Question: I am thinking of opening up a room in my home to a student as digs. Is there any tax relief available for this, and I am wondering whether or not renting a room will have any impact on my mortgage interest relief?
Answer: Given the housing situation at the moment choosing to take in a lodger or student could be a smart move. In terms of tax relief, there is a scheme designed especially for this avenue of income – it’s called rent-a-room relief, according to Eileen Devereux, commercial director at Taxback.com.
The scheme enables you to earn up to €14,000 gross income before paying any tax on income received for the room in your home.
The gross income is the total income before you deduct expenses, which may include money spent on the maintenance of the room, as well as any permissible capital allowances due on fixtures and fittings.
Mortgage interest relief is not affected by the receipt of income exempted from tax under the rent-a-room relief scheme, Ms Devereux added.
There are some important conditions. The home must be your primary and sole residence during the year of assessment. You also cannot let the room to direct family, or a partner, or to an employee or employer under the scheme. The room must also be rented on a long-term basis, but the relief can apply to lettings used as residential accommodation for students in an academic year or term.
Question: I am 34, and while retirement seems pretty far off yet, I am thinking about starting a pension. I have an income of €42,000 a year at the moment, and there’s plenty of scope for moving up the ladder within my particular field of software development. It seems like the right time to get saving. I am trying to work out how much I would need to save to have enough to live on when I am older. Is there an average amount to save?
Answer: A basic rule of thumb when calculating what you will need is to try and work out how much of your current salary you could live on if you were not getting that salary, according to the chief executive of the Irish Association of Pension Funds Jerry Moriarty.
Take account of expenses that might not be relevant in the future, for example, a mortgage that’s likely to be paid off. People often base what they need on 50pc to 75pc of their final salary, but in reality, most people manage to get by most of their life on much less than half of their final salary, Mr Moriarty says.
Another rule of thumb is to save 10pc to 15pc of your salary each month, which is a good average contribution rate.
It is worth checking out whether your employer has a pension scheme in place. If there is one, Mr Moriarty recommends signing up to avail of a valuable boost to your contributions as the employer will also pay in and usually cover some of the costs. The earlier you start a pension, the more benefit you get from investment and the better the return due to compound interest, and in fact saving a small amount of money early is much better than saving twice that much later.
The Pensions Authority’s website (pensionsauthority.ie) has a calculator that allows you to estimate what you should be paying if you can work out what you need in retirement.
Question: My wife and I are in our late 50s and we are becoming increasingly concerned about the security of our pension investments given Brexit, Trump, trade wars etc. We are quite exposed to stock and property markets. My wife has suggested we look at gold. What is the safest way to diversify into gold?
Answer: There are a few ways to invest in gold including gold exchange traded funds (ETFs) and investing in physical gold. Gold ETFs are a good way to get exposure to gold and the gold price in the short term, according to director of Dublin-based Goldcore Mark O’Byrne.
There is a degree of risk given the investor owns shares in a trust and is an unsecured creditor with counter-party risk to the providers. ETFs can be bought through stockbrokers and there is normally an annual administration fee of between 0.4pc and 0.5pc.
Another way to invest in gold is to own physical coins and bars in a secure vault, Mr O’Byrne says. Allocated and segregated gold accounts ensure the investor has outright ownership. Gold is bought from a broker which will transfer the ownership of the gold to the investor or pension owner and allow them to own gold in safe vaults in Ireland and internationally. On a lump sum investment of €10,000, costs will be roughly 4pc to 5pc.
Investment grade gold is stamp duty and Vat-free but capital gains tax will apply if the gold appreciates in value.
Rent-a-room relief allows you to earn up to €14,000 gross income before paying any tax on income received for the room in your home.
The earlier you start a pension, the more benefit you will get from your investment and the better the return due to compound interest.
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