Income Producing Investments

[Zion2022]

Does anyone have any views on good investments for producing income (dividends, rents etc.)

Up until now my wife and I primarily invested in ETFs (pre tax rule changes). More recently it’s been a bunch of stocks, but predominantly Berkshire Hathaway (which pays no dividend).

My wife will be giving up work in the next while when we have kids, so looking to maximise her income bands @20% and also look for her to keep paying PRSI for state pension. So essentially we’re moving from wanting to maximize capital gains to maximising income instead.

We can probably pull together about €200k by the time she stops working.

Ideas thus far
• cheapish rental. This has highest yield by a mile but hassle and no diversification. I know everyone gives out here and says landlords are leaving, but strongly of the view this is because they’re all paying 50% tax and 7% interest on BTL mortgages, neither of which we’d have to do.
• some high paying dividend stocks. Seem to max out at 4-5% and generally not sectors I’d invest in normally.
• REITs. Pay decent yields and more diversified but have vastly underperformed direct property investment.

Rental does seem most attractive and my wife would be able to manage it on the side I guess.

Any ideas appreciated.

 

[KOW]

Maybe money makeover to get decent feedback?

 

[Zion2022]

Maybe money makeover to get decent feedback?

Did one back in the summer and got some great feedback which I’ve now implemented.
Paid down some mortgage debt, fixed longer term at a very low rate.

Only change really since that makeover is my partners work plans.

Now just looking to press ahead and make the most of our excess saving ability. Some will continue going into overpaying mortgage, but just hard to ignore that the rent on a 200k apartment would be nearly double the interest on our 600k mortgage which is locked in for 5 years.

 

[Marc]

Does anyone have any views on good investments for producing income (dividends, rents etc.)

Up until now my wife and I primarily invested in ETFs (pre tax rule changes). More recently it’s been a bunch of stocks, but predominantly Berkshire Hathaway (which pays no dividend).

My wife will be giving up work in the next while when we have kids, so looking to maximise her income bands @20% and also look for her to keep paying PRSI for state pension. So essentially we’re moving from wanting to maximize capital gains to maximising income instead.

We can probably pull together about €200k by the time she stops working.

Ideas thus far
• cheapish rental. This has highest yield by a mile but hassle and no diversification. I know everyone gives out here and says landlords are leaving, but strongly of the view this is because they’re all paying 50% tax and 7% interest on BTL mortgages, neither of which we’d have to do.
• some high paying dividend stocks. Seem to max out at 4-5% and generally not sectors I’d invest in normally.
• REITs. Pay decent yields and more diversified but have vastly underperformed direct property investment.

Rental does seem most attractive and my wife would be able to manage it on the side I guess.

Any ideas appreciated.

Just to be clear, there hasn’t been a “tax rule change.” The position that applied prior to issue of Revenue Ebrief now applies again.

Some non EU ETFs and some Investment trusts will still be taxed under general tax principles.

 

[Zion2022]

Just to be clear, there hasn’t been a “tax rule change.” The position that applied prior issue of Revenue Ebrief now applies again.

Some non EU ETFs and some Investment trusts will still be taxed under general tax principles.

Wow, wasn’t aware and that could be game changing, thank you. Anything you can link to on this?

The only other issue I had encountered was the non EU domiciled ETFs which had the favourable tax treatment got removed from my investment platform (I think due to them not providing KIID). How do you access these?

 

[Marc]

Wow, wasn’t aware and that could be game changing, thank you. Anything you can link to on this?

The only other issue I had encountered was the non EU domiciled ETFs which had the favourable tax treatment got removed from my investment platform (I think due to them not providing KIID). How do you access these?

You can access non-EU ETFs via a discretionary portfolio service. I have developed one specifically for this purpose for Irish investors

Everlake Guide to Investing in Ireland - Everlake

Our Guide to Investing in Ireland aims to help you understand the relatively complex Irish tax and investment landscape.

everlake.ie

 

[bstop]

She will get S class Prsi from investment or rental income of a minimum 5000 euro per year, provided that this is her only source of income. If she was to be employed and paying for an A class Prsi contribution in any year, then all her investment income or rental income for that year will be at K class Prsi. This will happen even if she has only one A class paid contribution. A class Prsi credits can be gained in any year without causing the investment or rental income to change to K class Prsi. K class Prsi is not reckonable for state pension.

