From the postbag: PUP and property transfer queries

Personal Finance columnist Jill Kerby takes us through some of her recent mail queries...

Mr JMcM writes: How is the Pandemic Unemployment Payment for self employed people whose accounts are based on the old tax year, and who have a profit in 2019-2020 year, going to be taxed? Will it be treated under Schedule D & E - ie will it be treated as “replacement trade income - not subject to VAT” and taxed accordingly in the relevant Form 11 or will it be treated as a calendar year payment? If it is the latter, and is added to the 2020 tax returns, a person may face, at a minimum, a charge of 40% PAYE being applied to their PUP. This means that, instead of getting €350 per week, they are in reality only getting €210 per week. Also, if the PUP is subject to PRSI & USC, this means that a €350 per week payment is really only worth €168. This all needs to be clarified as it has serious ramifications for people.

JK:The emergency PUP payments that were introduced last March were adjusted again last Thursday to just two different rates (instead of three) and will come into effect from September 22. It is one’s income in 2018 that will now determine, which new PUP rate applies to a self-employed person.

The PUP is not subject to PRSI or USC, and recipients, including the self-employed who had been earning more than €300 before losing their job due to the coronavirus. They will no longer receive €350 but a flat €300 a week. Anyone earning between €200 and €300 a week before they lost their job will now receive a flat €250 per week. Anyone who had been earning less than €200 per week will still receive the equivalent of the Jobseeker’s Benefit of €203, which hasn’t changed.

According to tax adviser, Sandra Gannon of TAB Taxation Services, your 2020 PUP income will be taxed just like any other social welfare income under Schedule E. Any self-employed income earned between January and March will be taxed under the self-employed Schedule D. “Unless your reader made a large sum from his normal work in those two and a half months, he is unlikely to end up paying a higher level rate of income tax for 2020.”

According to Gannon, if you do have an income tax liability for 2020, you will be liable for that payment at the usual pay and file deadlines.

Tax issues for the self-employed and sole traders can be complicated at the best of times. Given you are concerned about how your 2020 income will be assessed, you should engage a good tax adviser.

Mrs PW writes:About seven years ago we did a major renovation to our house and turned most of the downstairs – about a third of the total living area - into quite a spacious ‘granny flat’ for my elderly parents, with its own entrance. My parents have both since died and, since the lockdown began, my only daughter and her little girl have moved into the flat and pay us rent. We supply free child-care. She now has enough money for the equivalent of the downpayment if she were to buy the flat from us, which I was told could be a good solution towards inheriting the rest of the property from us some day tax free. Is this correct? While I would like to give her this flat, we still have (small) mortgage and will be retiring ourselves in two years time with small pensions and could use this money.

JK:This sounds like a good ‘thinking outside the box’ solution and one that could work for everybody. However, you need to get some professional tax and legal advice, says tax adviser Sandra Gannon. “First, your reader may have a Capital Gains Tax liability on the sale of a third of the property if it was not occupied by her elderly parents under the CGT-free dependent relative rule. Assuming this is not the case, your reader should be able to sell the flat at a fair market value – without any tax liability except for the period the daughter has been their tenant. Under current inheritance law, children can each inherit €325,000 from their parents’ estate tax-free, but will be liable to a 33% CAT bill on any balance over that amount.