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Investment Income

Standard Rate DIRT Accounts

 

Income tax at 41% (33% in 2013) is deducted at source by banks, building societies, Post Office Savings Banks, Credit Unions, Agricultural Credit Corporation and Industrial Credit Corporation from interest paid or credited on deposit accounts in the beneficial ownership of individuals resident in the State.
DIRT is also now applicable to dividends paid on credit union accounts. The higher rate also replaces the 36% rate which applied to certain deposit accounts where interest is credited at maturity e.g. tracker bonds, tax at 36% which is deducted at source.

For interest received on non – EU bank accounts, the 41% rate also applies

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 limites 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.

DIRT Refund for First Time Buyers
A new scheme has been introduced to allow for a refund of DIRT refund for first time buyers; it applies to
• DIRT deducted in 48 months prior to relevant purchase
• First time purchasers only

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 (Gross Roll-Up).

The disposal of a foreign life policy is subject to tax at 41% (36% in 2013)
The rate of exit tax applying to ‘Personal Portfolio Investment Undertakings’ is 60% (56% in 2013).

Failure to account for the income correctly on an individual’s tax filing increases the rate to 80% (previously 74%)

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.

Tip: As the income is taxed on exit or after eight years you have the benefit of reinvesting the gross value of the funds thereby earning income on amounts that would otherwise be subject to tax.

Credit Unions

These offer different forms of share accounts, as follows:
Special Term Share Account

A special term share account for a period of either three or five years was available whereby the first €480 per annum of dividends in the case of the three-year fund and €635 per annum in the case of the five-year fund is exempt from DIRT and Income Tax. Any dividends received in excess of these amounts are liable to DIRT at 41%. From 16 October 2013 it is no longer possible to open a special term share account, all special term share accounts will cease to be classified as such following their 3 or 5 year anniversary as appropriate.

Regular Share Accounts

Tax at the marginal rate will continue to apply to interest on regular share accounts.

Reporting of Deposit Interest
Revenue 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.

PRSi

Up to 1 January 2014 there was an exemption from PRSI for employed individuals and pensioners. However from 1 January 2014 there is a 4% PRSI charge on investment and rental income for PAYE tax payers where their non PAYE income exceeds €3,174.

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