Tax relief is not created equal, some are more beneficial than others and many consumers sense this!
There are about 80 different consumer tax reliefs in Ireland today. Some are better than others. This is not to say that qualifying relief should not be claimed for, but it is about ensuring that those with the greatest impact are claimed for.
The top 5 tax reliefs that really do matter!
Pensions – this is by far and away the best consumer tax relief available in Ireland today. Up to 40% is available on qualifying income. But what is key is that tax relief is also applied to the investment growth on pensions. It is also tax-free. Compared to the hefty 41% tax levied on non-pension fund growth, the pensions option is a clear winner. Plus, there is also the tax-free drawdown on pensions at retirement, up to 25% tax-free lump sum on defined contributions accounts, it is what makes pensions in Ireland so generous and probably one of the best in the world!
Tax relief on pensions is also managed at source. For those enrolling in a workplace pensions, their tax relief entitlements are managed via payroll so they don’t need to do anything. However, if they want to make a backdated pension top up for the previous year, it is here they will need to file with Revenue for their refund.
Health expenses – this is a big area of misunderstanding for a lot of families. Where the confusion arises is on partially paid qualifying expenses. A consultant for example may charge €200 and private medical insurance may cover €100 of the cost. For many families they think that’s it! They got their money back. But there is more. That other €100 not covered by health insurance still qualifies for 20% tax relief, in this case a €20 refund. Plus, one has 4 years to put in their claim. As long as the expense is a qualifying one in the eyes of Revenue, it can be claimed for.
BIK on workplace health insurance – this is surely one of the most confusing for people. So, to keep it simple, health insurance premiums qualify for tax relief (up to a limit). Where employers pay it, there is a BIK cost to the beneficiary. What most people get wrong is applying for the qualifying relief refund, so they get hit with the BIK and lose out by not applying for the relief. However, once it is explained to those that qualify, they make their claim.
Education – this can also be a confusing one for a lot of people, until it is explained. This is very similar to qualifying medical costs. Again, as with all expenses, there are rules to which expenses qualify and there are extensive notes and examples that explain how this works on the Revenue.ie website.
Overseas costs – qualifying costs for both medical and education expenses can be accepted by Revenue. And as with all matters of tax in Ireland and indeed abroad, the expenses must be incurred at accredited educational or medial facilities. Revenue provides a broad set of guidelines on their approach to how expenses incurred abroad are dealt with. Plus, if there is any confusion, the Revenue staff are extremely helpful and supportive.
The Rent-a-Room relief is also very generous. However, its appeal tends to be more tailored to specific families and their financial needs.
Beyond this top five, MoneyWhizz has published an extensive listing of available tax reliefs that offer a quick and handy reference. Plus, for those that want to claim their expenses at their own time, they can do so via the MyAccount on Revenue (or via ROS if they are self-employed).
When it comes to better money skills, MoneyWhizz works with leading employers on a whole range of personal finance topics, including tax relief. Other topics include Financial Wellbeing. Buying a first home. How to choose the right investment. Successful financial planning and understanding pensions.
Frank Conway is Founder of MoneyWhizz and author of Ireland’s Essential Guide to Personal Finance
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