16 Jan, 2024

Plenty of Ways to Reduce Your Tax Liability

Knowing the options available, and some planning, can lead to significant savings, write Marty Murphy and Stephen Finn. This article was first published in the Farmer's Journal on 11th January 2024.

Farmers are required to file tax returns. There are two options of tax returns available for filing, the Form 11 and Form 12. For most farmers, the relevant tax return for self-assessment is a Form 11. For a farmer to be considered a chargeable person they must:

  • Have farm income of more than €5,000.

  • Have income from other non-PAYE sources such rental income, dividends or deposit interest of more than €5,000.

  • The farmer is a director of a company.

If a farmer is a chargeable person, they are required to file a Form 11 tax return by the 31st of October for the preceding year i.e., the individuals 2023 tax return will be due to be filed by the 31st of October 2024. Revenue will provide an extension of circa 2 weeks for individuals who pay and file online using the Revenue Online Service.

Along with the income tax return, two payments are required to be made. The first payment is the balance of the tax due for the current year. The second payment is for preliminary tax for the following year. If the farmers overall tax calculation for the year results in a refund, that farmer might be entitled to first offset the refund against preliminary tax due for the following year and if there is still a further refund available, Revenue will refund the remainder to the farmer directly. To avoid interest on an underpayment of preliminary tax for 2024, the payment must equal one of the following amounts:

  • 100% of your prior year (2023) tax liability.

  • 90% of your current year (2024) tax liability.

  • 105% of your preceding prior year (2022) tax liability. This option is only available for chargeable persons who choose the direct debit option as a payment method, once the payments are made in a minimum of 8 equal instalments. If it is the first year an individual has selected direct debit as a payment method, the payment can be made in 3 instalments.

The following is an example of how preliminary tax is calculated:

An individual has a tax liability of €10,000 for 2023, in addition to the tax payment they must also pay preliminary tax of €10,000 (assuming 100% prior year option is selected) bringing the total tax payment due on 31 October 2024 to €20,000. The same individual then has a tax liability of €12,000 for 2024, the €10,000 preliminary tax payment already paid is deducted giving a balancing amount due of €2,000, therefore the combined payment due on 31 October 2025 is €14,000 which includes €12,000 for preliminary tax 2025.

A married couple are jointly assessed for income tax purposes with their spouse and benefit from the increased standard rate. Under joint assessment, one spouse is the chargeable spouse and all income of the couple are returned under the name and PPS number of the chargeable spouse. In addition to the standard rate and personal tax credits, certain other expenses can be claimed when preparing a tax return.

Medical expenses

A credit of 20% can be claimed on the tax return for medical expenses incurred in a year. The medical expenses do not have to be incurred by you but must be paid for by you. In essence once you pay a medical expense for any individual you can claim a credit for the expense. Generally dental expenses are not allowable but certain non-routine dental expenses are allowable such as root canals etc. The cost of prescriptions is allowable but are limited to €80 per month which is the maximum amount that a family pays under the prescription government scheme.

Nursing home expenses are allowable as a deduction against your taxable income as opposed to a credit. As such, relief is available at 40% (the higher rate of income tax). Payments made to a home carer for an incapacitated individual are also allowable as a deduction.

Pension contributions

Tax relief is given for contributions made to approved pension schemes. A farmer can claim a deduction for contributions made to approved pension schemes against their taxable income for a year of assessment.

Generally, an approved pension scheme is one of the following:

  • Occupational Pension Scheme

  • Personal Retirement Savings Account (PRSA)

  • Retirement Annuity Contracts (RACs)

Relief is available at both the 20% standard rate and 40% income tax rate. Relief is not granted against PRSI or USC.

The amount of relief available depends upon the individual’s relevant earnings (employed or self-employed income). Investment income will not be regarded as relevant income for the purposes of calculating the relief.

The maximum amount of pension contributions allowable as a deduction in your tax return is calculated using an age-related percentage.

The relevant percentage is outlined in the table below:

AgePercentage Limit
Under 3015%
30 - 3920%
40 -4925%
50 - 5430%
55 - 5935%
60 or over40%

The amount of relevant earnings is restricted to €115,000 per year. If we have an example of an individual aged 57 with self employed farming income of say €60,000. The maximum pension contributions allowable as a deduction is €21,000 (€60,000 @ 35%). The individual can make the pension contribution in the year of assessment or preceding year once the contribution is made prior to the income tax filing deadline. i.e., contributions paid up until 31 October 2024 can be claimed on the 2023 tax return. Any excess pension contributions over the allowable amount can be carried forward and claimed in future years.

College fees

A credit is available for tuition fees paid for third level education courses. To qualify for the credit the fees must be paid to an approved course at an approved college. The credit will only apply to tuition fees and not to any additional fees such as:

  • Administrative fees

  • Student centre levy

  • Sports centre charge

  • Student union levy

The credit is subject to a cap of €7,000 per course, per person per academic year and a disregard amount of €3,000 for full-time courses and €1,500 for part-time courses. The credit is then calculated at 20% of the net amount. Say for example an individual incurs tuition fees of €4,000 on a fulltime course, the credit would be €200 calculated as follows (€4,000 - €3,000) @ 20%. The disregarded amount is only per claim and not per course. If an individual is paying for two college courses only one disregard amount is used. Say for example the same individual incurs tuition fees of €5,000 for a second fulltime course in addition to the first course of €4,000. The credit would be €1,200 calculated as follows (€9,000 - €3,000) @ 20%. You will note only one disregard amount is used; full relief is given on the second course as neither course exceeded the €7,000 cap therefore the full €9,000 can be used in calculating the credit.

