Will hus­band’s pen­sion pro­vide for fam­ily?

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

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.

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