Welcome to tax bytes for expats. The top tax tips

you want to know as an expat, the podcast is here to help

answer the common queries and concerns expats have when moving to

or from Ireland. Complex taxes explained

simply, we'll focus on the irish and international

tax issues to be aware of to ensure you save time,

money and stress. Welcome back to Taxbytes

for Expats. This is another two part episode after my chat with Alan Purcell,

a chartered accountant and tax expert with cloud accounts. He shared so

much with me so we had to split it into two episodes. This week is

part two, continuing my chat with Alan, and we cover how tax works in

Ireland, the evolution of the tax system in Ireland over time, how to

save money as a pay as you are an employee, and his best tax efficiency

tips. Thanks for joining me again and enjoy this second part of

my chat with Alan Purcell.

Okay, that's really interesting. You know, generally when you are

kind of guiding people through taxes in Ireland,

maybe just high level, you kind of alluded to it there. Do you want to

explain kind of high level how the tax system in Ireland works for

individuals? Maybe with reference to like income tax

USC? I don't expect you to know the thresholds for USC. I

never remember them off the top of my head. And social insurances, just even

high level how that works. I think our listeners would find that really interesting. Yeah,

for sure. So three taxes basically, in Ireland.

Income tax, which is a tax on your income, the universal social charge, or

the USC, which was temporarily brought in. Was it back in

2010, 2011, sometime in the deep, dark recession, on

a temporary basis. And here we are in 2024, still paying it.

And then the third one is Porsi, which is pay related social

insurance, and that is our social insurance contributions. I don't really understand

why it's called pay related social insurance because it doesn't seem to be in any

way related to your pay. I know my wife is

finishing up her maternity leave at the moment, and her maternity

benefit is the same as somebody who earns half of her salary and the same

as someone who earns double her salary. So PRSI is the

worst named tax I've ever come across. It's a really good

point. It doesn't make any sense and

PRSI, but it's probably the easiest one to understand. It's 4%

of your income is what you pay in PRSI. Your

employer is also obligated to pay P or SI, but that's nothing to do with

the employee. It doesn't cost you anything, it's on the employer to worry about. So

an employee just needs to know that 4% of their salary is going to

be taken in social insurance contributions. And that builds up what used

to be called stamps. Now they're just called, I think, social insurance contributions.

And that makes you eligible for a whole host of different

welfare and benefits, if needs be. Then the income

tax. As I mentioned earlier, we have two rates of income tax, 20% and

40%. In Ireland in 2024, the

20% rate of income tax exists on all income up

to 42,000 euro. And any income you earn above

42,000 euro is taxed at the 40% rate. Very

important to know that if somebody has a salary of 43,000 euro, it's

20% on the 42,040% on the 1000. You

don't suddenly get taxed at 40% on your entire earnings if you

breach. That's a really good point. Yeah, because that's a

panic and that would stop people. But I've heard anecdotally, people

who don't take on overtime, don't take on additional work because

they creep over that 42,000. And when you start adding in the income

tax, the PRSI and the USC, you're looking at somewhere between 48

and 52% of every euro being lost

in tax. As you mentioned, with the USC, there is a whole host

of bans and rates that I could not even begin to

tell you because they changed them manually. And just as soon as you've got your

head wrapped around. What are they? Change again? They change them again

all the time. There's a 0% to 2%, a 4.5% and an

8% rate of USC. The 8% one kicks in, I think it's at

70,044 euro. Why that isn't rounded down to 70

grand even is beyond me. I'd love to know. I don't know

why. Yeah. How much tax has been generated on that 44

quid times 8%. It's a strange one,

but it is what it is. I think they did change it.

I remember something when the budget came out, one of the bands was increased to

take into account an adjustment in the minimum wage, but it wasn't

the 70,000 euro one. So that was why they did creep it to a funny

one. And then the other thing that sometimes catches some of our clients, it's

rare, is if you go over 100,000 euro of

non pay as you earn employee income, you now go up to an 11%

rate of universal social charge, which is a real clanger. It brings your

effective rate up to 55%. That's it. Not a nice outcome for

anybody. But thankfully doesn't happen all that often. It's crazy. It

is crazy, isn't it? It's very high. Someone who comes into Ireland on a

PaYe salary of 100 grand plus doesn't need to worry about that. It's

only for basically self employed or non paes,

maybe rental income, something like that. Exactly.

