Will husband’s pension provide for family?
Partner, Fagan & Partners (www.f-p.ie) the interest cost of the tracker mortgage. On the rental properties, your rental income exceeds the mortgages on the two rental properties — so you are being taxed on any rental profit. Assuming you have registered the properties with the Residential Tenancies Board, you can claim mortgage interest relief (which is currently granted at a rate of 80pc) to reduce the taxable profit. If you clear either mortgage, your taxable income will increase, as you will no longer be able to claim this mortgage interest relief. If you clear either of the mortgages, check that the mortgages are not cross-charged — that is, where one property acts as security for another.
If you did decide to sell the rental properties, you may have to pay capital gains tax if the properties have increased in value since you bought them.
You explained that you will have to repay the full €230,000 interest-only mortgage at the age of 70. So at that stage, you may have to consider selling an asset to repay the mortgage, if you have not already sold the properties by then.
You say you may not want to be managing property for too long after retirement, so you could consider using a professional estate agent to do this for you. The estate agent’s fee would be deemed a rental expense, which you can write off your rental income tax bill, and the agent should be able to take over a lot of the hard work, such as letting the property, vetting tenants, organising repairs and collecting rent. bill by doing so — am I correct in thinking this? If the tax bill would be lower than the one I would face if I used the money in the fund to pay me an annual pension, I see a certain merit in withdrawing all the funds now, as I will have the freedom to do whatever I want with it. What would your advice be here? James, Rathfarnham, Dublin 16 WHEN you retire and withdraw your tax-free lump sum, you will normally be offered a wide range of options in writing by your provider, Irish Life. Typically, these options are to buy a guaranteed pension annuity (which pays you a guaranteed income in retirement for a certain amount of time) or an impaired annuity (an annuity which is available if you have health problems or where your lifestyle is likely to reduce your life expectancy); to invest in a non-guaranteed Approved (Minimum) Retirement Fund (which is a post-retirement investment policy); to cash in the balance left in your pension fund (this would be subject to income tax) — or a combination of the above. You should seek independent advice and a comparison of each option.
As you explained, you are already in receipt of joint pension income in excess of €52,000 per year. If you withdrew the full balance from the €360,000 (after drawing down your tax-free lump sum), you will lose over half of it to income tax, Universal Social Charge (USC) and PRSI (if you are liable for PRSI). Any interest or gains you generate on the after-tax proceeds may also be taxed each year. For example, Dirt on deposits is currently 39pc, exit tax on life assurance investments is 41pc, and Capital Gains Tax is 33pc.
Let’s assume you choose an Approved Retirement Fund (ARF) as your post-retirement pension option. You own the funds and can withdraw them as you wish, subject to a minimum withdrawal of 4pc annually from the age of 61 and 5pc annually from the age of 71.
This gives you the freedom you mention. Also, any interest you earn within the ARF is taxfree — unlike the 33pc, 39pc and 41pc tax rates mentioned above — so it should grow at a faster rate than a similar taxed investment.
You would also own and control your ARF for your lifetime. This means that on death it can pass to your estate to your spouse tax-free as an ARF — or you can pass it to children. Your ARF can be passed to children who are under 21 as a taxable inheritance — or to children who are older than 21 with a 30pc income tax charge.
The other benefit of the ARF is that you can move it to an annuity at any time, or encash it wholly or partly at any stage.