# Ways to reduce PAYE tax



## imalwayshappy (9 Oct 2022)

Hi all

Is there any ways to reduce paye tax income by way of investments?  I remember years ago there was the film finance reliefs. Is there anything similar? I know the obvious one is pension contributions etc.

Thanks


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## Zenith63 (9 Oct 2022)

The EII Scheme is the closest thing to what you’re asking.  You can invest directly in individual companies or there are funds out there that roll-up a load of EII investments and you take a slice of that.

It’s a good scheme that genuinely helps fund small Irish businesses, but you need be very aware of the risks - these are often tiny companies, most of which will go nowhere.






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						Employment Investment Incentive (EII)
					

This page explains the Employment Investment Incentive (EII)




					www.revenue.ie


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## Steven Barrett (10 Oct 2022)

Zenith63 said:


> The EII Scheme is the closest thing to what you’re asking.  You can invest directly in individual companies or there are funds out there that roll-up a load of EII investments and you take a slice of that.
> 
> It’s a good scheme that genuinely helps fund small Irish businesses, but you need be very aware of the risks - these are often tiny companies, most of which will go nowhere.
> 
> ...


I had a list of clients who told me that they wanted ways to claim tax relief outside of pensions. So I got access to the Davy fund, one of the longest running EII schemes and very diversified. ONE client took it up. 

Investing in one company is extremely high risk. These are small to medium sized businesses in Ireland (not in a global sense where Bank of Ireland are deemed small). You are much better off investing in a fund, where the companies are vetting by experienced professionals and you have a diversified portfolio of companies.


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## Zenith63 (10 Oct 2022)

Steven Barrett said:


> I had a list of clients who told me that they wanted ways to claim tax relief outside of pensions. So I got access to the Davy fund, one of the longest running EII schemes and very diversified. ONE client took it up.


What would you put that down to our if interest?  They’re fairly chunky funds, so obviously somebody is investing in them, is it savvy investors who see value where others don’t, or inexperienced investors who are sticking money in without really understanding it?

Did you get any information from them on historical returns? Having been on the receiving side, my basic understanding is that the investor really just gets their tax relief, Davy make their money from fees and I wonder if the winners/losers (from a capital growth point of view) more or less just balance each other out.


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## joe sod (10 Oct 2022)

What about the exit tax and deemed disposal regime every 8 years for fund investments, does that apply to this scheme?


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## silverfox239 (10 Oct 2022)

joe sod said:


> What about the exit tax and deemed disposal regime every 8 years for fund investments, does that apply to this scheme?


Deemed disposal regime not applicable to EIIS opportunities as effectively you are holding direct shares in a company. And just like shares when you sell for higher price you will have to pay tax. One interesting point is if you make a loss on EIIS shares you cannot offset it against other gains or carry the loss on your tax return.


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## silverfox239 (10 Oct 2022)

Just found a new website with listings of all the main EIIS funds you can use and the companies that have direct offers. 

https://eiis.investments/


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## Steven Barrett (10 Oct 2022)

Zenith63 said:


> What would you put that down to our if interest?  They’re fairly chunky funds, so obviously somebody is investing in them, is it savvy investors who see value where others don’t, or inexperienced investors who are sticking money in without really understanding it?
> 
> Did you get any information from them on historical returns? Having been on the receiving side, my basic understanding is that the investor really just gets their tax relief, Davy make their money from fees and I wonder if the winners/losers (from a capital growth point of view) more or less just balance each other out.


Tyre kickers. When it came down to it, people were humming and hawwing about didn't aspects of the investment. Some wanted to have greater control over the investment process, others didn't really know what they are actually doing. 

I wasn't able to get past returns. The Davy fund is going a long time and they run it with BDO.


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## joe sod (10 Oct 2022)

silverfox239 said:


> Deemed disposal regime not applicable to EIIS opportunities as effectively you are holding direct shares in a company. And just like shares when you sell for higher price you will have to pay tax. One interesting point is if you make a loss on EIIS shares you cannot offset it against other gains or carry the loss on your tax return.


That's good to know, but surely if revenue are able to except this investment as just a holding of a group of stocks in one fund but not actually a "collective fund" then is this not a mechanism to prize open the whole taxation of funds and the exit tax regime for other "funds" , surely this could be a precedent to say that other investments are not funds but a collection of stocks as in this case


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## T McGibney (10 Oct 2022)

joe sod said:


> That's good to know, but surely if revenue are able to except this investment as just a holding of a group of stocks in one fund but not actually a "collective fund" then is this not a mechanism to prize open the whole taxation of funds and the exit tax regime for other "funds" , surely this could be a precedent to say that other investments are not funds but a collection of stocks as in this case


Hardly.  EIIS investments are generally specific to an individual unlisted company or small ad-hoc groups of same. They're not remotely comparable to ETFs etc.

