Taxation of income on retirement

D

Daddy

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Aged 63 and my wife 60.
We will both qualify later in life for the contributory state pension.
Want to retire now and trying to figure out what tax to pay on the following income between now and when the contributory old age pension kicks in.
So under current taxation what would we have to pay based on the following criteria.

Cash in bank 200k. I think we only pay dirt on any interest between now and when the contributory pension kicks in.
Tax free lump sum from my pension 90k.
Pot remaining to buy an annuity 200k.

Tax free lump sum my wife will be 90k also current employment.
Tax free lump sum old health board job 30k.
Pension pot for an annuity 100k.

So interest income on 200k in bank plus tax free lump sums of 210k which will go on deposit equates to aprox 10k income per annum.

The annuitys will buy us approx another 12k in income.

My wife is also guaranteed a fortnightly payment of 225 euro in that old health board job so just to round that so to 6k p.a

So just in summary that's an income of 28k having paid dirt on our deposit income. I assume no tax is further payable on that part of the 28k total income but that the rules change on that once we start drawing down the contributory pension but for now my query is what tax are we liable to pay on that 28k income which we think is sufficient to live off and not touch our capital base of 410k but we could use a little each year until the contributory pension arrives when a further 12k kicks in for me and later on another 12k for my wife all going well please god.

I hope someone can help me on this taxation question. Thanks.
 
Your €18000 income from annuities should be covered by your tax credits, so no tax to pay.
 
Thanks Gervan.

Am I right in saying that as soon as the state pension kicks in that interest income after dirt is added to our total income in determining our overall total income that would be eligible to determining tax payable. What amount is subject to 20 per cent then on that based on current taxation.
 
Sorry Gervan see the answer to my last question elsewhere.

You say 18k is covered by our tax credits. What would be the amount we could earn pre state pension eligibility currently before we would enter the tax net and would that rate be 20 or 40%. Thanks again.
 
For 2012 married tax credit at 20% is 3300, (income to €16,500 tax free).
Paye tax credit is limited to 1650 at 20% and is specific to each earner.
For you €8000/5=1600
Limit for your spouse 1650
Tax credits 6550, covering income up to €32,750
You may have other tax credits that I'm not aware of.

The current level at which the high rate of tax kicks in is €32,800 for an individual.

The tax on your deposit income is limited to Dirt, (currently at 30% I think).

Things will obviously have changed by the time you draw the State Pension,but using current figures, you would have Paye income of €20,000, your wife still has €10,000 at that point. Joint income €30,000. Tax credits married 3300 plus Paye 3300 means you can have tax free income five times this, €33,000.
You might think you would fall under the exemption (currently €36000 for a couple where one is over 65) but your deposit interest would bring you above the limit, and Dirt would still be taken from your deposit interest.

There are special term savings products, where for a 3 year term, up to €480 and 5 year term €635 interest per person would be tax free. With the amounts you want to put into a deposit account, it wouldn't make much difference perhaps. Also the banks may offer lower rates on these products, but it may be worth reading about, and having such an account as part of your strategy.
 
Thanks again. Where could I read more on askaboutmoney about these special term savings accounts you refer to and donthevaccounts refer to people who are at state retirement age.
 
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