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Tax Exemptions & Reliefs

 

Tax Exemptions

The following are exempt from Income Tax provided specific conditions are satisfied:

  • Artists resident in a Member State or EEA Jurisdiction (prior to 2015 the relief was restricted to Irish resident artists) who produce original work that has cultural and artistic merit subject to a €50,000  limit
  • Charities – investment and certain trade income
  • Awards made by the Hepatitis C Tribunal or a comparable
    overseas scheme, income arising on monies received from
    settlement of a civil action by a totally incapacitated individual, and
    income arising on monies received by permanently incapacitated
    individuals for damages following assessment by the Personal
    Injuries Assessment Board. In addition, the return arising from
    the investment of these monies is also exempt provided that
    return exceeds 50% of the individual’s total income and gains.
  • Income arising on monies received from settlement of a civil action by a totally incapacitated individual. Income arising on monies received by permanently incapacitated individuals for damages following assessment by the Personal Injuries Board, from 2007 the return arising from the investment of these monies where the return is greater than 50% of the individuals total income and gains is also exempt.
  • Income arising from compensation payments made under an employment law enacted, in accordance with a decision of one of the relevant bodies listed below or made in accordance under a mediation process;
  • The Rights Commissioner
  • The Director of Equality Investigations
  • The Employment Appeals Tribunal
  • The Labour Court
  • The Circuit Court
  • Patent royalties paid to the inventor from inventions devised in Ireland prior to 24 November 2010
  • Sports organisations
  • Income from woodlands
  • Income received by Mna Tí in the Gaeltacht (Sceim na bhFoghlaimeoirí)
  • Income received by foster parents from the Health Service Executive or from another body where the payment is in accordance with similar law from another EU Member State (including educational fees, certain medical expenses and other exceptional payments where complex special needs arise). In addition payments for foster children 18 or over until the age of 21 or until they complete their full time education who suffer from a disability are also exempted.
  • Certain social welfare payments including payments to systematic short term workers i.e. people who do 3 days on and 2 days off work, or who work one week on and one week off.
  • Lump sum payments to claimants who worked in the Magdalene Launderies
  • Annual allowance paid to Reserve Members of An Garda Siochana

The exemption for Income Tax for the categories of income described below was extended to Capital Gains Tax. However, it is a requirement that the aggregate of the person’s income and gains must exceed 50% of their total income and gains in order to be exempted. The relevant categories of income and now gains are as follows:

  • Income and Gains derived from the investment of certain compensation payments received by permanently incapacitated individuals or a trust established for the benefit of one or more individuals.
  • Income and Gains derived from the investment of payments made to Hepatitis C and HIV victims
  • Income and Gains from compensation payments made to thalidomide children and the income derived from the investment of such payments
  • Compensation for certain living donors to cover compensation for expenses and loss of income relating to donations.
  • The water conservation grant and fuel grants are exempt from income tax and USC.

 

Maternity Benefit
Maternity benefit, adoptive benefit and health and safety benefit payments are treated as taxable income.

Childminding relief

Childminding relief is available where an individual minds up to three children (excluding their own children) in their own home. No tax will be payable on the childminding earnings received, provided the amount is not more than €15,000 per annum. If the childminding income exceeds this, the total amount will be taxable as normal under self-assessment. The annual minimum PRSI contribution for self-employed individuals of €500 per annum is payable.

Mortgage Interest Relief

Mortgage interest relief on loans taken out after 1 January 2013
has been abolished. Mortgage interest relief for loans taken out
between 2004 and 2012 was due to expire on 31 December
2017. That date has been extended to 31 December 2020 on a
tapered basis, meaning that the relief for 2018, 2019 and 2020
will be 75%, 50% and 25% respectively of the relief available in
2017 for loans taken out between 2004 and 2012.

