5 investment tips for 25-year-olds

Making good financial decisions in your mid-twenties (when you are earning a regular income) can come a long way, making your long-term financial goals of buying your own home or saving a decent retirement fund much more feasible.

You may argue that you are just not left with enough money at the end of the month to save up anything, but believe us, you can go ask anyone if they ‘can’ save and you’ll see most of them say no. Waiting for a time where you think you will be earning enough is a dream that never comes true. Chances are you might earn more but your liabilities will be even more.

Saving and investing during later years is as difficult as it would be when you are younger so your best bet would be to invest early! Your Mid-twenties are really golden years to begin investing.

Here are 5 investing tips for the 25-year-olds.

1) Explore the various retirement schemes and consider investing in them

Thinking about your retirement is probably the last thing you might want to do when you’re a 25 year old. But believe us, you will thank yourself later for doing this. Many people who ignored saving or investing and have lived it all in their twenties and thirties rather live like penurious wreckage in their old age. To avoid that, it is best you start investing in retirement schemes. If you start saving for your retirement early enough, ‘compounding’ can truly work wonders for you!

2) Invest in equities

Keeping aside a cut of your regular income for saving in bank deposits can be the first step towards achieving your personal finance goals. But the dropping interest rates offered by the banks in Ireland makes this a bad option, leaving you only with less income in the form of interest earned. What’s your next best option then? – Investing in equities. There are hundreds of equity stocks you can invest in. Typically, equity stock market investments are recommended to be invested over a time horizon of four to five years. As a general rule, the longer you remain invested, the lesser the chances of making losses.

3) Choose Multi-asset funds

Investing in Multi-asset funds allows the investors to allocate their investments across a diverse stream of asset types, including equities, bonds, and alternative assets. It comes under the category of ‘managed funds’, so you can rest assured about your investments while the asset management companies will plan the best assortment of investments you can make.

In Ireland, Irish Life, Standard Life and Zurich Life are some of the best players in the game. Each firm has a different approach to getting multi-asset fund investing right, and you should research deeply before choosing one of them.

4) The approach of ‘averaging in’ is still an undoubtedly safe way of investing

If you are a person who likes to play it safe, rather than going all guns with your investing, then, ‘averaging in’ approach will work best for you. You allocate a certain sum of money each month to an investment fund. This is a less risky approach because it doesn’t require you to put in all your money into the market at one go. Thus, you will be buying at different prices every month, meaning your portfolio has greater chances of smoothing down the ups and downs of equity prices in the market.

5) Investing in Property funds can never be old-school

Investing in properties has been one of the most commonly approached ways for making a fortune by hundreds of top successful investors in the world. You don’t necessarily have to invest in commercial real estate with full involvement and the leg work. The REITs (Real Estate Investment Trusts can be a go-to for you. They manage your deposits and keep you posted about all the developments on the money you’ve invested.

 

Do I qualify for Rent-a-room Tax Relief?

Most income earned in Ireland is subject to income tax. Depending on the income slab, you will either pay 20% of the income (Standard Rate) or 40% of the income (Higher Rate) as taxes to the Government. So if you are looking at ways to increase your monthly income, your best option is to rent that spare room(s) in your house to private tenants. It could be one of the main room(s) in your house, a basement flat or even a garage converted to a room and attached to your house.

The Revenue introduced the “Rent-a-room” scheme where the rental income earned (by individual taxpayers) will be exempted from tax, provided the income does not exceed the exemption limit.

How does this work?

1. The Rent-a-room scheme is open to all owners and tenants in the State who rent out room(s) or accommodation in their main house. The residence should fall under one of these categories –
a. Primary residence – You necessarily need not to be the owner however the house should be your primary residential property in Ireland. You can even sub-rent the room to another person in which case, make sure your landlord knows about this.
b. Self-contained units such as a basement flat, garage converted into a living room that is connected to your primary residence.

2. According to the Revenue, the annual exemption limit (since 2018) is €14,000 per year. The limit applies to the gross income received for the rented room. This includes any additional amount paid by the tenant for other services like food, laundry, and other services.

3. The rented property should be used for the long term by the tenant.

4. If you are self-assessed, you can use the Revenue Online Service (ROS) to include the amount on your Form 11. If you use the Pay As You Earn (PAYE) system, you can use myAccount to include the amount on your Form 12. Taxpayers have a four-year time limit to claim relief for the tax paid on the rental income over the previous years.

