Are we tax compliant?

ReggieK

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I have a small pension on top of old age pension and my wife's old age pension. We qualified for tax free status as our income is below 36K.
However, we also have post office savings which are supposedly tax free and when applying for tax free this was not queried, there was no mention anywhere on any form regarding this. I saw an article recently stating that the revenue take this interest into account when assessing qualification. The interest on these savings would take us above the 36K but this is extremely difficult to work out as the interest rate is over 3 or 5 years.
Does anybody know what the situation here actually is?
 

Protocol

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"I saw an article recently stating that the revenue take this interest into account when assessing qualification."

Qualification for what?


Are you in receipt of contributory or non-con State pensions?
 

Sarenco

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Interest payments on relevant State Savings products are tax-free regardless of your income.

I suspect the article you read related to the eligibility criteria for mean-tested State benefits.
 

ReggieK

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Thanks for your reply Sarenco.
The article in question was in reply to a query regarding declaring post office savings. In the reply it stated "the only time the interest on An Post savings is relevant to tax authorities is in assessing if you qualify for old age exemption threshold on income"
So just wondering if this is correct as we qualified, but, Post Office savings didn't come into the equation??
 

Sarenco

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Ah, I see.

Yes, gross interest payments should be included in the total income calculation for the purposes of the exemption. If the interest payments bring you marginally over the exemption threshold, you only have to pay tax on the excess.
 

ReggieK

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I don't understand why you would have to pay tax on any of the interest as it is supposed to be tax free. There is also just interest, no gross or net.
If we were not assessed as tax free we would not be paying tax on this interest, true or false?
 

Sarenco

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Your total income (including interest) up to the exemption threshold is exempt from income tax.

The excess of any income over the exemption threshold is subject to tax.

So, if your total income is €36,100 (including interest received) you are liable to a grand total of €40 in tax.

In other words, it's not that the interest on the State saving product has ceased to be tax free - it's just that the interest has brought your total income over the exemption threshold. That doesn't mean you revert back to the general tax regime - you just pay tax on the excess over the exemption threshold.
 
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Gervan

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You don't have to apportion your interest over the 3 or 5 years. Only count the interest you actually receive in the year.
 

ReggieK

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Thanks Guys, however, I am totally confused now, if the above is the case it basically means (to me) that state savings are not tax free. It states categorically on An Posts site that they are totally tax free
 

Sarenco

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Maybe think of it this way - the interest on the State savings product continues to be tax free but that element of your total income (including tax free interest) over €36k is taxable.

Is that any help?
 

ReggieK

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Sarenco you are being very helpful and I appreciate your time. I take in approx 31k a year between old age and small personal pensions. However, we have post office state savings for many years. No-one has ever bothered about them and we shoved them forward when they have matured. If what you say is correct I don't know how it could be worked out what we would owe, but there must be countless people out there who have no idea these things are in fact taxable, when all said and done
 

noproblem

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They're not taxable, but when (interest) is added to your income then that's a completely different scenario. Sarenco has explained it very simply and it's very easy to understand.
 

Sophrosyne

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If what you say is correct I don't know how it could be worked out what we would owe, but there must be countless people out there who have no idea these things are in fact taxable, when all said and done

Reggie, you might be confusing two things.

Income for tax exemption purposes on the one hand and taxable income on the other hand.

Interest received* on post office savings is taken into account only to determine whether your income for a year is equal to or below the exemption limit for that year.

That does not mean that it is taxable.

It just means that if your income including interest on post office savings takes you above the exemption limit for a year you would lose the exemption for that year and be taxed in the normal way on your income excluding post office interest.

*Remember, that it is only the interest you actually receive in your hand for a year that is taken into account for exemption purposes.
 

ReggieK

Registered User
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Thanks Sophrosyne
This is the first answer this thick eejit sort of understands. Still not quite certain what I would actually be taxed on. If I lose the exemption not sure what tax would be applicable to our total of 31K between us?
 

Sophrosyne

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At present you have an income of €31,000. The exemption limit is €36,000.

So the interest received would have to be greater than €5,000 in any one year to bring your income above the exemption limit.

Is that likely?
 

ReggieK

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The interest available would be well over that, but we would normally just re invest it again and possibly take an amount of the interest if required.
Hope that makes sense
 

Sarenco

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As long as the amount of interest that you actually receive (as opposed to rolling it over) doesn't bring you over the €36k exemption threshold in any single year, there's no issue.
 

Gervan

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As long as the amount of interest that you actually receive (as opposed to rolling it over) doesn't bring you over the €36k exemption threshold in any single year, there's no issue.
Isn't it the interest on maturity that applies here? If you are reinvesting some of the income that doesn't reduce your calculation.
 
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