The Gazette 1978

JULY-AUGUST 1978

GAZETTE

SOCIETY OF YOUNG SOLICITORS SECTION Solicitors Personal Taxation Diarmuid Murray, B.L. A.C.A.

It was suggested that policies of insurance for future liabilities such as school fees are well worth while as they ensure that inevitable liabilities can be met out of tax free rather than after tax income and the cost of providing that income is tax deductible. In relation to pensions an individual may deduct from his taxable income in a year of assessment any qualifying premiums paid by him under an annuity contract with a person carrying on life annuity business in the State but the contract must preclude (1) any payment to the individual other than an annuity commencing between the ages of 60 to 70; (2) any payment after his death other than an annuity to his/her spouse or if no annuity becomes payable a return of premiums plus interest. The Pension Scheme must be approved by the Revenue. At present there is a limit of 15%of net relevant earnings which the Revenue permit to be deducted. It was recommended that insurance be effected to prevent a penal tax burden being created on the death of a partner. The most usual method would be for each partner to take out a policy on his or her own life which for consideration is assigned to the other partners. Other schemes dealt with in outline in the paper are (1) Interest free loans to employees. It is argued that such loans would be a benefit in kind (and taxable) but the Revenue have not sought to tax that benefit. (2) It is settled case law that a payment for success in examinations is not taxable. (3) Seven year covenants provide tax relief on the full amount of the covenant for the donor but the recipient of course is taxed on the amount received. (4) The Income Tax Acts Schedule 2. states any holder of an office or employment who incurs expense in keeping and maintaining a house to enable him to perform his duties, the expense may be deducted from his income. Does this apply to cars also? Did you know that (i) It was not until 1872 that the first moves were made to have a minimum age limit imposed on persons drinking in public houses. (ii) It was with the idea of weaning the nation from spirits to beer and at the same time giving a boost to agriculture that the Beer Act of 1830 was passed which gave the right to sell beer to anyone who paid an excise fee of two guineas and which subsequently caused the Rev. Sydney Smith who had supported the free sale of beer to say "Everybody is drunk. Those who are not singing are sprawling. The sovereign people are in a beastly state". (iii) Under a statute of James I severe penalties were imposed for drunkenness and rowdiness in public places unless occasioned by an over indulgence in claret or champagne. 119

This paper delivered at the Society's recent Seminar in Killamey by Diarmuid Murray was very informative and should assist not only the recently qualified solicitor but also those who are now senior partners in the larger firms. It is impossible to summarise the paper in such a small space and it is recommended that it be read by those interested in how to avoid paying more tax than is necessary. The paper deals with both Schedule D. Case 11. and Schedule E. Income Tax Payers and points out that expenses deductible from Schedule D Case 11 income are those incurred wholly and exclusively for the purpose of the business. This applies to all expenses other than entertainment which is subjected to the same test as that applied to Schedule E. expenses namely that it must be incurred wholly necessarily and exclusively for the purposes of the business. "Benefits-in-kind", which are taxable, such as Company Cars (the position of Company Cars has been altered by the recent Budget provided the car costs less than £3,500) are also discussed in some detail and the basis of assessment is explained. The value of the benefit to the individual employee is computed by reference to the actual expense borne by the employer. Income Tax is payable by a practice on an earning's basis (fees billed during the year less expenses incurred plus increase in work-in-progress during the year) or a cash basis (fee actually received during the year less expenses paid and/or incurred during the year). The Revenue appear to accept either basis but during the first three years of a practice they will insist on the earnings basis being used and then subject to satisfactory undertaking to collect fees regularly and frequently a change to the cash basis may be made. Mr. Murray suggested that in order to avoid paying unnecessary tax more use might be made of (a) Life Assurance Relief whereby insurance is purchased and relief from Income Tax is given for the premiums paid. Mention was made of Life Assurance based endowments funds, guaranteed income bonds, borrow-all endowment policies and pensions. (b) Interest Relief whereby at present relief is available for interest not exceeding £2,000.00 per annum with two exceptions where further relief is available: (i) there is no restriction on interest on money borrowed to acquire an interest in a partnership. (ii) An additional relief of up to £2,000 is available for bridging loans. In relation to borrow-all endowment policies we were informed that after two years premiums have been paid the life office must be prepared to hand to the insured up to 70% of the surrender value of the policy. After paying the second premium approaches are made to the life office to borrow on the security of the policy a sum equal to the net after tax premium. Combined with Tax Relief on the gross premium the result is that the tax payer bears no expense and the borrowing is repeated annually.