You cannot qualify for the Rent-a-room tax relief if –
1. Your rental income exceeds €14,000 per year
2. You rent out the property for short time periods (such as a guest-house, an Airbnb accommodation, or through an online portal)
3. You rent the property for business purposes or if your employer pays you for the accommodation provided in your family home
4. The property is rented to your partner, daughter or son. There are no restrictions for other family members.

Upon qualification for Rent-a-room tax relief, the income is not liable for Pay Related Social Insurance (PRSI), the Universal Social Charge or income tax. But, the income must be included in the income tax return. There’s also no need for you to register as a landlord with the Private Residential Tenancies Board (PRTB). This makes it easier for you to rent rooms to a tenant and comes with fewer restrictions and paperwork.

Additionally, there is no effect on other reliefs and taxes such as Mortgage Interest Relief, Owner-Occupier Relief.  There will also be no capital gains exemption when you dispose of the residence.

Why a married woman should have a separate retirement plan

Is it recommended to have a combined retirement plan for a married couple? Yes and No. Retirement is a major financial and life-changing event of anyone’s life but requires more planning than any other type of investment. Married or committed couples might think that having a combined retirement plan would suffice their individual as well as joint needs, but the story is far more complicated than it seems.

In this section, we are going to focus on why having a separate retirement plan is important for a woman, and how it can benefit both the partners in the long run.

Women are from Venus

Quite literally, and theoretically. Women have different needs, different life cycle and of course, their idea of pending their retirement years would be very different from that of their partner. Yet, 95% of married or committed partners choose to go with a combined retirement plan. While in most countries, the needs of both the partners are taken into consideration when designing a retirement plan for them, but in depth a lot of factors are missed out that often play a crucial role in a woman’s life. Let’s take a look at these factors:

Longer life: According to Population Reference Bureau, women outlive men, around the globe.In developed countries, the average life expectancy for men and women is 72 years and 79 years respectively. In developing or less developed countries, women can expect to live an average of 66 years, compared with 63 years for men. Read the full study here. Perhaps there is a substantial need for financial fortification for women. They are the ones to be using the kitty built for retirement for a longer time.

High healthcare costs: When it comes to planning for health-care expenses, most couple retirement plan takes into consideration the general average cost of healthcare expenditures in the country. However, according to the Department of Health and Human Services, women pay an average of 20% higher healthcare cost in retirement, compared to men. Longevity is the main reasons for this gap.

Fewer Work Years, Less Savings: Let’s face it, every woman, at one point of time in her life has to take a break from her career due to a number of reasons like pregnancy, family responsibility or her own health. Therefore, they often miss out on opportunities to save for their retirement corpus.

Gender Pay Gap: No matter how progressive the world gets, Gender pay Gap is one of the biggest contributors to low retirement corpus for women. Recent figures published by the Central Statistics Office suggest the gender pay gap in Ireland is approximately 14%, i.e men get paid 14% more than women in all member states. This means that even if a woman started her career at the same time as the man, saving the same percentage of money for her retirement, for the same number of years, she would still be saving 20% less compared to her male counterpart.

Marriages are not for forever –  There is a possibility of getting divorced or widowed with children. These scenarios can partially or completely change the equation and the retirement kitty. To make sure that you are able to live an independent and comfortable life post-retirement, you need to be proactive about handling your finances.

What women need to do

To begin with, don’t put off retirement planning. Having a joint retirement plan may not be a bad idea, but putting all your eggs in one basket is. Have a separate retirement plan for yourself too, where you can be confident and comfortable about your whereabouts in the future. For instance, if you are putting 250 per month toward your retirement fund, it is advisable to split the amount into 60% and 40%. You can choose to put 60% into your personal retirement plan and contribute the remaining 40% toward the joint retirement plan, or vice-versa.

Speak to your spouse about how retirement planning will impact you differently and discuss how major life-turning scenarios, unexpected ones, in particular, could further complicate the situations for both of you. Remember to plan your portfolio in such a way that benefits both the partners in the long run. The power of compounding works wonders if you know where and how to invest. So start early and save regularly.

Don’t know where to start? Confused about which retirement plan works best for you? Schedule your free first no-obligation appointment with the experts now. Our team of accountants and advisors can help you find the most suitable retirement plan.

Are you building a good pension pot?

