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Whatever way we vote, you'll be a few grand out of pocket


BEFORE you head to the polling station this Friday, be warned -- some parties could push up your tax bill by thousands a year, while others could hit your pension for a lot more.



You could be €3,500 poorer a year if Sinn Fein's Gerry Adams is the next Taoiseach. Sinn Fein wants to hit individuals earning more than €100,000 with a new income tax rate of 48 per cent. If you're earning €150,000, a third tax rate of 48 per cent would push up your tax bill by €3,500 a year, says Elaine O'Gara, manager of private client taxation with Deloitte.

"Broadly speaking, a single employee under the age of 66 who is on a salary of €150,000 pays €66,867 in tax a year," says O'Gara. "That €66,867 includes income tax, PRSI and the Universal Social Charge (USC). The introduction of a third rate of income tax of 48 per cent on income over €100,000 would see their annual tax bill rise to €70,367 -- up €3,500.

"A self-employed person in the same circumstances now pays €70,281 in tax a year. Introducing a 48 per cent rate on income over €100,000 would make their tax bill increase to €73,781. Again, this is an annual increase of €3,500."

If you're married and the only working spouse, expect to pay €66,827 in tax a year on a salary of €150,000 in a 48 per cent tax rate, says Aidan Byrne, taxation partner with Baker Tilly Ryan Glennon. As that's €3,500 more tax than you're currently paying, your take-home would fall from €86,673 to €83,173 according to Byrne.

You usually pay Capital Gains Tax (CGT) on any profits made from the sale of a property -- unless that property is your home. Sinn Fein wants to increase CGT from 25 to 40 per cent. If you bought property or land in 2005 for €50,000 and you manage to sell it for €400,000, your CGT bill today is €87,500. If CGT of 40 per cent comes in -- as Sinn Fein is currently proposing -- that bill will rise by €52,500 to €140,000 says Byrne.

Sinn Fein's wishlist also includes a one per cent wealth tax on high earners with assets over €1m in value and a Capital Acquisitions Tax (CAT) on inheritance) rate of 35 per cent -- up from the current rate of 25 per cent. So if you own a mansion worth €1.5m and Sinn Fein somehow managed to introduce wealth tax of one per cent, that tax will take €15,000 out of your pocket.

If you're expecting to inherit €50,000 from your sick but rich granddaddy, you'll currently pay about €4,198 in CAT on that inheritance. However, if Sinn Fein gets into power and increases the CAT rate to 35 per cent, you can expect that bill to rise to €5,877 -- €1,679 more, according to O'Gara.


€1,750 A YEAR DOWN

If you're earning more than €100,000 a year, your annual tax bill could increase by at least €1,746 should the Labour Party get into power -- or by over €6,000 if you're earning more than €250,000.

The Labour Party wants the top rate of tax (including income tax, the Universal Social Charge and PRSI) for those earning more than €100,000 to be 55 per cent. This is already the case for self-employed individuals earning more than €100,000.

However, if you're an employee earning more than €100,000, your top rate of tax is currently 52 per cent (that includes the 41 per cent rate of income tax, the universal social charge of seven per cent and PRSI of four per cent).

If you're going to kiss goodbye to 55 per cent of your income in tax -- rather than 52 per cent -- clearly you'll be paying more tax than you currently are.Let's say you're married with children and you are the only spouse working. You earn €100,000 and you're an employee. If your top tax rate increases from 52 per cent to 55 per cent, you'll pay €38,263 a year in tax -- €1,746 more than you now pay,. If earning €250,000, you'll pay €6,246 a year more in tax, says O'Gara.





Fine Gael will not increase income tax -- but it could take more than €300,000 out of your pension, depending on how big it is.

Fine Gael plans to cut the size of the maximum pension fund on which you can get tax relief (known as the standard fund threshold for pensions) from €2.3m to €1.5m. "Today, if you have a pension fund worth €3.3m, €1m of that fund is liable to tax at 41 per cent, which adds up to a tax bill of €410,000," says Peter Griffin of Dublin pension firm Allied Pension Trustees.

Under FG's proposal, €1.8m of that fund would be liable to tax at 41 per cent. That adds up to a tax bill of €738,000 -- €328,000 more than you now pay.

"The average pension fund will not be affected by this," says Ian Mitchell of Deloitte Pensions and Investments. "But a big €2m fund would have a €500,000 exposure to the top tax rate. This is a punitive tax on people currently expecting a pension of €75,000 a year."

FG also wants a pension levy -- describing it as a "temporary" annual 0.5 per cent contribution for all private pension funds. That would take €8,100 out of an average pension over the next four years.

That €8,100 cut is based on an average pension of €350,000, €10,000 of pension contributions each year -- and an annual investment return of about five per cent on your pension fund.

"In a large pension fund worth €2m in 2011, the levy would cost just over €43,000 over the next four years," says Mitchell.

If you're 60 and your pension fund is worth €1.5m, the levy could cost you €48,000 over the next five years, according to Griffin. That's based on the value of your pension fund increasing to €2.3m by the time you retire at 65.

Griffin, however, believes that the 0.5 per cent levy is preferable to a cut in the amount of tax relief that middle and higher-income earners can get on their pension contributions.

"Fine Gael proposes to maintain the current rate of tax relief on pensions, which is 41 per cent or 20 per cent, depending on the rate of income tax you pay," says Griffin. "A temporary 0.5 per cent tax on pension funds would be far less a disincentive [to having a pension] in the long term, than cutting tax relief on contributions."

Fine Gael also plans to abolish the PRSI relief on employer contributions -- a move that would make it more expensive for your boss to contribute to your pension. "This may act as a disincentive to employers to contribute to pension schemes and therefore has the potential to significantly reduce an individual's pension pot," says Mitchell.

The abolition of the relief could also be detrimental for defined benefit pension schemes, which have traditionally paid pensions equivalent to a fraction of your salary at retirement.

"Abolition of PRSI relief on employer contributions would increase the funding costs of defined benefit pensions at a time when such schemes are seriously underfunded," says Griffin. "It would be another nail in the defined benefit coffin."

On top of this, Fine Gael plans to increase Capital Gains and Capital Acquisitions Taxes from 25 per cent to 30 per cent.

Sunday Indo Business