Chief Justice raises pension tax concerns with Kenny

In a meeting with Enda Kenny recently, the Chief Justice raised concerns about how the reduction in the standard fund threshold to €2.3m would affect judges’ pensions.

An article in the Irish Times yesterday, 27th April, alludes to the fact that there is a difference between the valuation methods used for public and private sector pensions.  What it doesn’t highlight, however, is the effect of these differing valuation methods.

For an individual in the public sector, the threshold equates to an annual income in retirement of €115,000.  For someone in the private sector with a defined contribution pension scheme, the same fund threshold equates to an annual income in retirement of €60,000.  It would be interesting to know how they justify this difference in treatment.

I also wonder whether the Chief Justice asked Enda Kenny about the plans in the Fine Gael manifesto to further reduce the standard fund threshold to €1.5m.

Jennie Faughnan

Beware...Pension deadline for high earners

Dominic Coyle of the Irish Times brought to our attention the registration deadline (June 7th)for Personal Fund Thresholds in his article Pension deadline for high earners.

This relates to the reduction in the pension fund cap since Budget 2011 from €5.4m to €2.3m (Standard Fund Threshold). Individuals with fund values or accrued pension entitlements valued in excess of €2.3m as at 7th December 2010 can seek a Personal Fund Threshold (PFT) from Revenue for the higher value.

Such individuals are required to register the details of their pension with Revenue by June 7th, otherwise Revenue will levy a tax on anything above the Standard Fund Threshold on retirement.

It is important that you contact our PFT Helpdesk on (01) 6035199 or email pft@independent-trustee.com as soon as possible in order to get an initial free assessment on your exposure.

The Irish Taxation Institute Annual Conference 2011

The Irish Taxation Institute Annual Conference 2011 was held in Galway last week. Independent Trustee Company were proud to support the conference for the tenth consecutive year and were well attended at the event.

A number of excellent presentations were made covering all areas of taxation from VAT to income tax to capital taxes. Not surprisingly, Pensions was, in itself, a detailed presentation and was also a hot topic of discussion among many delegates, given the recent changes in Finance Act 2011 and the implications it will have for advisors and their clients.

The main points from the pensions presentation were:

• Personal Fund Threshold (PFT) applications by 7th June 2011 – Irish Times article on Saturday confirmed that 144 applications have been made to date with Revenue
• Impact of longevity on pension planning – ’60 is the new 40’… Ireland’s population is aging rapidly
• Dividing pensions in family law cases – the impact of Pension Adjustment Orders on spouses ability to fund for pension
• Changes made to Approved Retirement Funds (ARFs) since Budget 2011 – availability of ARF to all members of DC arrangements and the new AMRF rules
• Potential restrictions on tax relief going forward – following on from the previous governments four year plan, there is still no confirmation from the new government if the tax relief on personal contributions will be restricted to standard rate by 2014.
  
  
  Many of these topics were covered in our recent On The Pulse Knowledge Forum in March, which is available on our website and will be further discussed at our next Knowledge Forum scheduled for May.
  
  
  There are still a number of points from the Finance Act 2011 that need clarification particularly around the new AMRF rules and the PFT. We have contacted Revenue on a number of these queries and hope to bring you further clarity on these matters and others at the next Knowledge Forum scheduled for May.
  
  
  If you have a query regarding your Personal Fund Threshold, Pension Adjustment Orders or if you would like to attend our next Knowledge Forum please call Simon Keegan on (01) 6611022 or email justask@independent-trustee.com.

Employing your spouse...what to keep in mind.

The idea of employing your spouse in your business can give rise to many advantages, but care needs to be taken in relation to how this is set up. There are many advantages to employing your spouse in your business; the greatest one is usually flexibility in terms of working hours! The fact that there is a direct personal and financial interest in the success of the business has a huge impact, although many businesses do not recognise the value of services provided by the ‘non-principal’ spouse, so the question of even a basic wage is never considered...Consider these questions to see whether this is something relevant to you:-

• Is your spouse assisting you in the business in an 'invisible' way – perhaps answering phones, taking orders, keeping the books, filing tax returns, doing payroll or indeed simply acting as a company director (more on that below)?
• Has a comprehensive list of what your spouse does ever been drawn up, or are diaries kept? Perhaps have them keep a diary for a month or so, which should give a good indication of the type of work they are doing, and how long it typically takes them to do it.
•  There is an intrinsic value in having someone available at times when you are not, does your spouse fill this description? When business contacts deal with your spouse, do they consider that they are still dealing with the business itself?
• If your spouse is a company director, this is a significant role of itself, as your spouse cannot delegate this responsibility to you. They are fully responsible for the activities of the company. No-one else would carry this responsibility for no pay, why should your spouse?

You may feel that your business cannot afford to pay your spouse – but perhaps wages or a salary could be accrued in your company accounts until times are better or more cash is available. This acknowledges the value brought by your spouse. No-one else would do this without payment! Some pointers for doing this:-

• Have a contract of employment drawn up for your spouse to include a full description of the role carried out by them
• Agree a structured payment and notify Revenue of the position. There are tax savings that can be generated by doing this, rather than having all allowances and credits claimed through one spouse.
• Do consider whether there are PAYE issues to be addressed. Bear in mind the impact of the USC which takes effect for anyone earning more than €77pw.
• In light of recent pension changes, consider whether it might be useful to have a separate pension structure for your spouse.

The bottom line here is that if you are going to do something, do it in a way that brings maximum benefits, taking care of all the details. Last thing anyone needs is a debate with Revenue over whether a spouse’s salary is justified!

If any of these issues are relevant to you and you would like more details please call (01) 6611022 or email justask@independent-trustee.com

Sonia McEntee

Are private pensions up for grabs?

Kathleen Barrington, of the Sunday Business Post Online, discusses the threat of the government raiding private pensions to fill the gaps in the Irish bank and government balance sheets.

The Constitution of Ireland protects property ownership, and citizens of the state are guaranteed that no laws will be passed to abolish property rights. Property rights can be limited by reference to the ‘common good’, so the question here is; what action could be justified in the ‘common good'?

The proposed levy on pension funds is already an attack on these rights as it is essentially a penalty on accumulated funds, rather than a tax on funds contributed afterwards. The rate of the levy, if it is introduced, will  be set at a level where a challenge would be unlikely. Remember the furore over the restriction of property-related tax incentives announced in the budget? If a levy raises the ire of the motivated, that in itself may be challenged before any consideration is given to ‘privitisation’.

Click here to view Kathleen Barrington's post.

Comments by Sonia McEntee