Jill Kerby

Devil is in the detail of any bank insurance offer

SC writes from Dublin: I have two private cars and one private residence and three rental properties and it is costing me a lot of money to insure all of them.  I would like to have a package and know exactly where I stand weekly or monthly or yearly in this regard. Do you know of someone who would give me a good deal for my business?

I’m afraid there are no regular ‘three for two’ special offers in the insurance business as there in the grocery trade, or your favourite bookstore, though the likes of both Aviva and Quinn have been known to offer special rates if you buy your home, car and health insurance with them. Sean O’Connell of The Insurance Shop in Fairview told me that on-line brokers like 123.ie may be able to get better discount rates for your cars and properties – he admitted it wouldn’t pay for him to take on such business at those premiums – but you need to examine the contracts very carefully for small print and exemptions and excesses that might apply. He also warned that house insurance terms and conditions are being very strictly enforced, especially regarding water and flood damage and especially for rental properties.

Unfair state charge

KP writes from Navan:  Referring to your comment last week about the anomalies in the way the USC is applied, I have discovered an anomaly within an anomaly!  The Irish state contributory pension for a single person is €11,976.  I retired here in 2002 and have a full contributory UK pension (as well as a modest UK occupational pension).  My UK pension for 2010 totalled €7,012 which is exempt from the USC as 'a similar type payment'.  However, this means that a pensioner in receipt of the Irish state pension but with the same total pension income to me will pay a lower USC since less of their remaining income becomes liable after the €11,976 exemption (compared to my €7,000 exemption. I cannot follow either the fairness or the logic which requires someone whose pension income is not Irish sourced is liable to pay a higher USC than someone whose income is Irish sourced. Exemptions seem to be a minefield!

Tax advisors are not impressed by the construction of the new universal social charge. Two tax advisors I spoke to about your case both told me they were not “in the least surprised” to hear about the USC anomaly that you have raised, though it was the first time it was brought to their attention.  “Here’s another pensioner USC anomaly,” said one. “There are two pensioners, both 71, and both considered well off with annual incomes of €50,000 that includes their state pension of €11,976. One earns the balance of their income, €38,024 from a private pension. He pays income tax at the marginal rate on the €50,000 plus 4% USC on the €38,024 - the state pension being USC exempt. The other person earns their income balance of €38,024 entirely from interest returns from Savings Certificates which are tax and DIRT free as well as being exempt from USC. This pensioner pays absolutely no tax or USC on the entire €50,000.”

You’re right. It isn’t fair that only self-employed people who earn over €100,000 are being targeted for a 10% USC when all other earners with that income pay 7%, it isn’t fair that between two pensioners, each earning the same income, one ends up completely USC exempt.

Redundancy deal

PK writes from Dublin: My company announced just before Christmas that it was going to see voluntary redundancies early this year. This wasn’t unexpected and if they offer a redundancy package that is anything like one offered in 2008 I could expect to get about a year’s salary or around €65,000.  Just wondering what sort of tax I could expect to pay on that and would I still have to pay all that tax if I used the money to start my own business?

Ex gratia payments over and above statutory redundancy payment of two weeks pay for each year of continuous employment, plus a bonus week, subject to a ceiling of €600 per week, is taxable.  However, there are three different exemptions options available which reduce the liability plus the possibility of ‘top slicing relief’ which can also reduces the rate of tax you will pay.

The basic exemption is €10,160 plus €765 for every complete year of service. If you have five years service, for example, the amount exempted from tax from your estimated €65,000 payoff will be €13,985.  This basic exemption can be increased by another €10,000 to a maximum of €20,160 plus the €765 for every year of service if a) you haven’t made a claim for the increased exemption at any time in the previous 10 years and b) the increased exemption of €10,000 is reduced by any tax-free lump sum you may be immediately entitled to as part of an occupational pension or the present day value of such a tax-free lump sum which you may receive some day from the pension scheme.

The third exemption option is the Standard Capital Superannuation Benefit (SCSB) which involves calculating your annual yearly remuneration for the last 36 months multiplied by your years of service that can also take into account tax-free lump sums, though according to tax expert Sandra Gannon of TAB Taxation Services in Dublin, “The SCSB is more appropriate for people with longer service and higher earnings.”

If you don’t have a pension tax-free lump sum coming that would have to be deducted from the increased exemption of €10,000, based on exemption option two, your total redundancy tax free payment (assuming you have five years service) would be €24,985. (€10,160 plus €3,825 (€765 x 5) plus €10,000.)  This leaves a balance of €41,015 which is subject to marginal income tax of 41% or €16,406 and the universal social charge of €2,120, leaving you with a total, net redundancy payment of €47,474.

According to Gannon, top slicing relief, which is available to claim at the end of the tax year in which you receive your redundancy might be available as it takes into account your average rate of tax for the previous three years and might result in a refund if this is less than the amount of tax you paid on your lump sum.

Finally, seed capital tax relief is available if you were willing to invest your entire lump sum, plus, in the form of a refund, tax you paid in the previous five years into a group of qualifying new manufacturing and service enterprises.  The Revenue has produced a leaflet: The Seed Capital Scheme: Tax Refunds for New Enterprises - IT 15 that you can download at www.revenue.ie