Tax Magic 2008
Alan Moore
www.alanmoore.ie
Cash flow quadrant
Employee
Self-employed
Business owner
Investor
Rich Dad Poor Dad
Rober Kiyosaki
Tax inefficiency tax is the largest controllable drain on your
wealth; get advice in time (not after the event)
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Tax consequences of where you are in
the cash flow quadrant
Investor
Lower tax, more room to manouvre
Investor 0% to 20%
Self-employed
Tax room to manouvre
Business owner
Low to zero tax, option to go nonresident
high tax, more room to manoevre,
long hours
Business owner 20% to 47%
Employee
high tax, little room to manouevre
Self-employed 47%
Employee 48%
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Your mission, should you choose to
accept it.
Move from employee to investor: Become financially independent
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As an employee, you can save tax by
Becoming a dual income couple
Taking a tax-free termination payment
Higher of: 10,160 + 765 for each year of service (+10,000) or SCSB
Average salary for the last three years of service
X number of complete years of service in the last 15 years
Less the relevant capital sum present value of your right to opt to take part
of your pension as a tax-free lump sum
Claiming seed capital relief
One income 44,400 at 20%; two incomes 2 x 35,400 at 20%
Employee, own business, certificate from CEB, Forbairt; 6 x 150,000
Receive tax-exempt income for childminding (15,000 p.a.)
Taking in lodgers (rent-a-room relief -10,000 p.a.)
Receiving tax-free travel and subsistence expenses
Travel: 78.32c per km record all journeys in diary
Subsistence: > 5 miles from base, > 5 hrs, 16.95 per day
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As an employee, you can save tax by
Realising a gain on the exercise of a Revenue approved share option
20% instead of 46.5%
Receiving a tax-exempt benefit in kind (BIK)
Employer pension contributions (but not salary sacrifice)
Bus/train/LUAS ticket (annual/monthly)
Subsidised on-site creche facilities
Mobile phone, computer, broadband access (private use incidental)
Relevant professional subscriptions
Pension contributions
Health/dental expenses
Employee share purchase
Film relief 25,400 p.a. ..BES relief 150,000 p.a.
Covenant to elderly or incapacitated relative 5% limit
Maintenance to ex-spouse (not to children)
Becoming self-employed.
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Becoming self-employed
Contract for services (independent contractor) v contract of service
(servant)
Must be your own boss can come and go as you please
Multiple customers
You take on business risk
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As self-employed, you can save tax by
Business expenses (cant claim entertainment)
Cant claim: private or non-business expenditure
Can claim interest relief on business borrowings
Capital allowances
12.5% per annum for plant and machinery/furniture and fittings
As regards cars bought or leased on or after 1 July 2008, the capital allowances, and leasing
deductions, are based on the level of carbon emissions. Cars with emissions above 190g/km get
no allowance
Up to 50% for commercial premises in renewal incentive area
Losses (e.g., buy a farm, offset farming losses)
Donations to Revenue-approved bodies (charities)
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As self-employed, you can save tax by
Self-administered pension scheme (SAPS) = tax-free growth (no
income tax or capital gains tax)
Age <30 15% of earnings
30-39 20% of earnings
40-49 25% of earnings
50-54 30% of earnings
55-59 35% of earnings
60+ 40% of earnings
Annual earnings limit 262,382 (254,000 indexed)
On retirement, 25% as tax-free lump sum, transfer balance to approved
retirement fund (ARF)
Max fund 5m, max 25% on retirement - 1,291,250 (1.25m indexed)
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As self-employed, you can save tax by
Creating your own pension-backed mortgage
Ideal if in your 40s (20 years of growth)
Buy property interest only
Invest what would have been the capital repayments in self-administered
pension fund
Tax-free growth
Pay off loan with 25% lump sum on retirement
Result:
1. tax-relief on interest
2. tax relief on capital payments (pension contributions)
3. balanced risk (equities v properties)
4. Can also get capital allowance on property if in renewal area
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Problems of being self-employed
PAY and FILE
31 October 2008 = 2008 tax + 2007 return
31 October 2007 = 2007 tax + 2006 return
Pay 90%, 100%, 105%
Late filing surcharge 5% then 10%
Interest 0.0322% a day
Prosecution
VAT
must register for VAT if turnover exceeds threshold, i.e. if
17 November for electronic filings
Turnover from supply of goods > 75,000 per annum
Turnover from supply of services > 37,500 per annum
Basis invoice/cash (<1,000,000 in year)
File VAT 3 return every two months
Issue VAT invoices
Records, audit
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Becoming a business (company) owner
Advantages 12.5%
Preliminary tax 90% of liability
Instalment one month before end of accounting period
Filing nine months after accounting period ends
Disadvantages double taxation (income and gains)
Putting property in a company AVOID
However, if you can sell the property with the company (e.g. pub, it
may make sense and allow faster pay down of debt)
Also, for UK property, company may make sense
But how do you get the money out?
