Interest Relief for Individuals
Relief is available for interest on money borrowed for business purposes without restriction where the money is used: –
- for the purposes of a trade or profession carried on by the individual
- for the purchase of, or expenditure on, a rented property (restricted to 75% in some cases)
- to invest in or lend to a trading partnership in which the individual is an active partner
- to acquire an interest in or lend to a company which is a trading or a holding company. This relief will be unrestricted where:
(a) the company is unquoted (if quoted, the investment should be made when the company was unquoted)
(b) the individual has a material interest (minimum 5% of equity) and
(c) the individual is a full-time or part-time director or employee.
Directors and employees (full-time and part-time) of a private trading or rental company, whether or not they have a material interest in the company (more than 5%) are entitled to unrestricted interest relief.
Certain anti-avoidance measures deny relief for non-business interest.
Anti avoidance provisions provide for a restriction of interest relief where funds are invested in certain companies which use the funds to acquire industrial or commercial property from another company, in such cases the interest is restricted to the individual’s return from the company only.
Interest relief does not apply where loans are taken out to acquire an interest in a company whose income arises wholly or mainly from rents or from income from property.
No interest relief will be available for loans taken out on or after 7 December 2010 to invest in certain trading companies. For loans described above which were taken out prior to 7 December 2010, interest on such loans will be deductible on a reduced basis as follows:
- 75% in 2011
- 50% in 2012
- 25% in 2013
- No relief will be available for 2014 onwards.
The relief is subject to the high earners restriction.
Interest Relief for Partnerships
From 15 October 2013 interest relief will no longer be available to invest in a partnership (except for farming partnership), this includes replacement loans taken out prior to that date.
Relief for prior loans will be tapered out as follows:
2014 – 75%
2015 – 50%
2016 – 25%
2017 – 0%
Rented Residential Property
There is a restriction on the tax relief available for interest paid on borrowings used to purchase or improve rented residential property. Relief will be restricted to 75% of the amount of interest paid; this will apply to both new and existing borrowings. 100% interest relief is available for commercial properties.
An individual is required to register any properties let with the PRTB in order to qualify for interest relief on rented residential properties.
Order of Relief for Case V Losses and Capital Allowances
Historically excess Case V Capital Allowances could be set sideways against other income prior to rental losses forward being utilized. This meant that the combined losses forward and capital allowances sheltered a greater amount of taxable income. With the passing of the Finance Act 2010, all Capital allowances must be fully utilised against rental income before losses forward can be used.
There are restrictions on non-active partners in respect of the set-off of losses, interest and capital allowances against non-partnership income. Relief will be available to non-active partners for set-off against income arising to the partnership only and will be limited to each partner’s capital contribution to the partnership. The restrictions apply to interest paid, capital allowances in respect of expenditure and losses arising in a trade. The restriction is €31,750, which is the maximum that may be offset against other sources of income outside the partnership. There is an exception for certain hotels in North-Western counties and certain tax incentive areas, see designated areas relief.