 

[Groucho]

She will get S class Prsi from investment or rental income of a minimum 5000 euro per year, provided that this is her only source of income. If she was to be employed and paying for an A class Prsi contribution in any year, then all her investment income for that year will be at K class Prsi. This will happen even if she has only one A class paid contribution. A class Prsi credits can be gained in any year without causing the investment or rental income to change to K class Prsi. K class Prsi is not reckonable for state pension.

If his wife is giving up work "in the next while when we have kids" then would she not eligible for the Homemaker Scheme PRSI credits?

 

[bstop]

If his wife is giving up work "in the next while when we have kids" then would she not eligible for the Homemaker Scheme PRSI credits?

I don't know anything about the Homemakers Scheme, but as below it seems that Prsi credits might only apply during the begining and ending years.



Under the Homemaker's Scheme any years that you spent as a homemaker (since 6 April 1994) are ignored or disregarded when working out your yearly average contributions for a State Pension (Contributory).


A homemaking year is a year in which you are out of the workforce for the full tax year (only a full year can be disregarded).

Up to a maximum of 20 homemaking years can be disregarded for State Pension (Contributory) purposes.

Homemaker’s credits can be awarded for part of a year at the start of the homemaking period - from the date you become a homemaker up to the end of the tax year.

Homemaker’s credits can also be awarded for part of a year when the homemaking period ends - from the start of the tax year up to the date you stop homemaking.

 

[Zion2022]

She will get S class Prsi from investment or rental income of a minimum 5000 euro per year, provided that this is her only source of income. If she was to be employed and paying for an A class Prsi contribution in any year, then all her investment income or rental income for that year will be at K class Prsi. This will happen even if she has only one A class paid contribution. A class Prsi credits can be gained in any year without causing the investment or rental income to change to K class Prsi. K class Prsi is not reckonable for state pension.

So the year she continues to receive employment income = A class contribs.

Years she is not working at all but has >5k rent/dividend = S class

Both reckonable.

But if she has a partial year worked, the other income goes down as K class which isn’t so she might not get full contributions for the final partial year when she gives up work?

I don’t get the sentence around ‘A class can be gained in any year without causing other income to change to K class’

Seems to directly contradict the sentence before it. Perhaps I am reading incorrectly.

 

[bstop]

For the partial year she gives up work her rental income will be K class Prsi.
If she claims Jobseekers Benefit on ceasing employment she will get Jobseekers Prsi credits for the period she is being paid this benefit. When the Jobseekers Benefit ends she could continue signing on for A class credits. Her income from rental will remain as S class Prsi while receiving A class prsi credits. It will only change to K class Prsi if she has A class prsi paid contributions i.e. if she is in paid employment.

The danger I am trying to warn you about is that if she gets any paid employment, even if only for one week per year she will loose the pension qualification advantage from her rental income for the entire year.

 

[Groucho]

I don't know anything about the Homemakers Scheme,

Evidently!

It's not the most straightforward, but it works well for people (mainly mothers) who leave the workforce for a period to raise children (under 12).

For partial years, one gets Homemaker Scheme credits while any full year spent raising kids means that the TCA denominator is reduced by 1.

If the scheme is availed of to its full potential, a participant could get the full state contributory pension although they have only paid PRSI for 20 years.

 

[bstop]

You are mixing up the HomeCaring Periods Scheme with the Homemaker's Scheme Groucho.

Separately they are very straightforward.

​

 

[Groucho]

You are mixing up the HomeCaring Periods Scheme with the Homemaker's Scheme Groucho.

Separately they are very straightforward.

Perhaps.

Bottom line is that if Zion's partner opts out of the workforce to raise a family, then she won't have to bother about paying any reckonable PRSI contributions until her youngest kid turns 12, which means that all what they need to focus on is maximising their income from investments.

 

[bstop]

HomeCaring Periods Scheme is not allowed when a person is engaged in self employment. If Zion's wife has investment income over 5000 euro per year she might be classed as self employed and excluded from this Scheme.

Also as below

Home caring periods are awarded where a person had taken time out of the workforce to provide home care, and did not, as a result, have a paid or credited contribution or a reckonable voluntary contribution on their social insurance record. Therefore they will not be awarded for any period during which the applicant had a paid or credited contribution or a reckonable voluntary contribution.

S or K class paid contributions from investment income might therefore result in exclusion from this Scheme.