13 Dec, 2019

The Christmas gift that keeps on giving

Ifac are encouraging farmers to give themselves a gift this Christmas that delivers a range of tax benefits

Ifac is encouraging farmers to give themselves a gift this Christmas that delivers a range of tax benefits.

This Christmas, the very best gift could be one for themselves and their loved one/spouse. And, with tax relief on the monies they invest, tax-free growth on the assets, and a tax-free lump sum at retirement, there are many reasons for farmers to start saving for their retirement this December. One such benefit is that income tax relief is available against your self-employed income for pension contributions. Tax relief is given at your marginal (highest) tax rate – there are limits based on your age, but the relief is more generous as you get older. CSO figures from April 2019 indicate that two-thirds of self-employed people are not saving for retirement and availing of the tax breaks. Additionally, ifac’s Irish Farm Report 2019 also found that only 32% of those aged over 65 have a pension in place for themselves and their spouse, and one in five of those aged 40-65 have no pension plan. The report contains the results of one of the most comprehensive farm surveys ever undertaken in the history of the state.

Martin Glennon, Head of Financial Planning, said: “Christmas is just weeks away and while it may appear a little early to be thinking about presents, it’s never too early to invest in your pension fund. One of the key reasons so few are using these tax-efficient savings plans is that they are not aware of the breadth of tax breaks these plans enjoy. And, there is a huge opportunity for farmers to get started. Our Irish Farm Report 2019 found some worrying trends across the farming community when it comes to personal financial planning, with 32% of over 65s saying they have no household pension.”

So how do pensions deliver tax breaks? With most investment assets you purchase, Revenue takes their cut on the income you earn e.g. rent and dividends (up to 40% tax). Then on the sale of the asset, they take their cut on any profit via Capital Gains Tax (33% tax). For example, a €200,000 investment over five years in a property that grows in value by 3% per annum and has a rental yield of 4% per annum, will give a net profit of €45,343 (based on 40% income tax on rent and 33% CGT). Yet, the exact same investment in a pension account will give a profit of €71,854