Tax on self employed income plus ARF

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Wheelie Bin

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A friend of mine recently turned 61 and has started drawing an ARF ( Zurich Life) worth approximately €4000 gross per month. ( mandatory)

He is continuing to work as a sole trader. His spouse , 62 , has stopped working . Four grown up kids who he'd like to help out from earned income at different life stages.

What tax credits and cut off points is he entitled to and how does he distribute them ?

He's trying to figure out whether its even worth his while continue working if he is to pay combined tax, PRSI and USC of 52% on every penny he earns because the credits and cut off point look like they will be used up by the ARF income. He wants to work as he loves it , but yeah , I can see his point if for every €100 he earns he gets €48.

I know it sounds like a first world problem to some but he still has hefty mortgage repayments to repay for the next three years so he wants to get the best value for his buck. Any ideas ?
 
Wheelie Bin said:
Four grown up kids who he'd like to help out from earned income at different life stages.
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he still has hefty mortgage repayments to repay for the next three years
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Obviously what he does is his choice but, in my opinion he should forget about subsidising his adult children until he clears his mortgage.
 
Thanks Clubman. Sorry if I confused you. I suppose the point about helping out kids is a natural thing that a parent would do , but by me waffling on about it has steered you away from my question and that is : "What are his maximum tax credits and cut off points he can claim " ?

Also , would it make sense to employ his spouse and could he steer all salary in her direction in order to avail of a potential increased cut off tax threshold point ?
 
Wheelie Bin said:
A friend of mine recently turned 61 and has started drawing an ARF ( Zurich Life) worth approximately €4000 gross per month. ( mandatory)
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What advice did he get before 'retiring' the pension? He's looking to close the stable door after the horse has bolted here.

The minimum ARF suggests an ARF pot of c. 1.2m after he has taken his tax free lump sum? If that's the case, his pension pushes all but about 1k of income into the higher tax bracket.

Does his wife work in the sole trade business with him?
 
Does his wife work in the sole trade business with him?

Small bit of admin work but I am sure she could get more involved in the business if necessary.

The minimum ARF suggests an ARF pot of c. 1.2m after he has taken his tax free lump sum? If that's the case, his pension pushes all but about 1k of income into the higher tax bracket.

I'm sorry, Red Onion I don't quite understand what you are saying here about retiring the pension. He thought , and its my understanding that he has to take 4% from the age of 61 on. You are correct in your ARF pot calculation of €1.2m
 
Wheelie Bin said:
I'm sorry, Red Onion I don't quite understand what you are saying here about retiring the pension.
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Converting to an ARF wasn't his only option. Given he had c. 1.5m to start, I'm sure he took tge time to get good advice on options, so understood he'd be in this situation?
 
RedOnion said:
Converting to an ARF wasn't his only option. Given he had c. 1.5m to start, I'm sure he took tge time to get good advice on options, so understood he'd be in this situation?
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Thanks Red Onion. He WAS actually advised to go down the ARF route by both his accountant and Financial Advisor at the the time. Obviously from what you're saying Red Onion that was the wrong advice. I'm curious now , because any of us could be in that situation in a few years time , hopefully anyway , with that accumulation of funds (!!) What would you have advised him ?
 
T McGibney said:
This sounds iffy and in any event most likely a bad idea based on the limited information we have here.
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Thanks Tom. So , leaving his spouse out of it and he goes down the sole trader route , Married Couple with 1 earner ( himself ,sole trader) and drawing an ARF of €4k per month , with say gross sole trader income of €50k what would be his tax credits figure and cut off point for 2023 ?
 
Wheelie Bin said:
Thanks Tom. So , leaving his spouse out of it and he goes down the sole trader route , Married Couple with 1 earner ( himself ,sole trader) and drawing an ARF of €4k per month , with say gross sole trader income of €50k what would be his tax credits figure and cut off point for 2023 ?
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How your income tax is calculated

Tax on income you earn from employment is deducted directly from your pay. Find out how this tax is calculated.
www.citizensinformation.ie www.citizensinformation.ie
 
Wheelie Bin said:
He WAS actually advised to go down the ARF route by both his accountant and Financial Advisor at the the time.
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They obviously had full facts of the case in providing the advice. My point was it's too late now to do anything different. If he got advice, the high tax rate shouldn't come as a shock now.
 
RedOnion said:
They obviously had full facts of the case in providing the advice. My point was it's too late now to do anything different. If he got advice, the high tax rate shouldn't come as a shock now.
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I don't think it came as a shock Red Onion but as is always in life , one always tries to improve ones' situation which is what AAM is very good at , steering people in the right direction. Thanks very much for your help.
 
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So , Tom thats €49k cut off point and €5325 ( 3550+1775) tax credits. The 1775 is listed as a Paye credit or an Earned Income Credit Is he entitled to that as a self employed sole trader ?
 
Wheelie Bin said:
So , Tom thats €49k cut off point and €5325 ( 3550+1775) tax credits. The 1775 is listed as a Paye credit or an Earned Income Credit Is he entitled to that as a self employed sole trader ?
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Yes, obviously he's entitled to the Earned Income Credit but I can't for the life of me work out what relevance that has to your question.
 
Gordon Gekko said:
The questions really is why did he ‘retire’ his pension if he didn’t want/need the income.
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Yeah. And on the face of it, it looks like it wasn't the greatest decision for his circumstances. But we only have partial info.
 
ClubMan said:
Yeah. And on the face of it, it looks like it wasn't the greatest decision for his circumstances. But we only have partial info.
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I'm not so sure of that. According to the OP he still has a few years of hefty mortgage repayments and presumably needs the pension income.
 
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