Jill Kerby

PRSI will trail part time pay till you hit route 66

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

WMcG writes from Cork:  I understand that there is a seven year CGT dispensation for people who bought property up to last year that has been extended in the Budget.  I bought my property in December 2006. I may (just about) make a profit on such a sale. Could you explain how it works? Also, does it apply to foreign property?

I’m afraid you have misconstrued how the seven year holiday from the payment of capital gains tax on certain property works. The CGT holiday was introduced in Budget 2012 for properties bought from December 7, 2011 to December 31, 2013 and then sold up to seven years later. This latest budget extended the deadline for buying such CGT exempt properties to December 31, 2014.

Keep in mind that if you make a loss on the sale of your 2006 purchased property there will be no CGT liability anyway. If you earn a profit, your annual €1,270 CGT allowance will reduce your tax bill.

Finally, and perhaps perversely, the CGT exemption applies both to land or buildings purchased in this state and to those situated in any EU or EEA state, including the likes of Norway or Switzerland, which are not members of the European Union.

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

MCC writes from Dublin:  I am sure this is a very common question but perhaps you can still help me. I am 35 and have some savings, not much, €30,000 roughly. It is in a savings account with little return, which will be mostly wiped out by the increased DIRT tax.

I let a pension lapse some time ago. Would you advise to siphon this money towards a pension now? I know the area of pensions is murky but I can carry out my own investigations into that issue.

Contributions to private pensions continue to attract marginal rate income tax relief of 41% (though not PRSI or USC relief) – a rare concession these days where the standard rate is far more common. If you can find a pension fund with low charges and fees and a well diversified choice of assets that produces a steady (tax-free) return, this would certainly be a better home for your €30,000 than a loss-making deposit account.  Pension funds not only grow tax-free, but at retirement allow you to take 25% of the fund tax-free. Any pension income is subject to your highest rate of income tax.

Putting money into a pension is a very sensible choice but only after you weigh up the downsides.  There is no access to the money you contribute until retirement. The state can – and does – arbitrarily change the pension rules, such as tax relief. From 2014 it will confiscate 0.75% of your €30,000 (if you decide to invest the entire amount) which will cost you €225. From 2015 the levy will be 0.15% but could be raised at the Minister’s whim. 

Speak to a good, independent, fee-based adviser before you act. The adviser will review your wider financial position and once they are aware of your needs, expectations and risk profile, will recommend a suitable and affordable pension fund or reactivate your existing one. You should certainly also do your own research and learn as much about how pensions work. The Pensions Board provide this information online: www.pensionsboard.ie

RM writes from Dublin: I heard you speak at the Over50s Show recently and you explained how the 4% PRSI on deposits would not apply to pensioners over age 66 who are exempt, regardless of the size of their income. I took early retirement at age 58 (a year ago) and I do not pay any PRSI on my income. Should I be?

No. PRSI does not apply on any pension income, even if you are in receipt of one under age 66. However, if you have earned income, say from a part-time job you will pay PRSI until age 66. Unearned income that exceeds €3,174 from a rental property, deposits or dividends will be liable to 4% PRSI from 2014.