 

Home Renovation Incentive

The HRI scheme provides for tax relief for homeowners by way
of an income tax credit at 13.5% of qualifying expenditure on
repair, renovation or improvements carried out to the
homeowner’s main home by qualifying contractors. Relief may
be claimed on qualifying expenditure over €4,405 before VAT
subject to a maximum spend of €30,000.
The lowest claim amount is €595 ((€4,405@13.5%) and the
highest is €4,050 (€30,000@13.5%).
The works may be phased, and multiple payments to different
contractors are allowed. Qualifying works must be carried out
on or after 25 October 2013 and up to 31 December 2018.
The credit is payable over two years following the year in which
the work is undertaken. Unused tax credits may be carried
forward to the next tax year.

Tax Tip:

Where planning permission is granted before 31
December 2018 work carried out before 31 March 2019
will be deemed to have been incurred in 2018 for the
purpose of the relief.


Homeowners must be LPT compliant. Claims may be made for
costs at the 13.5% rate of tax and it excludes anything subject to
VAT at 23%.
Contractors must be registered for VAT and RCT compliant.
The HRI scheme has been extended to rental properties in the
State where properties are refurbished and let to tenants under
leases registered with the Private Rental Tenancies Board
(PRTB) and occupied within six months of the works being
carried out.
There are special provisions in place that allow for the conversion
of one premises to two rental units. The effect of this is to allow
the maximum claim of €4,050, to apply to each unit, although the
minimum spend of €5,000 equally applies to each unit.
In Finance Act 2016, HRI has been extended to works done by
tenants/occupants of properties owned/rented by a housing
authority

Home Carer’s Credit

A credit of €1,100 is available for married couples jointly assessed, where only one spouse is working and the other cares for children (with an entitlement to social welfare child benefit), individuals over the age of 65, or incapacitated individuals in their home. Where the carer’s income exceeds €10,200 in a year,no credit will be available.

Where the carer’s credit exceeds €7,200 in a year, the tax credit is reduced by one half of the amount of the excess over €7,200 (subject to a maximum of €1,500).

The credit is not available to married couples that are taxed as single persons. Neither is the tax credit available to married couples with a combined income of €44,300 and who claimed the increased standard rate tax band for dual income couples.

Carer Allowance

An individual can claim an allowance where he/she has to employ a person to take care of an incapacitated family member. The carer may be employed on an individual basis, or through an employment agency. The maximum allowance is €75,000 per annum for each incapacitated individual. The allowance is available at the marginal rate of tax. The allowance will be granted in the first year that the individual becomes incapacitated.

Covenants

Covenants to permanently incapacitated adults are fully tax deductible. Covenants to a permanently incapacitated minor child are fully tax deductible if paid by a person other than a parent. Covenants to individuals aged 65 or over who are not incapacitated are deductible subject to a 5% limit of the covenantor’s total income.  If the covenantor is liable to tax at the higher rate he or she will receive tax relief at the difference between the standard rate and higher rate, there is no tax benefit to a covenator who pays tax at the standard rate. A coventee whose total income (including the income from the covenant) is less than the exemption limit qualifies for a refund of tax at the standard rate of tax deducted by the covenantor.

Medical Insurance

Tax relief on medical insurance premiums is granted at source and is given as a direct reduction in premiums. Relief is based on a standard rate (20%) deduction, and is granted on a current year basis.
The amount of relief is restricted to €1,000 for an individual and €500 for a child (under 18 or under 23 in full time education). An age related credit that was available up to 1 January 2013 is being replaced with a risk equalisation credit.

Dental Insurance

Tax relief at the standard rate (20%) is available in respect of dental insurance premiums taken out for non-routine dental treatment.

Medical Expenses

Tax relief for un-reimbursed medical expenses incurred on behalf of a taxpayer and his family including “dependants”, may be claimed against the taxpayer’s income tax liability. Medical expenses include:

  • Doctor/hospital care and prescription medicines
  • Payments to Revenue approved nursing homes for dependants
  • Physiotherapy
  • Non-routine dental and opthalmic expenses
  • Routine maternity care including Caesarean sections
  • Qualifying medical expenses incurred on behalf of a dependent relative (which includes any individual over the age of 65 or permanently incapacitated individuals whether they are relatives or not).

