Hello again, and welcome to this, our last On The Money newsletter of 2024.
Christmas is among the most expensive times of the year and it comes at the end of what has, for many people, already been a very trying 12 months financially. Inflation may be slowing but it has not stopped, never mind retreated, and the price increases baked into a wide range of essential household goods and services are here to stay.
That makes it all the more important that we do whatever we can to offset the impact on our household budgets. So why do so many of us leave money on the table to which we are entitled?
I’m speaking, of course, about tax relief. If you want one doable resolution for 2025, it should be to sit down and work on what you can claim back against your taxes.
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When you talk to people about claiming back tax they are owed, a few things tend to crop up. First, people are terrified of tax returns. No reason to be.
Second is that the Revenue Commissioners are just waiting to trip us up, at which point they will pursue us to Hades and back. Again, that’s far from the truth. The Irish Revenue Commissioners are, in my experience, the most easy to deal with tax authority – and I’ve dealt with a few down the years trying to get answers for readers in the Q&A column.
Sure, their job is to make sure we all pay what we owe in taxes, but that’s it. There is no interest in milking the last euro out of people and, as appeal after appeal down the years shows, they are continually exhorting people to avail of tax reliefs to which they are due.
The key thing to remember is the four-year rule. If you want to claim back for expenses against tax paid, you must do so within four years – that’s four years after the year in which the expense was incurred. So, for instance, if you have eligible expenses that arose in 2020, you will need to file a claim with Revenue by the end of this year, 2024.
Figures from Revenue show that, as of last week, 1.2 million PAYE taxpayer “units” had filed an income tax return for 2022 and 1.1 million had done so for 2023.
“Units” is one of those disconcerting words, but it simply reflects that while some people file as single people, others file as a couple and are considered also to be one “unit”. There’s no easy way to break that down into how many actual people are covered by returns.
Anyway, the important thing is that those 1.2 million units who have filed for 2022 received refunds of €789 million; the figure for 2023 is currently €746 million. So people who file returns get, on average, in excess of €650 of the tax they have already paid given back to them. That’s not to be sneezed at.
Approximately one million PAYE taxpayer units have yet to file an income tax return for the 2022 tax year and, according to a Revenue analysis, it says 238,000 of these (more than one in four) has potentially paid more tax than they should have. For 2023, the figures are 1.2 million, of whom 310,000 might have overpaid tax.
So what can you get and how do you go about it? The list is long and some reliefs are fairly niche but here are some of the main ones that you really should be aware of and chase up if they are relevant to you.
Medical costs
Top of the list is health expenses. Why? Because it is something that almost all families incur over a year and Revenue consistently cites it as a tax relief most often left on the table by taxpayers.
What can you claim? Anything that is not already covered by the State (such as via a medical card, a GP card, the Drugs Payment Scheme etc) or by private medical insurance which will often pay a portion of GP and other medical bills, depending on your policy.
That includes visits to a GP or consultant, maternity care, diagnostics such as the cost of scans and blood tests, physiotherapy, paying for nursing care in the home, even the cost of special diets for coeliacs or diabetics.
It’s probably easier to say what is not covered – routine eye tests, routine dental check-ups and cosmetic surgery unless carried out to address a health issue.
Relief on health expenses, like most reliefs, is paid at the standard income tax rate – 20 per cent – so you can get back €1 out of every €5 you have spent that is not covered elsewhere.
One exception to the 20 per cent rule is expenses arising from the cost of long-term nursing home care. Whoever pays that bill – over and above any Fair Deal subsidy they may be claiming – can claim relief at their higher tax rate, so up to 40 per cent assuming you pay tax at that level.
Housing costs
There are two reliefs currently available – one for homeowners and another for tenants.
The Mortgage Interest Tax Credit is available to anyone who had an outstanding balance on their mortgage at the end of 2022 of between €80,000 and €500,000.
It will pay you 20 per cent of any increase in your mortgage interest bill between 2022 and subsequent years and is designed to take some of the edge off the series of 10 rises in European Central Bank interest rates that put the financial squeeze on homeowners already facing a cost-of-living crisis.
The relief is capped at €6,250 per property and applies only to family homes (principal private residences) though that does include a property you may have bought in a different part of the country to stay in while you work. At 20 per cent, that €6,250 cap means the relief could be worth up to €1,250 in money coming back into your pocket.
It was brought in as a one-year measure but has been extended to cover 2024, even though rates are now coming down.
Renters can claim the Rent Tax Credit. This was backdated to the whole of 2022 when it was brought in with the budget at the end of that year. Again, applications for this relief are running far below what Revenue expected given the number of rental units in the State and the current rental crisis.
Initially, it was worth up to €500 in relief for a single person, and €1,000 for a couple living in rented accommodation. If you have not claimed yet, that is the figure available to you for the 2022 and 2023 tax years. It rose to €750 and €1,500 respectively for this year and will rise again in 2025 to €1,000 for a single person and €2,000 for a couple.
Education costs
Anyone with children in third-level education will be more than aware of the costs involved. There is relief available on college fees, including what is called the student contribution, though there is a catch.
At undergraduate level, these fees tend to be capped at €3,000 for many courses and the first €3,000 of fees arising in any tax year are disregarded for the relief, so if you only have one child in college, you may well not qualify.
But the disregard is per year, not per person, so anyone with more than one child in college will have a claim – again at 20 per cent – as will almost anyone paying fees for postgraduate courses.
There is also an upper ceiling – €7,000 – on the amount you can claim per course per person. At that level, the relief would be worth €1,400 to your pocket.
Pensions
If you are paying into a workplace pension, the tax relief you are due will be addressed at source, but if you top up those regular payments via additional voluntary contributions (AVCs) as the filing deadline for a year approaches, it will not be automatically subject to relief. You will need to make a claim in your return and it is a no-brainer as, along with nursing home costs, this is one of the rare cases where relief is granted at 40 per cent.
There are limits to how much you can put into your pension for tax relief purposes but as the average Irish private pension pot is worth less than €100,000, this is not an issue that is going to limit the vast majority of readers.
Other
This is only a small taste of the reliefs available to ordinary taxpayers. There are plenty of others, for instance if you are a single parent caring for a child you can get relief against tax of €1,750 a year and a €4,000 increase to the upper level of income on which you pay the standard 20 per cent rate of tax.
If you are 65 or older and still working, you are entitled to an age tax credit which can be worth €245 per person, or up to €490 for those jointly or separately assessed.
And in a world where more and more people are working from home, there is relief, albeit very limited, against the heat, electricity and broadband costs, though it can be fiddly to work out.
For almost all reliefs, the way to seek repayment of tax is via a tax return so that should be your first step in 2025 – or even in what is left of this year if you have anything you can claim for 2020. The easiest way to do that is by setting up online access to the Revenue via MyAccount, something we will return to in the new year.
We hope all readers have the chance to get a break from the stress of the working world over Christmas and that 2025 brings new promise for all. Good luck and Happy Christmas.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