A common trope or misnomer let's say, is

oh, I pay 50% tax in Ireland. Nobody, and I mean

nobody pays 50% tax. Not even the richest person in Ireland pays 50%

tax because our tax credits, or as I prefer to call them, your tax free

allowance absorbs quite a chunk of tax. Then you're paying 20%

rate up to 42,000. I know it's not high but it's just the fact. So

if somebody is actually paying 50% of their income away

in tax, they have a serious, serious problem and need to reach out to yourself

or myself to get a second set of eyes on it because something's gone wrong.

But any income over 70,000 euro,

unfortunately each additional euro above that threshold is hit at

a 52% rate and it's just, it's tough.

Now what can you do to get around that? My number one piece of advice

would be to invest in your pension because you can get tax relief on anything

that you put into a pension contribution. Your tax relief on your pension

contributions is given at the rate of income tax you're paying. So that's either

40% or 20%. And just to give a kind of a, I was

going to say a visual, visual example, an audible example would be somebody

who has a salary of, let's say 80,000 euro, they decide

to put 10,000 of that into their pension. They will get 40%

tax relief on that 10,000. And with that means is revenue won't charge them

4000 euro of income tax. So that 10,000 that gets

invested in the pension, it actually only costs the employee 6000 euro to

pay in. So if someone turns around to you and says would you like 10,000

euro for 6000 euro? That's an excellent deal. And that's how you would do that.

Yeah. And you know what, like I think, you know, you said something there at

the start that I thought was really good. You said, you know, nobody teaches,

teaches us this. And you know, one of the things that I

found as I've kind of gone through my career is just when you sit

down and think about the value of a pension. And

so firstly, a couple of facts, and I don't have hard statistics, but you know,

irish people, we're not renowned for being avid

pension contributors. In other words, we pay our PRSI, which obviously

gives us a certain level of comfort into retirement. But when we look at other

nations. So for example, a lot of our us clients, they are fantastic at paying

into their retirement plans. Irish people, we tend to be

lagging in that kind of mindset. But when you break down

exactly what you said, you know, you can put the money into a pension, then

it's going to sit in a pension pot and grow tax free. I mean that's,

that's amazing, assuming the investment goes up, because of course it can go

down. And then you get to retirement age where now your income level

has flattened. So your tax rate is now falling from arguably that

higher rate, hopefully to a lower rate. As well as the fact then that there

is a certain amount you can take as a tax free lump sum. It's a

no brainer, isn't it? It really is a no brainer if you can live without

the cash, put. It into a pension, it's tax magic. You get tax

relief on the way in. So you get it, yeah, you get a tax benefit

when you pay into the pension. You get the tax free growth in the pension

and you get a tax free lump sum with taking it out of the pension.

And as you say, you can be very strategic about the amount that you take

out annually then to make sure you hover below higher income tax

rates. It's pure magic. It's not very snazzy being

perfectly honest. The pension, I see loads of people saying oh I'd rather invest

in crypto or shares or ETF's or whatever it might be.

They all come with their own host of tax related issues,

let's call them, and they're also quite volatile, whereas pensions

are spread across a range of investments. And

yeah there's going to be plenty of people who will say, oh but you know,

my uncle lost his entire pension in 2011. These things

did unfortunately happen, but you know, that was possibly to do

with whatever way they were structured or set up with their financial advisors. Again, its

another days conversation but it really is. Pensions are tax magic.

The amount of saving you get on them from a tax perspective is

off the charts. But for some reason, as you say, were not

hugely into it in this country. I dont know what that is

but I think its changing and I think as

well exactly to your point, clients often say that to me.

I want to invest. And my response is, that's

exactly what you're doing with a pension. You are investing likely in exactly

the same assets that you could buy directly in your Jiujiro account

or your revolution account, but you're doing it in a tax efficient way,

albeit without the same level of, you know, you can't direct the investments in

the same manner. But, you know, most people don't want to become day traders.

Yeah, it's interesting to hear that.

That's the main advice. I mean, look, this is not. The intent

of this episode is not to kind of go through all the other ancillary tax

incentives in Ireland. There are some, aren't there? There are certain schemes.

I don't know if that's something that you find a lot of your clients gravitate

towards. We've got like the EIS scheme and different things like that. They

tend to come with a lot of red tape, don't they? For most

individuals, if you want to save taxes as an employee, you need to

basically approach an advisor if you're going to kind of

do something outside the realms of what we're discussing. Would you agree with that? Or

did you see, there's other things on the table that we haven't

added to the discussion yet, the likes of. An EIS, which is a

big tax saver. Again, up to 40% tax relief on those. I

mean, they sound great and they are great, but they're kind of.

They're not as common, maybe, as you might be led to believe, I don't think.

