How This Business Owner Paid ZERO Tax on his Rental Income
Case Study:
James, age 56, is a business owner with a salary from his company of €80,000 per annum.
He also has rental profits of another €28,000 in 2020.
He had an income tax bill to pay before the end of October 2021 of 40% on the €28,000 rental profit = an €11,200 income tax bill. His accountant said that he would also have to pay an additional €11,200 preliminary tax for 2021, which makes a total of €22,400 tax to be paid now.
How did James avoid paying this €22,400 tax bill now?
James paid a personal contribution of €28,000 into his company pension. By doing this, James claimed 40% tax relief on the pension payment which is 40% X €28,000 = €11,200 tax relief.
The €11,200 income tax bill on his rental property is then offset by the €11,200 tax relief he can claim on the pension payment = €0 income tax now due on his rental profit. He also can now avoid paying the preliminary tax for 2021. So, in total then, he pays €28,000 into his pension and avoids paying €22,400 tax now.
James was still liable for USC and PRSI on the rental profit.
If you require more information, you can contact me on 01 5267770 or email mcoburn@guardianwealth.ie
COMPLIANCE & FINANCIAL MANAGER
Michael has been providing tax, investment and lifetime financial planning advice to clients since 2005. He has an in-depth understanding of Business Owners and their requirements, which allows him to guide his clients through the complex world of long-term financial planning.
