THE start of a New Year brings the promise of a fresh start and a new beginning. It is a great opportunity to start afresh and get one’s house in order. That is actually harder than you might think, particularly if you do not know where to start.
Consequently, I have identified 10 financial planning opportunities you can implement, that will make a real difference to your financial future.
It amazes me how much cash can be saved if one decided to scope this option. The latest figures from the Central Bank shows that the average Irish mortgage rate is 2.78%.
Many punters are not aware of the rate they are paying, so it is important to check yours out. The Central Bank estimate that 182,272 mortgage holders could get a lower rate. A fixed rate with new mortgage entrant avant money for three years with an LTV (loan-to-value) > 80% comes in a 2.35%.
On a €300,000 loan over 25-year interest and capital mortgage, would result in a saving of circa €19,500 over the same term. Contact a mortgage broker to see if this is an option for you.
Alternatively, if you prefer to do all your business online look at a recently launched mortgage platform called Switcheroo. If you are currently on a tracker mortgage, sit tight and stay on the bridle.
Mortgage protection cover and life cover
Most of the main banks are tied to a life assurance company (for example AIB is currently tied to Irish Life and Bank of Ireland to New Ireland). If you need a mortgage protection policy to cover your mortgage, you should consult a financial advisor (who is not a tied agent) and ask for a quote.
Furthermore, if you have a mortgage protection policy for a few years, conduct a similar exercise using the outstanding mortgage and remainder term at that time.
You will be pleasantly surprised the savings you can achieve. The same exercise can be done for any guaranteed Term Life Policies you have in force.
Educational fees planning
One of the constant financial goals I regularly hear from clients is “I would like to give my son or daughter a decent education”. There is no free lunch nowadays where education is concerned.
The USI in Ireland estimate that the cost of putting a student through college away from home to be €10,000 per annum. Many third level courses last three to four years and if you throw in a master’s you could be looking at €40,000 per student in today’s terms over a four-year time frame.
Have you a plan in place to fund this potential serious cost? Plan early! A regular monthly investment plan with a long-term time frame (10 years plus) would be a great way to achieve this financial goal. Chat to a financial advisor to start planning for this financial goal.
Self-administered pension scheme (SSAP) – property purchase
This is an extremely tax efficient way to purchase an investment property. The property purchase through your SSAP however, must be at arm’s length.
Any growth in the value in the property is tax free and the rental income payable into the trust, is also tax exempt. If you have an appetite for property and have significant pension pots, this might be an option to consider.
Bear in mind diversification of asset classes is key to reducing one’s overall risk. We are all too aware of the catalyst behind the financial crash of 2008/2009.
Small capital acquisition tax annual gift exemption
This a very useful exemption whereby an individual can gift up to €3,000 annually tax free to any individual. In the event of a couple they can gift €3,000 annually each. That is a total of €6,000 per couple to each of their children.
Consider gifting up to €6,000 each year to your son or daughter. A regular monthly or yearly savings investment plan could be a very effective way to do this if you have an investment time frame of circa five to seven years.
This is another area that many taxpayers sometimes overlook. You can claim these expenses back against your income tax for unreimbursed medical expenses every year through your tax return form.
Relief is granted at your standard rate of tax. So, keep all medical receipts for the year (GP visits, consultant’s fees, physio, prescriptions, etc.). The quickest way to submit your tax return form is by using the online revenue service myaccount.
A Med 2 form should also be completed for non-routine dental treatments (e.g. crowns). Your dentist or orthodontist should be able to complete this form for you. Once you have the form, keep it on your tax file and submit your claim using the revenue online service, myaccount. The Med 2 form does not have to be submitted to revenue.
School pupils personal accident scheme
Not many parents are aware that their children are more than likely covered under this schools group personal accident pupil’s scheme.
It is a group personal accident scheme with Allianz that covers students while they are in primary or secondary education. The premiums are extremely competitive and normally most schools will include the cost in your yearly contributions to the school. It can provide 24-hour personal accident cover for your son or daughter, including all sporting events both within the school and for sporting activities outside of the school.
There is no excess on any claims. Check this out with your local primary or secondary school that your son or daughter is covered under the scheme.
It is very important to have an emergency fund just in case you need to get your hands on some funds in a hurry. I would recommend at least six months living expenses in this pot and for those in their retirement years the bones of two years expenses.
The funds need to be easily accessible so a short-term easy access deposit account would be the most suitable account for this possible need. Your local bank or post office would be able to accommodate you in this regard.
Wills and enduring power of attorney
Two out of three Irish people have not made a will. I would recommend to anybody who has not made a will to consider doing so immediately.
Speak to your solicitor and while you are at it, discuss the concept of an enduring power of attorney. An EPA is when you appoint someone to look after your personal and financial affairs should you lose your mental capacity. It does not come into effect until this happens.
Inheritance tax planning
With proper advice and planning one can reduce or eliminate this tax. When making a will, you should formulate a succession or inheritance tax plan. The main purpose of such a plan is to clearly establish the liability that may arise for the beneficiaries.
You can then devise a strategy to reduce or negate this tax. A section 72 life policy will cover any potential inheritance taxes on your demise that the beneficiaries will have to pay. It is important that such a policy is taken out when you are in good health and have the necessary cash flow to pay for it. The premiums must be paid personally by you.
Niall Rooney B.Comm.ACII.QFA.FLIA is a financial planning manager with CityLife Galway. 091 520608(W) email: email@example.com.