Thursday 25 April 2019

10 things that hit your pocket in 2015

Despite the 2015 tax cuts, you may have less money in your pocket than you think

Despite the 2015 tax cuts, you may have less money in your pocket than you think
Despite the 2015 tax cuts, you may have less money in your pocket than you think
Louise McBride

Louise McBride

It's not just Christmas euphoria - by all accounts, the Irish are back spending again.

We splashed out more of our money on big ticket items like furniture and TVs over the last six months, according to a survey published by Deloitte early last week. We're also spending more on restaurants, hotels and going out.

Retail Ireland expects us to spend €130m more on our Christmas shopping this year then we did last year.

So what has happened over the last year to make us feel so upbeat that we're loosening our purse strings - and are we right to be getting flush with our cash just now?

Here are 10 things that changed your finances - for better or worse - in 2015.

Cheaper mortgages

More than 150,000 homeowners saw hundreds - and in some cases, thousands - of euro shaved off their mortgage bills over the last year after AIB chopped its standard variable rate three times.

Like the two preceding ones, the latest interest rate cut, which kicked in last October, was passed on to new and existing customers of AIB, EBS and Haven. A homeowner with a €200,000 mortgage is almost €1,000 a year better off thanks to the three rate cuts.

AIB, KBC and Ulster Bank are the only lenders which have passed on no-strings-attached cuts to the interest rate on standard variable rate (SVR) mortgages to existing customers - as well as new ones - over the last year.

With SVR mortgages here about twice as expensive as the average mortgage in the eurozone, the Irish banks came under pressure to reduce interest rates over the last year. Permo hasn't cut its SVR but it is offering cheaper variable mortgages to new and existing customers - depending on the percentage of the value of their home that is being borrowed.

Bank of Ireland, which has one of the highest standard variable rates on the market, has consistently refused to cut that rate for existing customers - despite Government pressure. The bank cut its variable rate for new customers earlier this year.

Tax-free family homes

It has become slightly easier for children to inherit the family home tax-free since last October when Finance Minister Michael Noonan increased the amount of money that a child can inherit from a parent without getting hit for tax.

That change, which came in under Budget 2016, means a child can now inherit up to €280,000 from a parent tax-free over their lifetime - up from the previous limit of €225,000. However, as many family homes, particularly those in Dublin, are worth more than €280,000, it is still impossible for many children to inherit the family home - without getting hit with enormous tax bills. So while Noonan's latest move is a step in the right direction, it doesn't go far enough.

Pension levy

The controversial pension levy - which has taken billions from the pockets of those paying into private pensions over the last five years - was slashed from 0.75pc to 0.15pc in 2015.

Less money went out of your pension fund to cover the levy as result, which should leave you with a better pension by the time you retire. There was better news in the latest Budget when Noonan announced the levy would be completely scrapped in 2016.

Tax cut

Budget 2015 cut the higher rate of income tax from 41pc to 40pc. This, along with a €1,000 increase in the amount of money you could earn before getting hit for the higher rate of income tax, put more money back into the pockets of many workers.

So too did cuts to the Universal Social Charge - depending on how much you earned.

Tumbling oil prices

The price of a barrel of oil is now about a third of what it was in January 2013. The weak oil price has made it cheaper for many people to heat their homes - in particular, those using home heating oil.

The price of a litre of home heating oil has fallen by about a third since January 2013, depending on the supplier. Although the price of gas and electricity hasn't fallen to the same extent, most of the big energy suppliers have announced price cuts over the last year. Electric Ireland and SSE Airtricity are the latest energy suppliers to announce price reductions.

Weak euro

The cost of visiting Britain or the US has shot up since president of the ECB Mario Draghi pressed the button to start printing money in the eurozone last January.

The move was taken to stimulate economic recovery, boost consumer spending and raise inflation in Europe. The euro has gone into freefall since; falling to record lows against the greenback and sterling over the last year.

Irish people visiting Britain and the US have seen the purchasing power of their euro dive as a result - and this has made it more expensive to visit these countries.

In mid-December 2014 for example, €1,000 would have bought you $1,246 - 13pc more than the $1,098 you would have got for €1,000 early last week. Similarly, €1,000 would have bought you £792 back then - compared to about £724 today.

Stalemate in property market

Property owners in the capital who are eager to sell their homes are tens of thousands of euro - or more - worse off than they were this time last year.

