How to avoid the common tax traps
As the festive season becomes a distant memory, it’s back to the business of making and saving money — and the dawn of a new year tends to focus minds on lessening your contribution to the tax man. In my previous article two weeks ago I outlined five tax-saving tips, and readers’ queries have prompted me to cover another five topics that frequently arise in my dealings with farmer clients.
Pre-succession health check
All too often I encounter situations where a tax problem has emerged that could have been avoided with a bit of forward planning. This occurs most frequently when somebody dies unexpectedly, and their successor is hit with a large tax bill.
This can happen for a variety of reasons — Agricultural Relief or Business Relief may not have been available to the successor due to their particular circumstances.
In many cases a problem could have been avoided if advice had been sought, particularly before making or revisiting a will.
When you are planning to pass on all your worldly goods, you should set up a meeting with your accountant or tax advisor.
Claiming all health expenses
Many people are a bit lazy when it comes to retaining all health expense receipts. Health expenses attract unlimited tax relief at 20pc, so discarding a doctor’s receipt for €50 is the same as throwing a tenner in the dustbin.
How many readers can say with certainty that they have retained all of their 2023 medical receipts?
Tax-allowable life insurance
Certain types of life cover are allowable against tax, which can represent a significant saving.
Providing the policy is not required for the purpose of securing bank debt and providing it does not have a surrender value, it can be issued in a format whereby the premiums are tax-allowable.
People contemplating taking out life cover or indeed those with existing cover should consider this option if the conditions of claiming relief can be met.
Having a financial advisor review your existing life cover might prove well worthwhile.
Registering children as employees
A child can earn up to €8,250 without incurring tax, so paying wages to your children through the PAYE system can save a significant amount of tax.
Under labour law a person aged 14 or 15 may be employed for light work provided it does not interfere with their schooling. Children aged 15 may do eight hours a week light work in school term time. The maximum working week for children outside school term time is 35 hours.
The maximum working week for people aged 16 and 17 is 40 hours, with a maximum of eight hours a day.
Revenue will require that the wages are actually seen to be paid and are not simply an adjustment to personal drawings. This could be achieved by a bank or Credit Union account being opened in the joint names of the parent and child.
Once the child is eventually seen to benefit from the money in the account, Revenue will have no issue.
The maximum amount you can pay your children will depend on their age and the nature of the work they do, but anything between the relevant hourly minimum wage and the Farm Relief rate should be acceptable.
Enduring power of attorney
While this issue may not necessarily be a tax-saving tip, it certainly may be a cost-saving one.
Single people and the occasional married person who possess everything in their sole name can make for a real problem if they become incapable of dealing with their own affairs.
I have encountered situations where a person suddenly became incapacitated due to perhaps a stroke, and were not capable of attending to their personal and financial affairs. Such situations are simply a mess and should be avoided.
The simple way of dealing with the matter is to grant a close relative or friend enduring power of attorney, which will give them authority to act on your behalf and look after your financial affairs.
Nobody knows when or if they are going to struck down, so the time to act is when you are fit and well. A visit to your solicitor to set up an enduring power of attorney may save you and your successors a lot of hassle.