Is my effective marginal tax rate closer to 85%?

C

Cameo

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Or am I talking rubbish.

So I earn well over the threshold so that max tax, usc and PRSI apply. Standard thinking is that I pay a marginal tax rate of 52% (ish).

However, if I also have sufficient assets where CAT of 33% will ultimately apply to the beneficiaries of my will am I actually paying closer to 85%.

This assumes I don’t spend all my income prior to kicking the bucket.

As I haven’t breached the threshold for my pension fund I do get some offset as a result of making pension contributions, but am i in effect paying 85% marginal rate?

Shoot at will and tell me where the holes are in my thinking.

Thanks Cameo
 
charlie007 said:
No, It's your beneficiaries pay the CAT. But I do understand your frustration:)
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I realise it's the beneficiaries that pay hence the reference to in effect,

I guess it's all one big pot where myself and family members are concerned

Another disincentive to work as if i dont have enough already
 
Doesn't the CAT burden reset to zero on inheritance after you die. Inheritance tax kicks in instead on threshold over €400k?
 
It's your choice not to spend your income, so you can't really view it as a marginal tax rate of 85%
Also - CAT of 35% would be on the 48% net left, leaving approx 30% of your original earnings (ignoring tax free allowances etc) so it's more like 70% if you really want to look at it as you are proposing, but I don't really see it that way as you don't pay the CAT
 
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Say you earn €100.
You pay €52 taxes which leaves you with €48
Your leave this to your kids and they pay 33% of €48, so they get 67% or
€32
So your effective tax rate is only 68%

Cameo said:
This assumes I don’t spend all my income prior to kicking the bucket.
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It's much of a muchness
You earn €100
You pay €52 tax which leaves you with €48
You buy a round of drink and pay about 28% VAT and Excise Duty
So you only enjoy about €35 worth of drink for the €100 you earned

So the effective tax rate is 65%
 
Persia said:
Doesn't the CAT burden reset to zero on inheritance after you die. Inheritance tax kicks in instead on threshold over €400k?
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I’m assuming that the 400k allowance for each child will be exceeded already so they will pay CAT on the excess of assets inherited
 
I think the analysis is still flawed, however.

It matters that you don't pay the CAT - your heirs do.

If, instead of putting the money in a shoebox under your bed and waiting to die, you spent it on, say, having the garden landscaped, there would not only be VAT on the plants, pavings stones, etc, involved but the people who sold you those things would pay income tax on the profit element of the amount you paid them, and the landscaper/gardener would pay income tax on what he earned for the work he did, etc, etc.

You can't count tax paid by other people as double taxation on yourself. Particularly when that tax arises not because you earned the money, but because of what you chose to do with it after you earned it.
 
TomEdison said:
It matters that you don't pay the CAT - your heirs do.
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I get it but i think it's a bit more nuanced when your heirs pay the tax rather than someone i am not directly related too.

I'll still use it as a reason to justify stepping back from paid work when the time comes.
 
Cameo said:
However, if I also have sufficient assets where CAT of 33% will ultimately apply to the beneficiaries of my will am I actually paying closer to 85%.
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For most people the assets they leave after they die are a result of unearned and untaxed capital appreciation. In reality you won't have paid any tax on most of the wealth you leave and if you leave it to a child they won't pay any tax on the first €400,000 of it. Remember that only 3% of people ever pay any inheritance tax.

If you bought a home for €100,000 in 1980 and it is worth €1 million when you die your will have accumulated €900,000 worth of tax free unearned wealth. If you have two children who inherit €500,000 each they will pay €33,000 in inheritance tax.

That's a total net tax of 7.3% of the unearned €900,000 of your wealth.
 
Cameo said:
I'll still use it as a reason to justify stepping back from paid work when the time comes.
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You don't need a reason to justify stepping back from paid work when the time comes! If you can support yourself without working, and have already accumulated enought wealth to leave each of your children €400k, I think you should only be working if you find the work inherently rewarding, regardless of what you might earn from it.
 
Purple said:
If you bought a home for €100,000 in 1980 and it is worth €1 million when you die your will have accumulated €900,000 worth of tax free unearned wealth. If you have two children who inherit €500,000 each they will pay €33,000 in inheritance tax.
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A lot of the increase to €1m is inflation. €100k looks small now, but it was a very large sum in 1980. That is one of my issues with CGT at 33%. It taxes inflationary ie. imaginary gains.
 
Greenbook said:
A lot of the increase to €1m is inflation. €100k looks small now, but it was a very large sum in 1980. That is one of my issues with CGT at 33%. It taxes inflationary ie. imaginary gains.
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Sure, but there's a €400,000 allowance if it's inheritance from a parent. Maybe a lower allowance and the reintroduction of indexation would be fairer. It's still a very low rate relative to income tax.

The CSO inflation calculator tells us that €100,000 in September 1980 is worth €452,118.64 today.
That brings the effective tax rate on the inflation adjusted gain to 12%.
 
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TomEdison said:
You don't need a reason to justify stepping back from paid work when the time comes! If you can support yourself without working, and have already accumulated enought wealth to leave each of your children €400k, I think you should only be working if you find the work inherently rewarding, regardless of what you might earn from it.
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100% If it were me I wouldn't even care about making sure I leave the 400k (or anything)! At that stage of your short life do what makes you happy once you can support yourself imo :)
 
Purple said:
Sure, but there's a €400,000 allowance if it's inheritance from a parent. Maybe a lower allowance and the reintroduction of indexation would be fairer. It's still a very low rate relative to income tax.
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It was CGT that I was talking about. There is an inflation allowance, but only up to 2000 or so and there has certainly been significant inflation after that, particularly after the Covid years.
 
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