Will I have to pay tax on my redundancy?
I am 55-years-old and will shortly be made redundant. I have been with the same employer for 20 years.
I will be getting a redundancy package of €30,000. That includes a lump sum of €14,000 and €16,000 statutory redundancy for my 20 years' service. Will I have to pay tax on the redundancy and if so, how much? Is there any way I can limit the amount of tax I must pay?
Jim, Letterkenny, Donegal
John Lowe replies: The statutory redundancy payment (the minimum your employer can give you) is a payment based on your pay and term of service. All eligible employees over the age of 16 are entitled to two weeks' pay for every year of service and one further week's pay. You must have been working continuously for your employer for at least two years to be eligible for statutory redundancy.
The statutory redundancy payment is subject to a maximum earnings limit of €600 per week (€31,200 per year). Pay refers to your current normal weekly pay, including average regular overtime and benefits-in-kind - but before tax and PRSI deductions. That is your gross pay. The statutory redundancy is tax-free.
You state that you will also receive a lump sum - also known as an ex-gratia payment - of €14,000. Such payments may be subject to tax, depending on how much you receive. There is however a tax-free exemption.
Under the basic exemption, you are entitled to an ex-gratia payment of €10,160 tax-free, plus €765 for each complete year of service. (This does not include statutory redundancy, which is tax-free.) So over your 20 years' employment, you would be entitled to a lump sum of €25,460 (€10,160 plus €765 a year for 20 years) before it becomes taxable.
So your full redundancy payment of €30,000, made up of €16,000 statutory redundancy and an additional lump sum of €14,000, will be tax-free.
Costs of buying a home
We're planning to buy our first home soon. Aside from the mortgage, what other costs should we prepare for?
Anne, Castleknock, Dublin
John Lowe replies: When buying your home, you have a number of once-off costs to consider. These include stamp duty - which is set at 1pc of the purchase price, and solicitor's fees - which can either be a flat fee or one based on a percentage of the purchase price of the property. Solicitor fees can vary but are usually no more than 1pc of the property price, plus VAT, plus legal outlay.
Your bank will require a valuation of the house you hope to buy and this will cost in the region of €130 (inclusive of VAT). You should also consider getting a structural survey of the home. This could cost at least €500.
Ongoing costs include mortgage protection insurance, home insurance, local property tax and water charges. There will also be an annual service charge if you are buying an apartment.
Complete two budgets. In one, take all the costs of the home purchase (including furniture, white goods, the deposits and all the costs I mentioned above). In the other, do a really in-depth analysis of your monthly expenditure, including the new mortgage to make sure you can afford it in the first place. Email me for a budget spread sheet template to help you get started.
John Lowe is founder and managing director of Providence Finance Services and author of the best-selling book, 'The Money Doctor 2015'.
Sunday Indo Business