event of a director dying, the remaining directors participating in the agreement retain control and ownership of the company as they buy back the deceased director’s share.

2. The next of kin are bought out of the company by the remaining directors at market value and can therefore realise the cash value of the deceased’s share shortly after death.

3. The company/directors do not have to find the funds to cover the cost of the deceased shareholding.

4. It is a relatively straight forward shareholders plan.

How does this work?

There are two main parts to this arrangement:

1. The Legal Agreement between the directors to regulate the position on death.

2. The Life Assurance on each director’s life to provide the funds to the remaining directors to make a payment to the deceased director’s next of kin.

The solution outlined above can be achieved in one of two ways:

• Personal Shareholder Protection - The shareholders enter into a personal agreement with each other to "buy out" a deceased shareholder's shares in the event of his/her death. To provide the funds to fulfil their personal obligation under the agreement, each shareholder personally effects life assurance cover which is payable to the surviving shareholders on his/her death. The proceeds of the life assurance policy are used to "buy out" the deceased's next of kin in line with the agreement.

• Corporate Shareholder Protection - In this case the company enters into a put / call agreement with each of its shareholders to buy back shares from their personal representatives in the event of death. The company takes out a life assurance policy on each shareholder, to provide funds to enable the company to fulfil its obligation under the agreement. In the event of death, the proceeds of the life assurance policy are payable to the company, to be used to buy back shares from the deceased's next of kin.

Life Insurance vs Death in Service Benefit

Life insurance pays out a lump sum if you die or suffer a critical illness (depending on the type of cover you hold), helping your dependents to cope financially.

Death in service is similar. Death in service may be offered by companies as part of an employee’s benefits package. It’s paid out as a tax-free lump sum if you’re employed by the company (i.e. on the payroll) at the time of your death. Your employer will be able to explain how this benefit is calculated.

Some people may be unsure if they have death in service, while others may not know if it would be enough for their family to live on. Also, those who have this benefit may not realise they could gain from taking out life insurance too.

Death in service benefit is not taxable, but it can vary (though it is typically two to four times your annual salary). It can be linked to a company’s pension scheme, and you’ll need to be signed up to it to qualify for the benefit. Be mindful that tax is based on your personal circumstances and may change in the future.

The pay-out of a life insurance policy depends on the cover you have – meaning you have the freedom to decide how much your beneficiaries get, not your employer. While a life insurance pay-out is also free of income tax or capital gains tax, bear in mind it could form part of your ‘estate’ – your overall net worth – so may incur inheritance tax.

With death in service there’s no annual or monthly premium to pay – you just need to be employed to benefit from it. You’re required to make regular payments for life insurance, but your family or named beneficiaries could receive a higher pay-out in the event of your death.

It’s also worth remembering that if you leave the company where death in service is offered, you’ll no longer be covered. You are unable to assign your death in service benefit to cover your mortgage, but your beneficiaries can decide to use the money towards repaying a mortgage.

Most people who are not members of a death in service company plan can take out their own policy. The reason you might do this is because you can get tax relief (like your pension) on the premium cost of the life cover. So, if for example, the cost of your cover was €100 per month and you were on the higher rate of tax you may receive up to €40 a month tax credit.

Start Protecting Your Child’s Future

Ever since your children entered the world, you’ve done everything you can to protect them, giving them endless love and attention.

But what about protecting your little ones’ financial futures? As a good friend quoted, ‘the days are long but the years are short’. So the earlier you start taking steps to securing a happy financial future for your kids, the better.

Life insurance

If life insurance has never been a priority, now that you have a family, it could be the ideal time to make it one. Having cover in place will help protect your loved ones if something were to happen and they were no longer able to rely on your income.

Similar to other types of cover, you can tailor your life insurance to suit your needs, choosing from different levels and a range of optional extras.

For instance, critical illness cover can be added to your policy so that if you were diagnosed with an illness covered by the plan, you will receive a cash sum. This money can help to relieve the financial worries associated with critical illnesses, covering time spent off work, ensuring you can still pay household bills, and funding specialist treatment.

And what would happen if you were forced to take a prolonged period of time off work? Adding income protection to your life insurance policy would replace some of your earnings if you can’t work.

Make a will

Not the most pleasant task – but if anything were to happen to you, you want to be certain your family is provided for and cared for by the people you would choose.

You can either write a will yourself, hire a solicitor or use a will-writing service; make sure you research each option thoroughly before deciding, as they all have pros and potential drawbacks.

Part of the process involves you appointing an executor, who will be responsible for carrying out the instructions left in your will. Executors need to be aged over 18 and can be listed in your will, so it could be your spouse or family member.

Savings options

Driving lessons, college, weddings may all seem like a world away, but planning how to build a savings pot to help fund your children’s future will give you a head start.

With the aid of our new financial planning tool we can highlight how best to use your money in order to plan for you and your family’s future. This tool processes all your incomings and outgoings to give a clear picture of where you stand financially, guiding you to make the correct decisions.

Life Check-Up

When you apply for life insurance, you may be asked to complete a medical exam. While the life company will pay for this medical exam, it is also worthwhile booking a medical check-up whether you are applying for insurance or not.

What does a health check-up test for?

The medical check-up determines your risk of developing a range of health problems, such as heart disease, kidney disease, stroke and diabetes. It also provides you with an opportunity to gain practical advice on how to minimise the risk of developing these issues.

Unfortunately, leading a healthy lifestyle doesn’t mean you won’t develop health issues, though it will limit your risk. A medical check-up can flag problems before they develop into something more serious.

What to expect from a medical health check

A health check generally lasts around 20-30 minutes and is usually carried out by a nurse, but it could be another healthcare professional. You shouldn’t need to prepare anything in advance, but it’s always worth asking the health centre you’re booked in with.

During the check-up, you may be asked: 

• If close relatives have had the illnesses you’re being assessed for

• If you smoke and how much

• If you drink alcohol and how much

• What your typical diet is like

• How much exercise you do                                                                                                                          

After this, you’ll undergo a series of simple tests and measurements, including:

• Your weight and height to determine your body mass index (BMI) and your waist may be measured

• Your blood pressure will be taken using a cuff on your upper arm

• A small sample of blood will be taken from your finger to check cholesterol and possibly blood sugar level

In most cases, you’ll receive the results immediately. You’ll be given a risk score (the higher the score the more likely you are to develop one of the illnesses) and will receive advice on how to adapt your lifestyle to lower risk.

What are the benefits of a medical check-up?

According to the Irish Heart Foundation, in 2016 more than 9,000 people in Ireland lost their lives to cardiovascular disease with almost half dying from heart disease.

The Irish Heart Foundation argues that in many cases, heart disease and stroke are preventable. Lifestyle changes such as regular exercise, having a healthy diet and stopping smoking, can have a positive impact when treating diabetes, high blood pressure and cholesterol.

What now?

Choosing the right life insurance cover for you and those closest to you is important and will provide many great benefits and peace of mind. Don’t let the fear of a medical check-up hinder your decision.