Tax planning strategies before the end of the year

The end of the financial year is quickly approaching and now is a good time to take some prudent steps to reduce your tax bill and put yourself in the best position for the next financial year. All too often tax planning is left to the last minute.

We have noted some of the most popular ways we help our clients to reduce their annual tax bills.

Annual CAT Gift Exemption – If you receive a gift, you may have to pay gift tax on it. If you receive an inheritance following a death, it may be liable to inheritance tax. The benefit (the gift or inheritance) is taxed if its value is over a certain limit or threshold. Different tax-free thresholds apply depending on the relationship between the disponer (the person giving the benefit) and the beneficiary (the person receiving the benefit).

However, CAT/Gift tax legislation allows for an exemption for the first €3,000 of any gift taken by a beneficiary from any one donor. This is an annual exemption, which means that a beneficiary can receive up to €3,000 tax free in any one year from any donor, or even multiple donors and this gift will not impact their tax-free threshold for inheritance tax purposes.

Therefore, for example, Parents can gift €6,000 per annum tax free to each of their children, multiply this over many years and you can see why this is a very effective means of transferring assets to the next generation in a tax efficient manner.

Capital Gains Annual Exemption – Capital Gains Tax (CGT) is a tax charged on the capital gain (profit) made on the disposal of any asset. It is payable by the person making the disposal. The gain/profit (the difference between the price you paid for the asset and the price you sold it for) is considered taxable income.

The first €1,270 of taxable gains in a tax year are exempt from CGT. If you are married or in a civil partnership this exemption is available to each spouse or civil partner. Current year losses in a year can be used to offset a gain and can be carried forward, however losses cannot be carried back to a previous year.

Pension Contributions – Pension contributions provide a means of paying less income tax. Up to Revenue Limits, contributions to a pension qualify for relief from income tax. This effectively means that, where the higher rate of income tax is 40% and you are a higher rate taxpayer, a €1000 contribution to your own pension will only have a net cost to you of €600 – had you not made the contribution, the other €400 would have gone to the government as income tax.

Income Protection – permanent health insurance policies receive full tax deduction at marginal rates of tax (this can be as much as 40% for top rate earners). If an individual is paying for this cover personally, they need to contact Revenue to claim the relief on premiums made.

Employment and Investment Incentive Scheme (‘EIIS’) – Did you know that the EIIS is one of the few remaining sources of total income relief? The EIIS is a tax relief incentive scheme, which enables investors to deduct the cost of their qualifying investment from their total income for income tax purposes for investment in qualifying small to medium sized companies. Tax relief is traditionally available in two tranches: an initial 30% in year one with a further 10% when additional criteria are met in year 4.

An individual with a taxable income liability in the year the EIIS investment is made can obtain tax relief from the following:

      • PAYE earnings
      • Rental income from property held in a personal capacity
      • ARF distribution income

Medical Expenses: If you pay medical expenses that are not covered by the State or by private health insurance, you may claim tax relief on some of those expenses. These can be your own health expenses, those of a family member or any individual’s, as long as you paid for them. You receive tax relief for health expenses at standard rate of tax, 20%.

Nursing home expenses are given at your highest rate of tax, up to 40%.

Older Person’s Relief’s & Credits: If you are aged 65 or over, you are liable to pay income tax in the normal way. However, there are tax exemption limits for people aged 65 or over and there are some extra tax credits.

In certain circumstances, you may be able to reclaim any Deposit Interest Retention Tax (‘DIRT’) paid. DIRT is deducted from the interest payable on savings in banks, building societies, etc. This happens whether or not you would normally be liable for tax. If you are aged 65 or over or your spouse or civil partner is aged 65 or over or if you are permanently incapacitated, you may not be liable for DIRT if you are exempt from income tax. You can notify your financial institution so that they can pay your interest without deducting DIRT.

In summary, the 2 important dates to remember in 2017 is the Pay and File deadline for self-assessed income tax payers on the October 31st, however by using the Revenue Online System (‘ROS’) to both pay and file online, you’ll benefit from the extended deadline of 16th November 2017.

My advice is to look at the end of the financial year as an opportunity to discuss your tax and financial planning strategies with your Certified Financial Planner (CFP), Tax Advisor, Solicitor or Accountant. Take the time to consider your retirement planning, insurance requirements, education funding and any other areas of your financial planning, as well as your tax return.

Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth Management, a Financial Planning practice based at 27 Cook Street, Cork. For more information, contact Gerard at

Disclaimer: All data and information provided within this article is for informational purposes only. Heritage Wealth Management Limited makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages arising from its use.