Ifac reminds Tipperary farmers a Pension is the Christmas gift that keeps on giving

Ifac, the farming, food and agribusiness professional services firm, is encouraging Tipperary farmers to give themselves a gift this Christmas that delivers a range of tax benefits.

This Christmas, the very best gift could be one for themselves and their loved one/spouse. And, with tax relief on the monies they invest, tax-free growth on the assets, and a tax-free lump sum at retirement, there are many reasons for farmers to start saving for their retirement this December.

One such benefit is that income tax relief is available against your self-employed income for pension contributions. Tax relief is given at your marginal (highest) tax rate – there are limits based on your age, but the relief is more generous as you get older.

CSO figures from April 2019 indicate that two-thirds of self-employed people are not saving for retirement and availing of the tax breaks. Additionally, Ifac’s Irish Farm Report 2019 also found that only 32% of those aged over 65 have a pension in place for themselves and their spouse, and one in five of those aged 40-65 have no pension plan. The report contains the results of one of the most comprehensive farm surveys ever undertaken in the history of the state (read the full report here).

Tom Ryan at ifac’s office in Nenagh said:

“Christmas is just weeks away and while it may appear a little early to be thinking about presents, it’s never too early to invest in your pension fund. One of the key reasons so few are using these tax-efficient savings plans is that they are not aware of the breadth of tax breaks these plans enjoy. And, there is a huge opportunity for farmers to get started. Our Irish Farm Report 2019 found some worrying trends across the farming community when it comes to personal financial planning, with 32% of over 65s saying they have no household pension.”

So how do pensions deliver tax breaks?

With most investment assets you purchase, Revenue takes their cut on the income you earn e.g. rent and dividends (up to 40% tax). Then on the sale of the asset, they take their cut on any profit via Capital Gains Tax (33% tax). For example, a €200,000 investment over five years in a property that grows in value by 3% per annum and has a rental yield of 4% per annum, will give a net profit of €45,343 (based on 40% income tax on rent and 33% CGT). However, the exact same investment in a pension account will give a profit of €71,854. This is because the income and growth from the assets you own in a pension fund are exempt from all taxes.

Then when you decide to retire, the self-employed can take 25% of their personal pension funds as a tax-free lump sum. The balance is used to provide you with an income. This income is subject to income tax but for many, they can take this income with little or no tax liability. This is because of the Income Exemption Limit that exists for those aged 65 and over. A married couple can earn up to €36,000 per annum (single person €18,000) and be exempt from income tax. The state contributory pension, with an adult dependant, is €24,481 per annum. This leaves the possibility to receive a tax-free pension income of €11,500 per annum.

Finally, should you be unfortunate enough not to enjoy the retirement benefits yourself due to premature death, the fund is paid to your estate without deduction of tax.

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