While the Government has been busy closing off and reducing the amount of tax you can claim back, significant savings can be made by claiming what’s available
LOOKING FOR SOME relief on your tax bill to help boost your income? Well unfortunately, it’s no longer very easy to find. Mortgage interest relief is set to be phased out by 2017 and will no longer apply on new loans from the end of this year; relief on medical expenses has already been reduced to the standard rate; while relief on bin charges has been abolished since the start of this year.
Fear not though. If you want to claim some of the €780 back that you may be forking out to pay for your water meter, or the estimated €1,000 on property tax, there are still some options out there.
FILM FINANCE
Maybe you loved the first series on RTÉ so much you bought the DVD of the second – but would you be willing to invest in the third series of acclaimed drama Love/Hate?
If so, then applying for tax relief under section 481 may be just for you. Created to help promote Ireland as a location for film production, the scheme offers tax relief for individual investors looking to offset their annual tax bills.
Love/Hate is just one of the options currently deemed eligible by the Department of Arts, Heritage and the Gaeltacht to raise funds under the scheme, with other options including TG4’s soap Ros Na Rún (series 17); animated TV series Octonauts (series 2); Vikings, a €32 million television drama series which is presold to MGM, and Last Days on Mars, a feature film which stars Liev Schreiber.
Last year the scheme was extended to run until 2015, following an enhancement in 2008. This means that investors can now invest up to €50,000 in a year (€100,000 for a married couple), up from €31,750, which effectively doubles the tax relief available to €20,500.
According to Eddie Murphy, a financial advisor with Acumen Trust, the scheme remains popular with investors. Indeed in 2011, 2,655 investors availed of the scheme according to the Revenue Commissioners.
However, while interest remains, Murphy points out that it may be more difficult to find a production to invest in, given the moves made by the UK in recent years to make it a more attractive location. But if you do find a production you are happy to invest in – and Murphy suggests you look for one that is pre-sold, which reduces the risk – section 481 can help you reduce your tax bill.
For many, the big selling point of film finance is that it is relatively low-risk and typically provides a return within 12 months. Moreover, if you avail of bank financing from Permanent TSB, which appears to be most active in the sector, you won’t have to put any money up front, although financing can add costs of about €250-€300 to the transaction.
According to Murphy, about 20-25 per cent of people actually put up the personal equity – 5 per cent put in the total investment, while 70 per cent opt for the standard financing.
If you are eligible to invest the full €50,000, you could be looking at a net gain of about €4,000 from the transaction.
Remember, though, that while it appears attractive, it is not without risk. While you will still benefit from your tax rebate if the film is not deemed a commercial success, you do stand to lose your money if the film is not produced.
EIIS
Since 1984, the Business Expansion Scheme (BES) has allowed companies to raise much- needed funds from individual investors – while at the same time allowing these investors to avail of tax relief on their investment.
Last year it was replaced with the Employment and Investment Incentive Scheme (EIIS), which means that investors no longer have to wait five years to benefit from their investment in eligible companies. Now, the investment term runs for just three years, while a wider scope of companies can apply for eligibility.
Moreover, the amount eligible for tax relief has been increased to €150,000 a year. However, the tax relief is now structured differently. While 30 per cent is available on investment, the remaining 11 per cent is dependent on whether the company meets certain employment or RD requirements over a three-year period.
So far, some 58 companies have applied for funding under the new EIIS but it is likely that more will apply as the year progresses, particularly given the tight credit environment. Last year, some 352 companies applied for funding, raising €41 million. Rather than invest in one company, investors can also hedge their bets by opting for a fund, such as that run by Davy and BDO, which invests in several companies and promises returns of up to 12 per cent.
PENSIONS
It is a tough time for pension investors, given the turbulence that continues to reign on global financial markets, the downward pressure on incomes and the ongoing uncertainty that surrounds tax relief, while the 0.6 per cent levy on pension funds is also dissuading people from investing. Against this background, it is estimated that pension contributions have fallen by about a third.
For now, however, it is still possible to get tax relief at the higher rate of 41 per cent on pension contributions. This means that for every €100 you contribute to a pension fund, it will actually only cost you €59, provided you pay tax at the higher rate.
Of course while this is attractive, with the impact of the universal social charge, etc, you may well be paying tax at more than 50 per cent on your pension in retirement. While the prospect of reducing pension tax relief to the standard rate was fended off in the last budget, it is still likely to change.
As Minister for Finance Michael Noonan said at the time, the current regime will still have to be reformed “to make the system sustainable and more equitable over the long term”. If this were to happen, advisers warn that pensions would no longer make economic sense for investors. “Our view would be that doing that could possibly be the nail in the coffin for pension plans,” says Rachael Ingle, managing director of Aon Hewitt.
So for now, the advice is to maximise your contributions to avail of as much tax relief as you can. “It’s a no-brainer to put the money in now,” Ingle notes.
COMMUTING COSTS
If you use the bus, Luas or rail services to get to work every day, you could significantly save on your costs by buying a taxsaver commuter ticket through your employer.
Under the scheme, you are entitled to receive annual, monthly and part-yearly (Bus Éireann only) commuter tickets tax and PRSI free as part of your salary package. The only caveat is that to claim tax relief, the ticket must be purchased through your employer. The savings are significant, especially given the increases in the overall tax burden due to the universal social charge.
For example, an annual Dublin Bus ticket will set you back €1,050, but if you pay tax at the standard rate, you can buy one for €724.50 through your employer or for just €504 if you pay tax at the higher rate – so you could save up to €546 a year.
Or how about an annual bus ticket for Limerick city? At a total cost of €638, you could save almost €200 a year by applying for the scheme if you pay tax at 20 per cent, or €331.76 for higher rate taxpayers.
RENT RELIEF
If you have been renting and haven’t claimed any relief on the cost of your rent over the past four years, you could be in for a sizeable refund. Relief is available at the standard rate up to a maximum of €1,200, which means that provided you have spent more than that on rent over the course of a year, you are entitled to a refund of €240.
Last year alone, for example, Taxback.comclaimed over €1.5 million in rent relief on behalf of clients from the Revenue.
You are entitled to claim over the past four years. Relief was previously granted at a higher rate – €320 in 2011 for example – so it is worth ensuring that you check out how much you are eligible to reclaim. If you are aged over 55, you are entitled to a greater level of relief (€640 in 2011 and €480 in 2012).
Claiming tax relief on your rental costs also encourages landlords to register with the Private Residential Tenancies Board (PRTB), which may ensure a higher standard of accommodation is available in the market.
Remember, that like many other reliefs, this is being phased out by 2017 so act now to avoid disappointment.
