The Impact of Tax on your Investments and Savings
Most of us know that we should save more than we do. Unfortunately, when we do save or invest our hard earned cash, the returns (if any) we receive are subject to some form of tax.
Unless, that is, your savings are directed into a pension, where investment growth is tax-free. By the way, we are approaching that time of year when we should all consider whether we are putting enough away to secure the best retirement possible and to maximise the tax reliefs available to us. Why not contact one of the MoneyCoach team to discuss this vitally important area of financial planning?
Outside of a pension structure, the tax on investments or savings can range from nil to in excess of 50%, depending on how you invest your funds. For example, interest received on cash deposits with a bank or credit union is subject to DIRT at a rate of 35% currently, whilst any gains on the sale of shares, say in Ryanair or Kerry Group will be subject to capital gains tax at 33% after an annual allowance of €1,270 (€2,540 for married couples). However, if you have previous capital losses, you may be able to avoid a tax liability altogether.
Life assurance savings plans and lump sum investments are typically liable for exit tax which is levied at a rate of 41%. We believe this is totally unfair and illogical. This exit tax is even levied if you do not cash in the investment or savings plan. After every 8 years that the policy is in force, 41% is deducted from the growth your investment has achieved, so if you are saving over the long term, say to fund higher education costs for your children, you may suffer this exit tax more than once!
We at MoneyCoach believe that this is totally inequitable and discourages prudent savers. We are currently preparing to make representations directly to the Department of Finance to have this reviewed urgently.
Finally, if you decide to invest in a fund which pays you the investment growth as an annual distribution, you could be creating an income tax liability, and depending on your age, you may also be liable for PRSI and USC.
Don’t forget that you are usually saving or investing funds which have already been subjected to income taxes. Therefore, it is important to seek good quality advice from a financial planner who can assess your current and potential future tax situation and suggest the most appropriate vehicle for your needs whilst minimising the amount of tax you suffer. Please contact one of our financial planners here at MoneyCoach to discuss this area in more detail.