By the way, EIIS and similar investments are generally notorious for their high-risk nature - "friends, family and fools" tend to be their target market.


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## Blackrock1 (10 Oct 2022)

Steven Barrett said:


> Tyre kickers. When it came down to it, people were humming and hawwing about didn't aspects of the investment. Some wanted to have greater control over the investment process, others didn't really know what they are actually doing.
> 
> I wasn't able to get past returns. The Davy fund is going a long time and they run it with BDO.


if i recall BDO were big in the film investment space some time back also.


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## Steven Barrett (10 Oct 2022)

Blackrock1 said:


> if i recall BDO were big in the film investment space some time back also.


I used to do my film relief through Anglo. You could borrow off Anglo to invest in the scheme and pay them the interest once the relief came through. It was money for literally signing your name on a form.


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## Blackrock1 (10 Oct 2022)

Steven Barrett said:


> I used to do my film relief through Anglo. You could borrow off Anglo to invest in the scheme and pay them the interest once the relief came through. It was money for literally signing your name on a form.


yes i remember that, good times, although there were a few hairy ones were the loan took some time to be paid off.


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## Zenith63 (10 Oct 2022)

silverfox239 said:


> Deemed disposal regime not applicable to EIIS opportunities as effectively you are holding direct shares in a company. And just like shares when you sell for higher price you will have to pay tax. One interesting point is if you make a loss on EIIS shares you cannot offset it against other gains or carry the loss on your tax return.


I believe Joe is asking what the tax situation is when you invest in the Davy/BDO fund, rather than individual EII companies.


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## Gordon Gekko (10 Oct 2022)

They’re structured as partnerships and direct holdings so 41% fund tax or ETFs are of no relevance. The fund approach provides some diversification, but this is still very high risk stuff. Also, these funds have to give clients back their money if they can’t find suitable investments, with the clients then losing the tax relief that they were expecting. The cynic in me therefore concludes that, especially with one of the firms in question, as the year comes to a close and the clock ticks, they’re more likely to ‘reach’ and invest in two flies climbing a wall.

A wise man once said to me re EIIS/BES:

1) These are companies to whom everyone else has said “No”.

2) When you invest a hundred grand in one of these dogs’ dinners, get forty grand back in tax relief, and then lose the other sixty grand when these desperate fools to whom everyone else has said ‘No’ either run the business into the ground or steal your money, you’ve just lost sixty grand.


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## Zenith63 (10 Oct 2022)

Steven Barrett said:


> I wasn't able to get past returns.


Do you think that’s reason for suspicion, or would it be the norm in your experience?


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## Steven Barrett (11 Oct 2022)

Zenith63 said:


> Do you think that’s reason for suspicion, or would it be the norm in your experience?


I don't have much experience in this area. One stab at it, very little interest, so I didn't do it again.


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## Gordon Gekko (12 Oct 2022)

“What can I get tax relief on?” is usually a really bad starting point.


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## ClubMan (12 Oct 2022)

Gordon Gekko said:


> “What can I get tax relief on?” is usually a really bad starting point.


Tax tail wagging the investment dog?


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## nest egg (12 Oct 2022)

Steven Barrett said:


> Tyre kickers. When it came down to it, people were humming and hawwing about didn't aspects of the investment. Some wanted to have greater control over the investment process, others didn't really know what they are actually doing.
> 
> I wasn't able to get past returns. The Davy fund is going a long time and they run it with BDO.


Isn't there some on going issue regarding the paperwork each company needs to complete with the tax man, before you can get your tax rebate?

Open to correction but I recall hearing there were people waiting a long time for their rebate, which can be compounded when there are multiple companies involved in a fund?


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## Gordon Gekko (12 Oct 2022)

Yes, there are some companies where the relief is being denied or at least delayed.

So even worse, instead of losing €60,000 when the company goes bust or management steal your money, you lose €100,000!


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## miser (12 Oct 2022)

Hi

Most of the previous comments above are accurate. I've had a small amount of money in the Davy scheme every year since 2014- except for last year when they were oversubscribed by early December and wouldn't take my contribution. So there's obviously a demand for it.

Over the years there have been examples of companies going bust (eg Maximum Media), companies failing to grow fast enough to meet the criteria for the second tranche of tax relief, companies taking several years to get to a point where they can repay the EIIS investment (ie cash out the investors) etc. There have been a couple of big winners where the company was taken over by a multinational which resulted in a nice return.
Keeping tabs on the tax due is a bit of a pain, but I guess its fine if you can outsource that to your accountant. Im starting to wonder if its worth the hassle though.