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Extracting profits from a company
Salary, dividends 47%
Liquidate and transfer to New Co (but watch s 817 mirror
shareholdings) or partnership
Tax-free termination payment
Company funds pension
Rent premises to your company
Share buyback (must be to benefit the trade, and reduction to 75%
of previous holding)
Tax-free mileage/subsistence
Stamp duty on acquiring residence
Redeemable preference shares
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Investing (creating or extracting value)
Why invest? To provide for your future financial
independence
Assets that work while you are asleep; residual income
Income (positive cash flow)
+ Capital appreciation (increase in value)
Less cost (interest, stamp duty, maintenance, etc)
= Overall return
Investment is not speculation (buy in the hope of capital
appreciation)
Flipping buy off plans and sell on is speculation (unless
you have buyers already)
The Irish property market
Downturn
Strong capital appreciation for 10 years
Foreign markets
Economic fundamentals, higher yields, better capital appreciation
prospects
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Investing
Learning to spot a good deal (20%+ p.a. over 1-4 years)
Learning to quickly evaluate and dismiss opportunities that do not
meet your investment criteria those that get through are the
deals
Learning to finance a good deal (banking connections)
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Risk and reward
cash, bonds, shares
venture
capital
cash
bonds
quoted
shares
0-3.5%
2-4%
7-8%
private
shares
8-15%
lower risk
lower reward
0-100%+
higher risk
higher reward
property
Ireland
UK
Holland
France
Germany
US
0-3.5%
2-7%
7-8%
Hungary
Poland
Czech
Slovakia
8-15%
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Bulgaria
Romania
Croatia
Serbia
Ukraine
0-100%+
As an investor, you can save tax by
Gains (20%) instead of income (46.5%)
Shelter rental income with section 23
Shelter rental income with capital allowances, hotel schemes
Expenditure in 2007: 75% relief
Expenditure 2008: 50% relief
50% in year one (initial, accelerated)
4% per annum thereafter
Against non-rental income: max 31,750 in year (63,000 if both partners have rental
income)
If you are non-domiciled (or non-ordinarily resident), by not remitting
income/gains outside Ireland
Moving to Northern Ireland and being non-domiciled there
Realising gains while non-Irish resident
Resident if
>183 days in current year (2008)
>280 days in current + preceding year (2008 + 2007)
Ordinarily resident if
Resident for previous 3 years (2007, 2006, 2005)
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Passing assetstax-free
No CGT for transferor
Retirement relief, disposal of business or farm
To children no CGT
Outside family, 750,000 limit on proceeds
Site to child (500,000) - limit
Disposal of your principal private residence (can shift)
No CAT for recipient
Parent to child 521,208 exempt + 3,000 annual small gift
allowance
Sibling, nephew/niece, grandchild 52,121
Other 26,060
Transfer of private residence
Three years residence for recipient, no other residence at time of gift
Business relief (90% reduction)
Agricultural relief (90% reduction; can include cash used to
buy farm)
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Contacts
Alan Moore
+353 1 8728881
+363 87 2429109
[email protected]
www.alanmoore.ie