As a salaried person, it’s very important to build your pension pot. What you save or build for retirement depends completely on what kind of lifestyle you want to live post-retirement. However, One of the biggest challenges faced by people these days is that they don’t know how much money they’d need to generate a decent retirement income. In order to live a comfortable retirement, you’d need a pension pot of £260,000.  But building that kind of pension pot might not be easy given today’s low savings rates.

In an effort to persuade people to increase their savings for a better post-retirement life, Government of Ireland plans to introduce a new scheme where if your earnings are more than €20000 a year, you automatically get enrolled into the pension scheme (in addition to the state pension scheme).

Salaried people can look at having a personal (pension) plan that is nothing but a long-term investment which will help save money that can be used to support the lifestyle post-retirement.

How much should people be saving to build a good pension pot?

It’s completely up to the individual and depends on a lot of their personal factors. On average, every salaried person should aim at saving an average of €1000 a month to manage their living standards post-retirement. You can use a Pension Calculator which will help you to decide how much money you must contribute to your pension. You’ll also know how much tax relief you may be eligible for your contributions. Say, if you are 33 years old and you want to retire at the age of 65 and receive €3000 every month as a pension, all you need to save is €1759 every month. If you are eligible for tax relief (say, 40%), your contribution can be as less as €1055. However, it’s important to remember that “the earlier you start to save money, the better the saving and returns after retirement”.

What are the benefits of building the pension pot?

The key benefit is that post-retirement you will have the pension fund available from which you can take 25% of the amount as a lump sum (tax free). This guarantees a regular monthly income for the remaining of your life. The actual pension amount you receive will depend on the pooled amount, your age of retirement, and the then annuity rates provided by the pension provider. Say, if you have pooled €360000 and the annuity rate offered is 4.5%, you will get €16200 per year or €1350 per month.

In addition to saving for retirement, saving through pension schemes will also help you to receive support from the Government in terms of tax relief. Every contribution to the pension scheme receives a tax relief of either 20% or 40% based on the income tax rates that you pay.

Therefore, if you are keen to start planning for your retirement or pension plans, it is advisable to get in touch with an expert tax advisor who can offer investment advice customized to meet your specific needs.

 

 

 

 

 

Medical Expenses that qualify for Tax Relief in Ireland

In Ireland, an average family spends about €200-€250 every month on their medical expenses. Most of the Irish nationals do not understand the tax laws around medical expenses or ignore the relief that’s available for them on medical and dental expenses. Statistics reveal that only 40% of Irish people claim their tax relief on medical expenses in a year.

According to the tax laws in Ireland, if you pay for your medical expenses that are not covered under the State or Private Health Insurance, tax relief is available at 20% the tax rate on these expenses. Nursing home costs qualify for tax relief at the highest tax rate of 40%. For example, if your total medical expenses (qualified for tax relief) is €2000, you will be eligible to get 20% i.e. €400 as the tax refund.

Who can claim the tax relief?

You can claim the tax relief for medical expenses that are either incurred by you or your immediate family (parents, siblings, etc). The major requirement is that you must have all the bills and receipts of medical expenses for the year.

What are the expenses that qualify for tax relief?

  1. Doctor fees, consultant fees or treatment fees in the hospital
  2. Cost of medicines prescribed by the doctor
  3. X-Ray procedures (MRI, CT-Scan, normal X-Rays) carried out as a part of your treatment
  4. Expenses on physiotherapy after being referred by a doctor
  5. If you have a nurse employed at home, you can claim the expenses spent on their services
  6. Speech and language therapy costs spent on a qualified therapist for a dependent child
  7. Treatment in a nursing home with the bills of discharge
  8. Dental treatment expenses when prescribed by the doctor
  9. Kidney dialysis expenses. You can claim the expenses on electricity, medical appliances and your charges to visit the physician for regular appointments.
  10. Maternity care fees and hospital charges (with bills)
  11. IVF is known to be a costly treatment and you are eligible to claim 20% of the expenses as tax relief for IVF treatments
  12. Optical expenses such as eye check-up, eye vision tests, glasses and contact lenses when prescribed by the doctor. Even if you do corrective laser surgery, you are eligible to claim the expenses as tax relief.
  13. In addition, the following medical needs prescribed by the doctor are eligible for tax relief –
    1. Medicines and drugs
    2. Any medical diagnostic procedures prescribed
    3. Hearing aids
    4. Glucometer for diabetes
    5. Wheelchairs
    6. Beds and chairs for patients suffering from a disability or orthopaedic problems

 

How to apply for tax refund?