And, yeah, accessing them, sometimes it can be capped the

amount you can put in, or there might be a minimum investment even to put

in, so they mightn't be attainable for somebody who's kind of

just getting by, but wants to be tax efficient. So they do come with their

own kind of traps and pitfalls. And then also, yeah, they usually have to be

done through an advisor who might take a bit of a commission on the way

into that payment. I've never done one myself. I've always toyed around with the idea

of it. And then, to be perfectly honest and boring, I just take that

money and throw it into the pension instead, because it's just. It's the safer

bet, I suppose. With an EIS, you're investing in one

company, it's not diversified, and if that company goes to the wall,

your investment is gone, albeit you will still get your tax relief.

But it's just a little bit more, I suppose,

volatile or unsafe than your pension can be. But look, this

isn't a pension sales pitch by any means. It's just

we don't have amazing investment options

available to us in Ireland. I mentioned earlier about ETF's other

countries will heavily promote ETF's in the

UK. They have their isas in Ireland. We just don't do these things.

It's all really funneled through capital taxes.

Our annual exemption from capital gains tax at

1270 euro, which was 1000 pounds back in the day,

is shockingly low. And then our capital gains

tax rate of 33% is quite high compared to some other jurisdictions.

So I've dealt with plenty of clients who've moved to

Ireland from overseas. And you start talking about these things and you would deal with

the daily stuff and people are just flabbergasted in Ireland, at

the rate of tax they pay, whether it's on income, whether it's on

capital, whether it's on inheritances and gifts, it just

seems to be getting them from every angle and very, very difficult

to avoid. Yeah, I am inclined to agree with you.

And I think sometimes when people

do what we all do, they go to Google and they start to search. It

can feel a little bit hopeless, can't it? And I think

where I would try to stress to clients is, yes,

there's limitations. Ireland's a poster child for low

corporate tax rate. That doesn't mean that our individuals are taxed at a

low rate. Some would argue that perhaps the individuals plug the

gap to some extent, but it does

always reinforce in my mind the value of getting good

advice from somebody like yourself, I suppose, you know, I would look at tax

efficiency as being relevant when different life events

happen. So, for example, you know, you touched on it earlier, if you've just

gotten married, you know, make sure that you've updated

your my account to reflect that, you know, as soon as you can so you

can get the tax credits. If you are planning to retire, sit down with

your financial planner and a tax advisor. Think about what it looks like if you're

moving to a new country, take advice before you go. If you're thinking about

your retirement or passing on your assets, you know, write your will

with the reliefs we have in mind. It's sometimes about being

proactive, isn't it? Rather than resigned to a terrible outcome. Maybe I'm

overly optimistic. What do you think? No, you're right, because, like,

speaking from experience, revenue won't do this for you. Like,

and you mentioned at the start of this, steph, when revenue owes you money, they

will have that back in your bank account nine times out of ten in a

couple of days. They're unbelievably good at that, but they will not do it for

you. And you've probably seen it with some form twelve s. Anyone

who's never filed one of these before, when you click in and literally get past

the first screen, it will say to you, underpayment or overpayment or

balance. And as I say, it's very rare, you'll see

underpayment. A lot of the time you'll see balance, which means it's all

square. And then if there's an underpayment there,

that's revenue acknowledging, sorry, an overpayment, if that's revenue

acknowledging that they owe you money. And I've seen that overpayment in the four figures,

like into thousands, but revenue won't write to you and say, alan, we

owe you 1000 quid, file your tax return. So it's a very strange situation that

we aren't obligated to file our PAYE tax returns. And then obviously

because we're not taught this in school and because people are fearful of revenue in

Ireland, they don't do it. And then you click in and there's a nice little

surprise waiting there. So, you know, I would just encourage people

click into the system, have a look at it and fingers crossed

that there's something to be claimed. And then start looking at the common

ones. And when I talk about the common ones, going back to what I said

earlier, it's medical expenses, medical insurance if you're employer pays it, working

from home rent, tax credit if you were renting, possibly home

carers, possibly single parent tax

credits for anyone who might be in the situation. And again, just google

it and find out because there's so many of them, that you'll be surprised

how almost straightforward it is to get some money back out of the system.

And if you can get a couple of hundred quid for sitting down for half

an hour and going through that, that's a pretty good rate of pay that you

mightn't even get at work. So it's definitely worth doing. I know I

always get asked as well. Can I just pay one of the rebate companies to

do us? You can. And just anyone who's listening and goes through

that, just beware that they'll do it annually, kind of for

you without your express permission because you've signed up once. And also they'll change

your bank account details to their own and your refund will go to them and

you lose your commission before you get paid. So not here to give out about

them, but just to be aware of what you're getting in for.

