Taxing times – how to reduce the tax you pay without using a pension

Are you sick of seeing adverts from the life assurance companies about pensions and wondering is there anything else I can do?  Whilst there are very few tax saving schemes available in Ireland, especially for PAYE workers, there are ways we can reduce our tax bill NOT using a pension.  The main scheme which is an alternative or compliment to pensions and is not commonly known amongst the general public is called the Employment Investment Incentive Scheme (EIIS for short).  It is really the only other game in town for higher Tax rate payers (those earning over the new standard rate threshold of €35k per annum, or if they are married and taking their spouses allowances €45k per year).  It is an investment Irish individuals make into an Irish company.


There were over 260 companies approved under this scheme last year.  Whilst this sounds a little risky there are some really well established, very profitable companies in this space, which can make it a low risk investment.  So why is everyone not falling over themselves to do this ?   Well partly because they don’t know about it.  There is also one other qualification.   You need personal cash to do this.  As an example if you have €5,000 in a bank account and earn over €40,000 per annum salary you would qualify.   You  would need to invest this €5,000 for 4 years.  In return the government will give you €2,000 back of tax you have suffered this year already, by way of a refund.  Thirty percent (€1,500) in the first 6 to 9 months and the final ten percent (€500) at end of 4 years when the scheme ends.   The company you “lend” this money to would also be expected to give you a return for your money of circa 20%, equivalent to 5% per annum on a simple interest basis.   So you should expect €6,000 back for a net investment of €3,000.  I always tell clients to be wary of advisors promising to double their money, but this is genuinely one situation when this phrase rings true.








 Fig 1: Key feautres of EIIS Source: Cantor Fitzgerald

Many of you may have dependents and thus life cover to protect them in the event of your premature demise.  Did you know that you can insure your family with life cover but get tax relief @40% on the cost of it.   For those of you with a company, even better is you can get the company to pay for this cover and in the event of your death the proceeds will go to your dependents Tax free.   This is a product called pension term assurance and is greatly undersold in the world of financial advisors.   Why might you ask ?  Well, as a financial advisor for over 20 years, in my opinion it is for 2 reasons.   The first is down to lack of understanding from advisors in the industry of the product.  The second, and personally I think the biggest reason, is that the commission paid by the insurance companies is less for this product than it’s more expensive relatives (life cover and serious illness cover).  You might be wondering how an industry so heavily regulated is allowed to do this.  Well, unfortunately, the insurance industry has a way to mask products and benefits and my experience is many brokers are not going to jeopardise their commissions for the virtue of customer optimisation.


Don’t miss a trick

For those of you with health insurance provided by your company, you might be missing a trick also.   Whilst health insurance carries the dreaded benefit in kind for an employee, there is tax relief of 20% on the cost, (subject to a cap of €200).  It is important for employees to ensure they are getting this relief as it is not automatic.  If you find out that you are not getting this relief, the good news is this can backdated for 4 years, so potentially there may be €800 you may have unclaimed.  A call to your local tax office can sort this out.


The above 3 products are all examples of ways to get tax back from “Mr. Collector General”.  There are a few others but too many to list in this piece.  As a start, I would always advise that people get proper independent financial advice and also to shop around.  The easiest way to overspend is to take the first option presented to you.


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