You can claim your tax refund using the Revenue’s myAccount Service or the app. The myAccount Service has the receipts tracker service which allows you to store your bills details. Alternatively, you can fill up the Form 12 and drop it in the Revenue office or email the details to custform@revenue.ie. For dental expenses, you need to get the completed medical form MED2 from your dentist and submit it on the myAccount Service portal or app.

Want to know more about the medical expenses that you can claim in your tax refund? Speak to our experts now. Book your first no-obligation consultation here.

Married or not, who pays the least tax?

Are you paying much of your earnings on taxes? What if you’re told that you can reduce your taxes just by .. getting married? You heard it right. As much as you would hate marriage proposals or getting hitched, there are benefits especially when paying taxes (read, your hard earned money). Married people (both working or one of them working) end up paying less tax than the ones who are single or in a cohabiting relationship. How? Why?

Preference for families by the tax system

The tax system has a preference for couples who are married or have a child. Especially, couples where both husband and wife earn their income, they pay the lowest taxes when compared to unmarried people and the ones cohabiting with one income. On the other hand, cohabiting couples with two incomes also get advantages on their taxes.

For example, if the income is €20000 per annum, a single person will pay taxes up to 13%, i.e. approximately €2500 in taxes. In case of a married couple where one of them is an earner, they will pay 6% of their income as taxes (€1200) while a married couple with both of them earning will not pay any taxes. This means that they can save up to 13% of their income every year.

Having a child? Pay even lesser tax

The news is even sweeter for married couples with a child. Be it with one or two incomes, their taxable income will be NIL. For a cohabiting couple with one income and a child, an annual earning of €20000 will still make them pay taxes of up to 13%. But if they were to be married, they can save the 13% of taxes (~€2500 every year). A single person with one child earning €20000 a year will have to pay 6% of their income as taxes.

Therefore, if a single person or a cohabiting couple with a single income have a child, they can reduce the amount paid through taxes every year.

Choose their assessment type

Married couples can choose from one of the three types of tax assessments: joint, separate, and single that will help to reduce the overall tax paid for the year.

With joint assessment, the couple is eligible for transfer of their unused tax credits among each other. Separate assessment is very similar to joint assessment, except that the tax allowances will be equally split between the husband and wife. A joint and separate assessment is beneficial for couples where they have two incomes and one spouse has earned more than the other. In a single assessment, the husband and wife will be treated as two single persons for tax purposes (in case of divorce or forced separations).

Tax Concessions

The tax system also provides various tax concessions for married couples where –

  • There will be no Capital Gains Tax (CGT) when assets are transferred between the husband and the wife
  • No stamp duty when transferring the assets between the couple
  • No Capital Acquisition Tax (CAT) when any gifts of gratitude is shared between the couple

Self-employed?

If you run your own business and you are married, you can ensure tax savings of €5000 every year on your income. For this, your spouse should be a part of your business and have an income of €25000 that can be shown as a part of your business to avail the tax benefit.

To understand how you and your spouse can save on taxes, speak to our expert consultants today. Your first consultation is on us! Contact us here

Saving is not enough. Invest to make a fortune

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful”, says Warren Buffett.

If you have just started to make a living, investing may yet not be on your radar, but successful investors advice just opposite. A lot of people spend the initial five years of their career trying to earn just enough to meet ends. They are more concerned about paying rents, buying food and living through day to day expenses. Perhaps the reality is that our needs will never end, rather increase year by year, and no matter how much you earn, even after 5 or 10 years, your salary or a single source of income will never be enough for you to achieve your big goals.

However, if you can pull out even a small amount of money for investment purposes, (the earlier you invest, the better), you’ll be on your way to creating good fortune for yourself in the coming years. It’s all about determining your financial goals and being a step ahead of everyone else. 

Investing in the right place, at the right time is all one needs to reach the heights of success. Understanding the market conditions and analyzing your goals in depth is the only way to find the most resourceful investment options for yourself.

That being said, so why you should begin investing right now? How can it help you accomplish your big goals in the future? Let’s take a look at a few factors that are sure to change your perception about investment, regardless of the risks involved.

Improve Financial Well-being – Sound investment means increased cash flow, which can lead to a substantial increase in capital. This allows you to consider your opportunities with a broader perspective and improve overall financial aspects of your life.

Family Security – Long-term investments planning can always provide for your family when the need arises. Family’s financial security is one of the key factors that compel people to consider investing in definitive portfolios, such as insurance, endowment policies and so on.  A proper financial plan takes into account your personal circumstances and objectives to fit your needs.