The types of companies are widest spread of SMEs you could think of- sandwich makers, tool designers, guys with a couple of petrol stations, nursing homes, wind farms, etc. The fund every year usually splits the investment into 4-5 different companies, so the risk is spread, but caution, not that broadly! 5 Irish SMEs isnt diversification

Davy/BDO publish the prospectus around December 1 usually, and if last year is anything to go by, you'll need to get your application in quickly.

Goodbody/Baker Tilly have their own fund, I think its more recent than Davy/BDO, and the min investment was/is 20k. Too rich for my blood. 

Hope that helps people.


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## Zenith63 (12 Oct 2022)

nest egg said:


> Isn't there some on going issue regarding the paperwork each company needs to complete with the tax man, before you can get your tax rebate?
> 
> Open to correction but I recall hearing there were people waiting a long time for their rebate, which can be compounded when there are multiple companies involved in a fund?


That can absolutely happen when investing in individual companies, once they have your money there isn’t anything extra in it for them to process the paperwork, other than keeping you happy for future funding rounds. Even with the best of intentions these are small companies where things like this may not get priority. Investing directly in micro cap companies is not for the causal investor, EII or otherwise!

I’d be surprised if it’s an issue in the funds, my experience of them is that they are extremely rigorous on the legal/compliance side of things, perhaps after some hard lessons, but I could be wrong.


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## fayf (12 Oct 2022)

Have done a little EII also, like anything, you need to do your homework/research, but only started in last few years. The “basket” of companies, seems to be the best approach, as it limits risk, and assuming the research is done, the upfront 40 % tax refund, is extremely attractive, 5 years before it matures. 

Theres some risk with everything.


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## ArthurMcB (12 Oct 2022)

Deed of covenant


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## fayf (12 Oct 2022)

ArthurMcB said:


> Deed of covenant


But these are extremely restrictive, and very limited circumstances, in practice, since the rules , totally changed in the ‘90’s.

Also limited to 5% of your gross income to an adult over 65, 
And that amount,  is further limited to a 20% refund, of that restricted amount. 

The only real circumstance, where there is meaningful benefit of a covenant, is in the case of helping out, incapacitated minors.


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## Zenith63 (13 Oct 2022)

Gordon Gekko said:


> A wise man once said to me re EIIS/BES:
> 
> 1) These are companies to whom everyone else has said “No”.
> 
> 2) When you invest a hundred grand in one of these dogs’ dinners, get forty grand back in tax relief, and then lose the other sixty grand when these desperate fools to whom everyone else has said ‘No’ either run the business into the ground or steal your money, you’ve just lost sixty grand.


In most cases direct investments in companies like these are because others have said no, but I think it’s a little unfair to put this down to the companies being ‘dogs dinners’, that the owners are completely incompetent or out to steal your money.

Banks will have said no because they say no to all small businesses, outside of small overdrafts/loans. The companies are too small for private equity. Angel investors are looking for opportunities that might return x10 their investment or more, eg. a software business. If you run a less sexy business you want to grow, the only way to get capital is small equity investments.

I think it’s completely fair to say most of these investments will fail because most startups fail, they are extremely high risk. But if you have the means to properly diversify and want to support the growth of small Irish businesses, EII reduces your risk in doing so.


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## Gordon Gekko (13 Oct 2022)

Proper diversification doesn’t need to involve EIIS or small Irish businesses.


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## Zenith63 (13 Oct 2022)

Gordon Gekko said:


> Proper diversification doesn’t need to involve EIIS or small Irish businesses.


Absolutely! To be clear I’m in no way suggesting that anybody should have micro Irish companies in their portfolio for diversification. It’s for high net worth individuals who have money to spare and would like to support the growth of Irish businesses.


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## ArthurMcB (13 Oct 2022)

fayf said:


> But these are extremely restrictive, and very limited circumstances, in practice, since the rules , totally changed in the ‘90’s.
> 
> Also limited to 5% of your gross income to an adult over 65,
> And that amount,  is further limited to a 20% refund, of that restricted amount.
> ...


Are my sums correct?

Gross salary of say 100k
5% is 5k
Tax refund is 20% to both you and the covenantee so 1k each? 

If those sums are correct then its worth doing in my book.


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## T McGibney (13 Oct 2022)

ArthurMcB said:


> Are my sums correct?
> 
> Gross salary of say 100k
> 5% is 5k
> ...


Not possible unless the beneficiary is an incapacitated minor. 

Hasn't been for almost 30 years.


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## bstop (13 Oct 2022)

T McGibney said:


> Not possible unless the beneficiary is an incapacitated minor.
> 
> Hasn't been for almost 30 years.


