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Investment Income

By Noone Casey

Rented Residential Property

Tax relief available for interest paid on borrowings used to
purchase or improve rented residential property was restricted
to 75% of the amount of interest paid and this applied to both
new and existing borrowings. 100% interest relief is available
for commercial properties.
Following a change in Finance Act 2016, full deductibility for
interest on residential property loans was being phased in over
five years – in 2017, 80% is allowable and this increases by 5%
per annum (i.e. 85% is allowable in 2018) until full deductibility
was due to be available in 2021. Following a change in Finance
Act 2018, full deductibility has been restored for 2019 (i.e. two
years earlier than planned in Finance Act 2016).
An individual is required to register any properties let with the RTB
in order to qualify for interest relief on rented residential properties.
As a general rule, pre-letting expenses are not allowable.
However, in a move to address the shortage of properties in the
private rented sector, a deduction will be available from 25
December 2017 for expenses of a revenue nature incurred on a
property which has been vacant for a period of twelve months
or more. The property must be let for at least four years to avoid
a clawback of the relief, which is subject to a cap of €5,000 per
property and is available for qualifying expenditure incurred up
to the end of 2021.

Limited Partnerships

There are restrictions on non-active partners in respect of
the offset of losses, interest and capital allowances
against non-partnership income. Relief is available tononactive partners for offset against income of that
partnership only and is 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.

Standard Rate DIRT Accounts

Income tax at 33% is deducted at source by banks, building
societies, Post Office Savings Banks, credit unions, the
Agricultural Credit Corporation and the Industrial Credit
Corporation from interest paid or credited on deposit accounts
in the beneficial ownership of individuals resident in the State.

DIRT Exemptions
DIRT will not apply to the following individuals:

  • individuals or their spouses aged 65 or over who are not liable to income tax where an appropriate declaration has been made
  • incapacitated individuals who are under the exemption limits where an appropriate declaration has been made
  • charities
  • non-resident individuals who complete a declaration of non-residence

D.I.R.T. is a final liability for income tax purposes, i.e. the payment of retention tax at the standard rate by individuals liable to income tax at the higher rate is regarded as satisfying the individual’s full liability to this tax.

However, in certain circumstances, an individual will also be liable to pay PRSI in respect of the Deposit Interest received.

The Universal Social Charge (USC) does not apply to Deposit Interest that has been subjected to Deposit Interest Retention Tax.

Help to Buy scheme

The HTB scheme, in its current enhanced form, is extended further
to 31 December 2024.
The aim of this scheme is to give an income tax refund to first-time
buyers who either acquire a newly built residential property or selfbuild
one.
The income tax refund (which can include DIRT) is up to (but not
exceeding) €30,000 (i.e., 10% of the purchase/self-build price up to
a maximum value of €500,000). Relief is still available for houses
with a value of up to €500,000 from 1 January 2017 but no relief is
available if the house costs more than that.
Enhanced relief limits (€30,000 and 10%) introduced as part of July
Stimulus package.
The relief has been extended to 31 December 2022 and a number of
conditions apply, including that the mortgage must be a minimum
of 70% of the purchase/build cost and that both claimants and
contractors are tax compliant.
There is a clawback of the relief if the claimant ceases to occupy the
house as their main residence within five years; the clawback is prorata
to the length of occupation (i.e., full clawback in year one;
reducing by 20% per annum until five years have elapsed).
The enhanced scheme is extended until the end of 2022.

Investment Undertakings

The income from certain life assurance products and collective funds is not taxed as it arises and grows tax free within that fund (often called Gross Roll-Up).

The disposal of a foreign life policy is subject to tax at 41%.

The rate of exit tax applying to ‘Personal Portfolio Investment Undertakings’ is 60%.

Failure to account for the income correctly on an individual’s tax filing increases the rate to 80%.

Anti-avoidance measures apply if the policy is not encashed within eight years of its inception. This is to prevent the avoidance of tax by continuously rolling over a policy. A repayment will be available if the policy is disposed of, this is to ensure that the total tax paid does not exceed the tax that would have been payable had the deemed disposal rules not applied (an election not to have the excess tax repaid may be made where the investment by Irish investors in the fund <15% of the value of the fund, in effect tax refunds may be claimed from the Revenue instead of the fund). Similar provisions apply to foreign policies, however there are relieving provisions where Irish investors account < 10% of the fund’s overall investment whereby it is not necessary for the fund to calculate the deemed disposal amount.

Reporting of Deposit Interest
Powers exist to allow Revenue to make regulations obliging financial institutions (including credit unions) to return details of all interest and other similar payments made to customers. On making appropriate regulations, the financial institution is obliged to get details of the person’s tax reference number and provide this, together with their name & address, to Revenue.

European Savings Directive

Deposit takers are required to collate information relating to non-Irish residents who earn deposit interest in Ireland and provide this information annually to the Revenue authorities in these countries.

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