Improved Standard of Living –  While savings account would serve you nothing more regular bills, investing the money saves in profitable ventures can help you reach your financial goals much faster.  Whether you wish to buy an SUV after 3 years, or a house in a suburb, your goals will determine the best investment options for you, enabling you to accomplish them sooner as compared to people who don’t invest.

Financial Security – In the times of inflation and recessions, having a second and/or third income can save your from economic crises during recessions. Savings created from good investment planning can prove beneficial in difficult times; for instance, replacing any lost income, when you are unable to continue your job.

In conclusion, money plays an important role in society and investing at the right time, in the right place can create enormous wealth for your future. Making smart investment decisions can pay off big time, regardless of your occupation, demographics and age. As much as it is advised to start investing as early as possible, beginning late can also be fruitful if you know how to choose the right basket to put your eggs in.

Want to know what’s the best way to invest the tax returns that you are about to receive in a few months? Consult the experts today. 

 

Budget 2019 Ireland – How is it going to impact your financials in the New Year!

The objective of Budget 2019 Ireland, as mentioned by Minister of Finance Paschal Donohoe in his speech on 9th October 2018, is to sustain the recent progress of the economy and enable careful management of the public finances. He focused more on government spending and their effect on lower and middle-class earners, rather than reducing the tax rates.

Highlights of the Budget 2019

“Anti-Tax Avoidance Directive” will be implemented rigorously – Irish Government has made it loud and clear. At least, it was clearly seen in the Irish Government Budget for Fiscal Year 2019.

Exit Tax Regime on Deemed Capital Gains

Because of EU’s Anti-Tax Avoidance Directive (ATAD), new “exit tax” has been brought in to leave the scope for tax escaping by companies leaving Ireland. Exit tax rate is 12.5%, and it will be applicable from the Budget Night itself.

When a company leaves Ireland, it will be assumed that the company has disposed and then reacquired all its remaining assets. Actual disposal does not occur, but the company has to pay the tax deeming the disposal. Corporate companies will be taxed under the Exit Tax Regime if –

1. It is resident in another EU country and transfers assets from its Permanent Establishment in Ireland to its head office or Permanent Establishment in another country.

2. It is resident in another EU country and transfers the business carried on by PE in Ireland to another country, or

3. It transfers its tax residence from Ireland to another country. The standard capital gains tax rate is 33%, but the exit tax rate has been kept at 12.5%. However, if a transfer is carried out specifically to avoid a 33% tax rate and intentionally kept at 12.5%, then the capital gains will be taxed at 33%.

The increment in Income Tax standard rate band

The income tax standard rate band for all earners has been increased by €750.

40% income tax rate will kick in for-
– Single Earners at € 35,300 instead of € 34,550,
– Married One-Earner Couples at € 44,300 instead of € 43,550

Home carer tax credit has been increased from € 1,200 to € 1,500.

Increment in VAT for the tourism sector

The government has increased VAT for tourism and hospitality sector from 9% to 13.5%. Suppliers of goods and services related to this sector will either have to bear the increment by themselves suffering loss or will have to transfer the incidence to customers, making the purchases expensive.

VAT charged on the hotel, restaurant, and other entertainment is generally nondeductible. Hence it will also increase the purchase cost for the businesses.

Other Tax Related Changes

  • Startups are relieved from corporate tax for another 3 years i.e. till 2021.
  • Film corporation tax credit scheme has been extended to 2024.
  • Time- limited additional 5% credit will be available in certain regions which will be tapered out over 4 years.
  • Current Group A threshold, which applies to gifts and property etc inherited by children from their parents has been increased from € 310,000 to € 320,000.
  • Young Trained Farmers Stamp Duty Relief has been extended for an additional 3 years to 31 December 2021.
  • VAT rate on electronic publications (e-books and electronically supplied newspapers) has been reduced from 23% to 9%.
  • On a pack of 20 cigarettes, excise duty is increased by 50 cents.
  • Minimum excise duty is applicable on tobacco products, which means excise duty will be levied on cigarettes sold below € 11 also.
  • 100% tax deductibility on interest paid by landlords for acquiring a loan to purchase or repair the household rented property.
  • Vehicle registration tax belief for hybrid vehicles has been extended till the end of 2019.

For more information on how the new budget will affect your tax calculation, contact ADW Accountants by filling the form here or simply call on +353 1 843 5776. You can also drop us an email to info@adwaccountants.ie