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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.

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

Following a change in Finance Act 2016, the rate of DIRT is reducing by 2% per annum until the rate is 33%. In 2017, the rate is 39%; in 2018, 37%; in 2019, 35%; in 2020, 33%.

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.

DIRT Refund for First Time Buyers
Relief from DIRT on interest paid by a first-time buyer on savings, used to purchase a house or an apartment, is
allowable from 15 October 2014. The relief due is capped at 20% of the purchase price and will cease on 31 December
2017. Savings held over a four-year period prior to the purchase will qualify for this relief.

Help to Buy scheme
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 self-build one.

The income tax refund (which can include DIRT) is up to (but not exceeding) €20,000 (i.e. 5% of the purchase/self-build price up to a maximum value of €400,000). Relief is still available for houses with a value of up to €600,000 (now €500,000 from 1 January 2017) but no relief is available if the house costs more than that.

The relief applies from 19 July 2016 to 31 December 2019 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 pro-rata to the length of occupation (i.e. full clawback in year one; reducing by 20% per annum until five years have elapsed).

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.

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.

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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.

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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