May 20, 2019

Money is a terrible master but an excellent student

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This quote is attributed to P.T Barnum, the highly successful American showman who was accredited with popularising amusements, public museums, and the three-ring circus in the mid-19th century. Hollywood enthusiasts may recognise the name from the 2017 movie ‘The Greatest Showman’ starring Hugh Jackman, as it was based on his life. As well as coining the above phrase he is also interestingly the heir of another well-known phrase ‘There’s a sucker born every minute’! 

Savvy or Sucker?

Both phrases are on opposite ends of the spectrum but from a man who had a net worth of $12million in 1891 (or $350million in today’s money), he would have known quite a bit about both. Barnum lived a life of glitz and glamour, with all the temptations and distractions that come with wealth and the entertainment lifestyle and yet he made money his student and not his master. If you are fortunate enough to receive a sizable sum of money through a windfall, be it a lottery win, an inheritance or those 3 bitcoins you bought in 2013 for €1 and subsequently sold, how confident would you be in your own self-assessment that you could avoid Sucker venue and take the right turn onto Savvy street? How would you proportion the sum received and why? Have you considered age as a factor in this decision or taxation? Is that new 7-seater Land Rover Discovery or Porsche worth the rebuilding of your driveway?

Do I need to pay tax on my windfall?

Denis Healey, the UKs former Chancellor of the Exchequer once quipped ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall’. Taxation, if any, of a windfall needs to be discussed first and foremost. Lottery winnings in Ireland are tax free thankfully but where tax does enter the conversation is upon the gifting of money to a family member. There is an annual gift exemption in place of €3,000 for Capital Acquisition Tax purposes and gift thresholds for children or minor children of a deceased child currently stand at €335,000 on all monies received since December 5th 1991. Anything above this threshold sum is taxed at 33%.

There is also the issue of Inheritance tax payable upon the death of the disponer (legal jargon to describe the person who dispenses with the assets) to the beneficiary of the inheritance. A spouse or civil partner does not pay inheritance tax, but all other parties do at a rate of 33% above certain thresholds. Tax reliefs exist for business, agricultural assets, dwelling home, and niece/nephew in certain circumstances. As such, it’s not a one size shoe fits all scenario.

In case you did make any profit on Bitcoin, jokes aside, this would be taxable at 33% for Capital Gains Tax purposes, sorry!

What should I do next?

Beyond the issue of taxation and ideally prior to tax being incurred, it is vital to consult with a Financial Planner to discuss the most prudent use of your windfall. In instances such as these it could be tempting to view a Financial Planner as a spoilsport curtailing your splurges but even splurges can be a factor of your financial plan, amusements and circuses included, just with a wise balance of family, health, investment, and future needs factored into the mix. This will ensure that your wealth stays with you and even passes onto your next of kin.

So, were you born in the last minute like P.T said, or are you going to make money your student?

We hope you choose the latter.

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