A very important relief is the income tax exemption relief, which completely exempt’s individuals age 65 and over from income tax (but not from USC) where their total income, that is, before reliefs and allowances in the 2024 tax year doe not exceed 18,000. This limit is doubled in the case of a married couple/civil partners that is 36,000.
The limit are further increased by 575 for each of the first two dependent children and 830 for each dependent child.
The importance of the income exemption limit lies in the opportunity it may offer certain older consumers to obtain a return not liable to income tax, where the consumers have little or no other taxable income. However, note that the USC will apply to certain taxable income greater than 13,000 per annum.
Marginal Relief
It is important to realise that once an individual’s income exceeds the income tax exemption limit the full amount of income is then subject to income relief tax but with due allowance given for allowances and reliefs etc. However, there is marginal relief where the consumer’s total income exceeds the relevant exemption limit but is less than twice the limit; the relief provided is that the income tax liable will not exceed 40% of the excess of income over the limit.
Paying for care of incapacitated relatives
Where a consumer us financially maintaining an incapacitated relative, for example an elderly parent there are three possible tax reliefs which can be used to subsidise the cost of such financial support:
- Claiming tax relief on medical expenses.
- Making a covenant payment within certain limits
- Claiming tax relief on cost of carers.
Medical expense relief
At a certain stage in a consumer’s life, medical expenses may become more prevalent and a drain on disposable income and /or capital.
Where a consumer has medical expense insurance, this will deal with part of the cost of the medical treatment.
However, consumers may, at certain times, have substantial unreimbursed medical expenses either because:
- They become ill and need medical treatment, but don’t have medical expense insurance.
- They have medical expense insurance, but it does not cover all of the costs, for example, specialist treatment or home care.
- The illness may be of a permanent nature and require ongoing medical treatment not covered fully by medical expense insurance.
- An individual can claim tax relief on unreimbursed qualifying medical expenses incurred in respect of the individual himself or any other individual on whose behalf he or she pays medical expenses.
Thereof, any medical expenses not reimbursed by, say, VHI or the local health board, may be claimed under this particular provision.
Tax relief for medical expenses is generally given at standard rate, currently at 20%.
Payments in respect of maintenance and treatment in an approved nursing home qualify for tax reliefs at the individual’s marginal rate of income tax.
Relief is normally given by way of a refund at the end of the tax year in which the expenses are claimed.
The significance is this relief and investment planning is that for someone with substantial medical expenses it may be more tax efficient to generate investment income liable to income tax, against which the tax deductible medical expenses can the be offset, particularly where the individual’s total income is such that they do not pay income tax at the higher rate.
Such individuals could then obtain a gross investment income return, as compared to investing in certain collective investing products, for example, life assurance, investment bonds, unit trusts etc where exit tax deducted cannot be reclaimed by such individuals.
Employing a carer
Income tax relief can be claimed at marginal rate, up to an annual limit of 75,000 on the cost of employing a person (including a person whose services are provided by or through an agency) to take care of either:
- A family member (including the claimant themselves, their spouse or civil partner) who is totally incapacitated by reason of physical or mental infirmity.
- A relative who is totally incapacitated by reason of physical or mental infirmity; relative in this regard includes a relation by marriage or civil partnership and includes an individual in respect of whom the claimant is or was the legal guardian.
Investment of Compensation Awards
Exemption from income and capital gains tax is allowed in the case of investment income and gains from compensation lump sum investments, if certain conditions are satisfied.
Signing off !
Harneet K
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