Or follow my instagram page where I'll show you how to do it. Or worst

case, book in with me for a once off. We'll do it live together and

a consultation and you'll be armed with the knowledge and confidence to go off

and do this yourself forever. I would really recommend

that anybody listening to this who maybe has come to Ireland as a

pay as you are an employee and just wants, you know, a 101

on how to kind of ease into the system and they don't have

complicated scenario. I think that consultation with you

would reap dividends for years to come. It's a no brainer

because I did one with a client the other day and,

you know, her situation was slightly complex, but she was. She was

overwhelmed by it and, you know, it's easy for me to sit here and say,

oh, she shouldn't have been. It is overwhelming, you know, you don't know

what you don't know. And we're all busy. We all just want

kind of things done simply and quickly. So, yeah, I think

your service is invaluable. It really, really is. I want to quote as well, it's

not. I'm not going to take it as my line because I'd be plagiarizing him.

But Mark Westlake, who we interviewed on this podcast a few weeks

ago, he's a financial planner. He says, if you haven't

written an estate plan, don't worry, revenue have written one for you. And I

just. I think it's funny, but it's also really true that if you

are unfortunately lackadaisical about this,

the outcome will be what it is, being proactive. You

will be rewarded in 99% of the cases for being an

employee. When you're an employee situation, and maybe just for the avoidance of doubt,

if you are somebody who has a more complex situation, you

do move into the realm of having to file a tax return, you know.

So if you have non employment income of over 5000 euro, you must

register with revenue. This episode is not geared towards you.

But of course we'll have other episodes coming that will be. So maybe

that's our next topic. Alan, thank you so much. If you had

to give people three takeaways from today's episode, what

would they be? Yeah, three takeaways. One would be,

do not be afraid of this. It's nowhere near as bad

as you might think. Filing a tax return. Secondly,

kind of following on from that almost would be, just believe in yourself, you can

do this. You don't necessarily need to outsource it or

pay somebody to do it for you. If you can operate a computer and

if you can pull out your bills and your receipts, you're

90% of the way there. And third takeaway

would be, just do it. As simple as that might seem,

just do it. Because you're going to be surprised at what will come out. It's

almost like shaking a tree and seeing what falls. And you could be in

for a very, very nice surprise when you go through

that tax return system. I think you're like the Robin Hood of the tax world.

I think it's brilliant. Myself and

one other person that are on Instagram who's actually, and I'll say it here, her

name's the remote bookkeeper. You've probably come across her, Steph. She's on

Instagram and she does, similar to me,

is just trying to just open up the irish PAYE

tax return system and show people how manageable and straightforward it

is. Her page is worth following. It's the remote bookkeeper on

Instagram, or follow cloud accounts, Ireland on Instagram. And between the pair of us,

we are trying to just get money back and revenue probably hate us, but,

yeah, it puts smiles on faces when we see people saying, I got

a grand, I got two grand. Obviously, don't anyone who's listening, I don't get

your hopes up that you're going to get a couple of thousand back. It's not

always the case, but even if it's a few hundred, whatever it might be, it's

so much better in your pocket than in revenues. And as I

said earlier, every year they come out and say that there's hundreds of millions

of euro overpaid in PAYE taxes and. But it's on

the taxpayer, the employee, the PAYE worker to go and

do this themselves and reclaim that money. So please go and do it

totally. And maybe just a final word for me.

Remember, you're getting your own money back.

Sometimes we forget that, don't we? This is your own

money on that. Your follower, Dave Ramsey in the states, and

he saw a comment from him before like that when you get your

tax return and your money back from, well, ir's over there, but revenue

here, you shouldn't really celebrate it because you've just given the government an interest free

loan for however long they held on to your tax overpayments.

Exactly. It just feels like once you ask their permission

to give you your own money back. It's a win. But look, it is.

Anything that goes into your bank account versus out feels like a win, and

this feels like a win. It's been a great episode. Thank you so much, Alan.

It's been fantastic to talk to you. I think a lot of our listeners are

going to be following your Instagram account. So just for the avoidance of doubt.

Cloud accounts. Is that where they'll get you? On Instagram? On

Instagram? It's loudaccounts Ireland. Somebody else out there beat me to

the the good ones. So it's at Cloud accounts Ireland.

Awesome. Fantastic. Thank you so much. Okay, brilliant. We'll have to

arrange to have you on again. And thank you so much for your time. It's

been absolutely fantastic chatting with you. My pleasure. Thank you so much.

Thanks for listening to Taxbytes for Expats. Please do leave a

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remember to take professional tax advice specific to your

personal circumstances before acting or refraining from action

in connection with the matters dealt with in this series. The material

in this podcast is intended to give general guidance only.