In reality, student tuition fees don’t often exceed the €3,000 disregard amount therefore the credit is usually only available where the individual is paying for two or more tuition fees in the same year. It is not uncommon for parents to have more than one child in third level education in the same year. It is important to note that where both full-time and part-time courses are paid for, only one disregard amount of €3,000 will apply.

Increased standard rates

The standard rate is the amount of income an individual will be taxed on at the rate of 20% before moving to the higher rate of 40%. For 2024 the standard rate for a single individual is €42,000 and €51,000 for a married couple with one income. If both spouses have income, the second spouse can receive income of up to €33,000 before moving into the higher 40% tax bracket. The combined standard rate using the increased standard rate is €84,000. If the non-assessable spouse does not have income of €33,000 the increased standard rate is capped at the non-assessable spouse’s income.

If for example, a married couple who are jointly assessed and their income is only in the name of the assessable spouse, only one standard rate of €51,000 will apply. If a portion of the income was in the other spouse’s name, the standard rate would increase to a maximum of €84,000. Under a farming scenario, if the non-assessable spouse does not have off farm income, it would be beneficial to report the farming trade under the names of both spouses and receive the maximum standard rate available.

Case study

The case study below outlines the effect of the topics discussed in this article. At this point I would like to introduce you to John and Mary Power. John and Mary are aged 57 and 54 respectively and have four children Katie (21), Sean (18) Oscar (16) and Aisling (14). Katie is currently in her final year of business commerce in UCD, Sean has just finished secondary school and has not yet made up his mind if he will go to college or not. Oscar and Aisling are both in secondary school. Sean is interested in farming but unsure if he wants to farm on a full-time basis, his younger siblings seem more interested in farming at the moment.  To give himself time Sean has decided, with the support of his parents, to undertake the green cert qualification on a part-time basis at Gurteen College.

As Mary took early retirement from teaching several years ago, the families only income is from John’s farming trade, in 2024 the farm is expected to have a net profit of €120,000.

Additional information

  • Medical expenses of €1,000 for the entire family paid by John.

  • Tuition fees of €5,000 for Katie and Sean.

  • John and Mary are jointly assessed, with John being the assessable spouse.

  • Personal tax credit for 2024 is €1,875 or €3,750 combined for John and Mary.

  • Earned income tax credit for 2024 is €1,875.

1)     Ignoring PRSI and USC Johns income tax liability for 2024 is as follows:

Taxable income120,000
Tax as follows:
51,000 @ 20%10,200
69,000 @ 40%27,600
Total income tax37,800
Less tax credits
Personal tax credit (x2)3,750
Earned income tax credit1,875
Tuition fee credit (€5,000 - €3,000) @ 20%400
Medical expense credit (€1,000 @ 20%)200
Total tax credits6,225
Tax payment due by 31 Oct 2025
Net tax payable for 202431,575
Preliminary tax due for 202531,575
Total tax payment63,150

2) The farming trade is returned under joint names of John and Mary

Taxable income120,000
Tax as follows:
84,000 @ 20%16,800
36,000 @ 40%14,400
Total income tax31,200
Less tax credits
Personal tax credit (x2)3,750
Earned income tax credit (x2)3,750
Tuition fee credit (€5,000 - €3,000) @ 20%400
Medical expense credit (€1,000 @ 20%)200
Total tax credits8,100
Tax payment due by 31 Oct 2025
Net tax payable for 202423,100
Preliminary tax due for 202523,100
Total tax payment46,200

3)     The farming trade is returned under joint names of John and Mary with maximum pension contributions.

Net income120,000
Less pension contributions
John (€60,000 @ 35%)21,000
Mary (€60,000 @ 30%)18,000
Total pension contributions39,000
Taxable income81,000
Tax as follows:
81,000 @ 20%16,200
Total income tax16,200
Less tax credits:
Personal tax credit (x2)3,750
Earned income tax credit (x2)3,750
Tuition fee credit (€5,000 - €3,000) @ 20%400
Medical expense credit (€1,000 @ 20%)200
Total tax credits8,100
Tax payment due by 31 Oct 2025
Net tax payable for 20248,100
Preliminary tax due for 20258,100
Total tax payments16,200
Pension payment39,000
Total tax and pension payments55,200


You will note from the above computations that the lowest of all tax payments is option 3 with John and Mary making the maximum pension contributions each. While this results in the lowest of the tax payments, the combined payment of the pension contribution results in the highest overall payment. Making pension contributions is not always an attractive option to all individuals as it may not be beneficial due to a current cashflow shortage. For those in a position to make contributions it is worth while as tax relief is granted at 40% and the funds are invested for the future benefit of the individual.

In cases where the non-assessable spouse does not have income, it is beneficial to transfer income streams to them to exploit the increased standard rate band.