Question of Money - January 15, 2012
Posted by Jill Kerby on January 15 2012 @ 09:00
Pensioners grapple with PRSI and USC challenges
WO’S writes from Co Kerry: As a pensioner, who worked in the UK for 13 years, I qualified for a medical card in Ireland, I was exempt from paying PRSI or health levies on earnings prior to 2011. Since January 2011 I have been subject to USC but I am wondering if it is correct that from January 2012 I will be subject to both PRSI on all income and also to the USC?
The universal social charge (USC) does not apply to any Irish social welfare pension payments (or to any income on which you have paid deposit interest retention tax.) However, it does apply to any other ‘relevant’ private occupational pension or other private income that exceeds €10,036 per year (€193 per week) whether the pension holder has a medical card or not. The relevant income threshold was raised in the last Budget from the 2011 limits of just €4,004 annual relevant income (€77 per week).
If you are over age 70, and your non-social welfare income, or deposit income qualifies for USC, the first €10,036 of income is taxable at 2% and the remainder at 4%. Anyone over age 70 with relevant income in excess of €100,000 will pay USC of 7%.
If you are over age 66, all pension income is exempt from PRSI payments.
If you are unsure of your USC or other tax liability, you should have it checked out, either by your inspector of taxes or an independent tax advisor. Given how many errors have been reported, and how confused they have left so many pensioners’, double-checking all the figures will provide you with peace of mind, if nothing else.
FM writes from Kildare: My mother signed over a piece of agricultural land with no site value to me several years ago. I am a part-time farmer and have another job. I did some work on this land and spent €30,000 - €40,000 on it. In 2011 the value of the land is now worth between €10,000-€20,000 more than I spent on it and due to a previous arrangement this sum must be paid to my brother. Is there any tax liability arising out of such a transaction?
You write that the land had no site value, but the Revenue would maintain that every asset has a value, and in the case of a land transfer, the owner – your mother – would be liable to capital gains tax for the original owner if it’s value has increased since they first owned it, and a possible capital acquisition gift or inheritance tax liability to the person who receives it, in this case, you.
Now that you are transferring this land to your brother in the form of a gift, you will need to determine its value when you received it and its current market value. If the price has risen, and it sounds as if has, if only due to the amount you have spent enhancing its value, you may have a capital gains tax liability of 30% to pay on the difference (after taking into account your annual tax free allowance of €1,270).
Depending on whether the land is worth more than €33,208, the tax-free threshold between siblings, your brother may have a CAT liability on the difference, also taxed now at 30%. (The CAT limit between a parent and child when the land was first transferred to you was approximately €500,000; today it is just half that sum.)
I suggest you speak to a tax advisor or your Revenue inspector or taxes about any potential liability this piece of land has raised for you and your relatives.
DK writes from Co Donegal: A few months ago I switched €50,000 to Australian dollars. My questions are, in the event of a euro breakup, Irish sovereign default or our reverting to an Irish currency, with any of these three events resulting in an Irish default of say 30% or 40% devaluation in the currency, how safe would my Australian dollars be from devaluation? What control would the Irish government and EU have over my dollars? Would I be better with my savings in a bank and currency totally outside the eurozone and finally, what effect would a devaluation like this have on new car prices in Ireland?
None of the Irish banks are able to predict what will happen to foreign currency deposit accounts in the event that Ireland were to revert to its own currency, presumably, the new punt. However, there is plenty of evidence to suggest that when a currency defaults – the depegging of the Argentine peso from the US dollar in 2002 is such an example – the new currency is usually devalued quite soon to boost exports and economic growth. Such would be likely to happen here as well. Again, no one can say how a non-Irish bank, especially one operating outside the eurozone would respond to such a ruling by the Irish Central Bank.
If you are concerned about the risk of our leaving the euro, you are perfectly entitled to move your euro or non-euro currency savings to another EU or non EU jurisdiction, subject to the terms and conditions set by the particular deposit institution. Only you can decide whether the extra costs involved and the currency exchange risk is worthwhile. You must also inform the Revenue of you offshore account in an annual tax return and pay Irish DIRT or income tax on any interest you earn, where applicable.
Finally, if we go off the euro and back onto the punt which is then devalued, all imports, including cars will be much more expensive, at least until our economy recovers and our currency strengthens.