Wednesday 7 December 2016

Tax credit where it's due, even for the unemployed

Simon Ball

Published 17/03/2011 | 05:00

DURING these recessionary times, many people may experience a period of unemployment between jobs, or may be unfortunate to have been made redundant at some time during the tax year and be unable to find employment until the following tax year.

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Also, more and more people are emigrating in search of work having spent part of the year in employment in Ireland.

Annual tax credits are apportioned on a monthly basis and during any of the above periods unused tax credits, when an individual is not working, will entitle that person to claim a combination of a refund of tax already paid in that year and portion of unused tax credits for the year.

These two elements combined with the length of time unemployed will determine the size of refund due. This tax refund may be claimed on a monthly basis or, alternatively, the individual can wait until the end of the tax year and receive a tax refund.

To claim monthly refunds it is necessary to submit a P50 form to the Inspector of Taxes each month after employment has ceased.

As an alternative the individual who is no longer employed may transfer their unused tax credits to his spouse, who is working. This can be done by writing to their Inspector of Taxes and requesting the transfer of unused tax credits to their spouse.

If the individual has moved abroad for work, then they can submit the P50 confirming that they have left the country for the foreseeable future and wish to claim the balance of tax credits that have been allocated to them.

If they leave the country midway through the year, having been paying tax at a high rate, then this can be quite a sizeable refund.

Finally, if the individual commences a new employment during the same year they should notify their Inspector of Taxes and provide a copy of their P45 to their new employer. In this case the unused tax credits will transfer to the new employment.

Rental Income

There is a high likelihood that individuals who leave the country to work abroad will look to rent out their home while abroad. There are a number of items to consider before doing this.

Firstly, tax is payable in respect of any rents received from the letting of any property situated in Ireland, no matter where the owner is living.

Individuals who rent a property situated in Ireland are required to file an Irish tax return with the Revenue Commissioners, whether Irish resident or not.

With regard to computing the net rental income assessable to tax, the main deductions that can be made from the gross rental income before arriving at the rental profit to be taxed are: rates payable on the property; goods provided and services rendered in connection with the letting of the property; repairs; insurance, maintenance and management of the property; and any interest on borrowing taken out to purchase, improve or replace the property. (This is now restricted to 75pc of the interest paid).

Rents paid to non-residents

Rents payable directly to persons whose usual place of abode is outside of Ireland must be paid under deduction of tax at the standard rate (currently 25pc) and the tax must be paid over to Revenue.

The tenant should give the landlord a R185 form to show that the tax has been deducted. The landlord is taxed on the gross rents, less any allowable expenses, and will receive a credit for the tax which has been deducted by the tenant at the standard rate.

Rents paid to an agent in Ireland acting for the non-resident landlord will be paid gross to the agent and the agent will be assessed to tax in the name of the non-resident landlord in the same manner as if the non-resident landlord were resident in Ireland.

Capital Gains on sale of former home

The proceeds from the sale of an individual's home (principal private residence), together with land occupied as its garden or grounds up to a maximum of one acre (exclusive of the site of the house), is exempt from Capital Gains Tax, if the individual has used it as his principal private residence throughout his period of ownership. However, should they leave the country and rent out their former home, then the gain is no longer fully exempt. The extent of the exemption depends on the period for which the building has been occupied as a principal private residence, during the period of ownership.

Stamp Duty

Where stamp duty relief has been claimed, a clawback arises if the residential property is let within a period of two years from the date of the purchase of the property.

The clawback amounts to the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date that rent is first received from the property. Where the property is sold to an unrelated third party during the two-year period, there is no clawback of the stamp duty.

As you can see, should you take up a job in a new country then there is the possibility of a tax refund to help you on your way.

However, there is also potential tax issues associated with leaving when it comes to your former home. Advance tax planning can save you a lot of money and gives you peace of mind while abroad.

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