Since the Dublin property market started to cool earlier this year, many of these people have had to reduce their asking prices and accept lower offers than they would have liked. Others have decided to take their homes off the market rather than accept a poor price.

House-price growth in Dublin is now at its lowest level in over two years. Asking prices in the capital have fallen by as much as 13pc over the last year, according to the latest Daft report.

Although low prices are usually good for house hunters (particularly cash buyers), many would-be buyers have been locked out of the market because they simply can't get mortgages.

Many of those in the property industry have placed most of blame for this - and the slowdown in Dublin house prices - on the doorstep of the Central Bank.

Last January, the then Central bank governor, Patrick Honohan, introduced new lending rules which doubled the deposit trader uppers must get together if moving home. Under the rules, an individual trading up needs an €80,000 deposit to buy a home worth €400,000 for example - compared to €40,000 before.

First-time buyers after homes worth more than €220,000 - as most of the properties in Dublin are - have also to stump up larger deposits than had previously been the case. This has made it impossible for many people to save up enough money to buy a first home in Dublin - or to move house.

Pricier private health insurance

Thirty-somethings and older who are signing up to private health insurance for the first time are paying as much as €5,000 more a year for their insurance today than they would have had they bought the cover before last May.

This is because of the new rules which came into force on May 1 which penalise anyone over the age of 34 (with some exceptions) taking out health cover for the first time. The rules, known as lifetime community rating (LCR), were the biggest shake-up to hit the health insurance market in years.

As the loading could be as much as 70pc if you are aged 69 or older, these changes have hit the elderly particularly hard. Gold-plated health cover could cost about €7,000 a year, depending on the insurer. A 69-year-old would therefore face an annual loading of almost €5,000 on such a policy, which would bring the cost of their cover to more than €12,000 a year.

Water charges

Bills for the controversial water charges - which saw hundreds of thousands of people take to the streets in protest over the last year - started to arrive in the post last April.

Those bills are capped at €260 a year for a family until the end of 2018. A water conservation grant of €100 was also paid to those who registered with Irish Water this year (as long as they applied for the grant on time). About 55pc of Irish Water's 1.52m customers have paid some or all of their water charges, according to Irish Water.

Tax bills for honeymoons

You could be hit with a tax bill if your parents paid for your honeymoon or allowed you to live rent-free in the family's second home over the last year - even though you could previously receive such gifts tax-free. This was because of a Government clampdown on inheritance tax just before Christmas 2014.

Parents could previously pay for the support, maintenance or education of their children without potentially triggering a tax bill for their child - regardless of how old that child was.

However, only children under the age of 18 or those in full-time education under the age of 25 are now fully exempt from tax on such payments.


Four financial loose ends to tie up before January

No matter how upbeat you are about your finances, there are a few loose ends worth tying up before the end of the year.

Get your tax refund for 2011

You now have about 11 days to claim any tax refunds you're entitled to for 2011. You can only claim tax relief on expenses you've incurred over the last four years - so fail to claim a 2011 tax refund by New Year's Eve and you'll miss your chance to get it. The tax relief on medical expenses and nursing home fees can be particularly valuable. You can usually claim back 41pc of fees spent on nursing home care in 2011 - and a fifth of the cost of medical expenses.

Chase up your Christmas bonus

People getting long-term social welfare payments, such as the State pension, are entitled to a Christmas bonus equivalent to 75pc of their weekly payment. This bonus is usually paid in the first week of December. Get in touch with the Department of Social Protection if you haven't received it yet.

Ask for a raise

Now is a good time to set work goals with your boss for the next year - and to find out what chance you have of getting a raise in 2016. With inflation expected to increase next year, this is a conversation you can't afford to put off.

Take stock of your finances

Setting your financial goals for the New Year is a worthy step - as is recapping on anything that will impact your take-home pay.

Next year will be the first time in six-and-a-half years that a worker earning €70,000 will see more of his pay end up in his own pocket than that of the taxman for example.

Indeed, most of us will come home with heavier wage packets next year when the changes announced in Budget 2016 kick in. Cuts to the hated Universal Social Charge (USC) are the main reason for this.

Another good thing about Budget 2016 was the tax break for self-employed people. This tax credit is worth €550 a year to farmers and other self-employed individuals.

Expecting parents can look forward to the two weeks' State-paid paternity leave (worth €460) which will come on stream this September.

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