Tax is the greatest financial liability any of us face and is the greatest obstacle to achieving our financial goals. Understanding this fact is an important first step on the road to effective financial planning.
In Ireland, depending on the income one declares, Income Tax and levies can take between 25% and 55% of our income as we earn it. Spending the net income incurs further taxes (e.g. VAT) of up to 23%. Choosing to invest our already taxed income exposes us to either Capital Gains Tax of 33%, tax on the interest (DIRT) on savings of up to 45% and/or further Income Tax of up to 55%. On top of all these taxes, when we eventually die and pass on our assets to the next generation, they will pay another 33% in Inheritance Tax (or gift tax if we pass on assets before we die) over a limited asset threshold. Therefore, minimising tax can ensure that you keep more of the income that you are earning enabling you to create wealth more efficiently.
The Irish tax code has undergone a lot of change over the last few years and continues to be complex. We focus on understanding this and using the Irish tax code to enable our clients reduce their ”effective tax rate”.
Some of the main tax planning areas in which we work with our clients include the following:
- Minimising income taxes today. What is important is not how much income you earn but how much of that income you keep.
- Determine the most tax efficient method of accumulating assets (e.g. investing before you pay tax through a retirement fund).
- Assess your retirement plan assets, personal assets and tax-sheltered investments to ensure that you are maximising potential tax benefits, while maintaining appropriate flexibility with your assets.
- Ensure your investment vehicles will not cause unnecessary adverse tax consequences in the future particularly during retirement or on death.
- Interpret and utilise current tax laws and possible future changes to benefit your own unique situation as well as your business. Appropriate estate planning or business exit planning can play a crucial role in wealth preservation.
In a nutshell, getting a tax break when investing ensures you can invest more capital immediately. This, combined with tax free investment growth, will greatly enhance your ability to build wealth and ultimately reach your financial target. Investing with after tax income in essence means that you have to work significantly harder or longer to create a similar level of asset base than that created in a tax free structure.
Significant savings are possible, both immediately and in the future, by structuring your assets tax-efficiently. Tax management plays a crucial role in effective financial planning. For the business owner or the private individual, we can outline your options and make recommendations that suit your particular circumstances.