This is not correct. A covenant can be made to any person over age 65.
It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant  the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).

This is a viable tax saving measure for many people.


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## T McGibney (13 Oct 2022)

bstop said:


> This is not correct. A covenant can be made to any person over age 65.
> It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant  the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).
> 
> This is a viable tax saving measure for many people.


Thanks for clarifying. You make a good point.


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## ArthurMcB (13 Oct 2022)

T McGibney said:


> Not possible unless the beneficiary is an incapacitated minor.
> 
> Hasn't been for almost 30 years.


As an accountant, im surprise that you thought this tommy.

Many threads on AAM related to providing a DOC to an elderly parent, for example.


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## ArthurMcB (13 Oct 2022)

bstop said:


> This is not correct. A covenant can be made to any person over age 65.
> It is very beneficial to any person taxed at 40% with a parent on income of state pension only. The parent has scope to have extra earnings tax free up to the tax exemption level of 18000 euro. For every 1000 euro made by covenant  the parent gains 200 euro in tax refund and the covenantor makes a saving of 200 euro in income tax savings and also saves USC at their marginal rate (if they are on 8% this is an extra saving of 80 euro).
> 
> This is a viable tax saving measure for many people.


A very viable tax saving measure and one which I avail of.


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## bstop (13 Oct 2022)

ArthurMcB said:


> A very viable tax saving measure and one which I avail of.


Yes, I have availed of this for about 15 years. The parent can gain extra tax free income and still remain below the means tested level for the receipt of fuel allowance.


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## Gordon Gekko (13 Oct 2022)

All great unless, as is implied, the parent is then giving the tax saving back to the ‘child’.


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## T McGibney (13 Oct 2022)

ArthurMcB said:


> As an accountant, im surprise that you thought this tommy.
> 
> Many threads on AAM related to providing a DOC to an elderly parent, for example.


I haven't seen it done in 30 years Arthur. I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.


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## bstop (13 Oct 2022)

T McGibney said:


> I haven't seen it done in 30 years Arthur. I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.


In many other cases the parents do indeed need extra income and their offspring have very large incomes taxed and USCed at rates of 48% and more. In many cases these offspring have paid off their mortgage and have working age children themselves.


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## ArthurMcB (13 Oct 2022)

T McGibney said:


> I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.


You'd be surprised


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## fayf (13 Oct 2022)

With conenants being limited to 5 % of income for over 65’s, its maybe handy, but benefit is relatively small.

Someone on say 50k gross, can only covenant 5 % of that,to an over 65 year old,  so max covenent amount is €2,500, which gives a nett benefit of €500.

It all helps i suppose !


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## bstop (13 Oct 2022)

The total tax benefits of the covenant you mention from a taxpayer on 40% income tax and USC rate of 4.5% to a pensioner on basic state pension earnings only, would be 44.5%. This would result in a 500 euro tax refund to the pensioner and tax and USC reduction of 612.50 euro for the covenantor.


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## Gordon Gekko (13 Oct 2022)

bstop said:


> The total tax benefits of the covenant you mention from a taxpayer on 40% income tax and USC rate of 4.5% to a pensioner on basic state pension earnings only, would be 44.5%. This would result in a 500 euro tax refund to the pensioner and tax and USC reduction of 612.50 euro for the covenantor.


There’s no relief from USC or USC charged in relation to covenants.


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## bstop (13 Oct 2022)

Gordon Gekko said:


> There’s no relief from USC or USC charged in relation to covenants.


Really! .......USC relief on covenant is automatically calculated in my form 11 return every year!


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## Gordon Gekko (14 Oct 2022)

bstop said:


> Really! .......USC relief on covenant is automatically calculated in my form 11 return every year!











						Deed of Covenant — Brady & Associates
					

Deed of Covenants are generally used for children and elderly parents to assist with living expenses and medical bills. A deed of covenant is legally enforceable whereby the individual  (the covenantor) , agrees to give a portion of his or her income to another person,  (t




					www.bradyassociates.ie
				






			Important Clarifications – USC and Rental Balancing Charges, USC and Covenants,


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## Monbretia (20 Oct 2022)

T McGibney said:


> I haven't seen it done in 30 years Arthur. I'm not that sure that many OAP recipients need the additional money while in most cases their working-age children certainly do.


3 of us did this originally for my father for many many years up to 2019, he only had state pension so we did whatever figure that brought us up to max income without tax, I know it was €400 a year he got back in later years when I had to drop out as no taxable income.   Nice little bit, paid towards a fill of oil!   Both siblings also gave their extra refund as they were on higher tax rate back to his pot to pay bills too.   Well worth if for a family if you fit the criteria.


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