Relief is granted by way of a tax credit at the standard rate of tax, except in the case of nursing home expenses which will be granted by way of an allowance at the taxpayers’ marginal rate of tax. A form MED2 should be completed in respect of non-routine dental expenses (this can be obtained from the dentist).

Certain “non-essential” cosmetic surgery does not qualify for
relief. Cosmetic surgery qualifies for relief only where it is provided
for a physical deformity arising as a result of a congenital
abnormality, a personal injury, or a disfiguring disease.

Relief for hospital stays are restricted to expenses necessarily incurred in connection with the services of a medical practitioner, or to diagnostic procedures carried out on advice of a medical practitioner.

Relief for Nursing Home fees qualify for relief provided the nursing home concerned provides qualifying nursing care on site on a 24 hour per day basis. Private contributions towards the fair deal scheme for nursing homes qualify for relief.

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Permanent Health Insurance

Premiums paid under approved permanent health insurance (PHI) schemes are tax deductible. The deduction cannot exceed 10% of the individual’s total income. Relief is granted as a deduction against total income and is effectively relieved at the marginal rate of tax. Any benefits received are taxable and therefore subject to PAYE.

Third Level College Fees

Tax relief is available at the standard rate for the cost of fees paid for approved courses in approved colleges. In addition to full time courses it includes fees paid for part-time courses on behalf of students who do not have a third level qualification. The relief also applies to post graduate fees paid for third level education in private and public funded third level colleges in non-EU Member States. Tax relief for undergraduate fees is also allowable for accredited private third level colleges in EU Member States.

Tax relief is available for repeat years, on individuals taking more than one course and for individuals already holding a third level qualification.

Tax relief is available for tuition fees and student contributions (post 2011), but does not apply to administration fees, exam fees or registration fees.

An amount of fees is disregarded for relief as follows:

 

Year Full-Time Courses Part-Time Courses
 2019 €3,000 €1,500
     
     

 

Where families have two or more children in third level education on a full-time basis and where both are liable to the student contribution charge, tax relief at 20% will be available on the aggregate paid above the disregarded amount. The current student contribution charge is €2,000. The maximum relief available is €7,000. Any repayment of fees must be adjusted for.

Training Course Fees

Relief is available for fees between €317 and €1,270 paid in respect of Information Technology and Foreign Language courses, which are approved by FÁS. These courses must be at least two years in duration and must not be a postgraduate course. This relief no longer applies to payments made on behalf of dependents.

Rent-a-Room Scheme

Where a room in a persons’ principle private residence (“PPR”) is let as residential accommodation and the gross annual rental income is less than €14,000 per annum, this rental income is exempt from tax. Where it exceeds €14,000 the rent is taxable in full.. The income is also disregarded for PRSI and USC purposes.Following a change in Finance Act 2018, Revenue has confirmed their view that income from short-term lettings sourced through
online accommodation websites such as Airbnb does not fall
within the rent-a-room rules. In fact, they confirm such income is
not rental income but trading or miscellaneous income. The
room must be used by the occupant for more than 28 consecutive
days unless used for respite care, exchange students or
occupants in full/part time education. 

Qualifying room rentals will not affect entitlements to claim mortgage interest relief. It will also not effect CGT relief on Principle Private Residence on the disposal of the dwelling, and will not lead to a stamp duty claw-back. The relief will not apply where the letting is between connected parties and rent relief is being claimed.

The relief will not be available where the person in receipt of the income is an employee of the person making the payment.

Rent Relief for Private Accommodation

Rent paid in a tax year for private residential accommodation
will no longer qualify for relief from 1 January 2018.
The relief was being phased out over a seven year period for
tenants who, on 7 December 2010, were paying qualifying rent
under a qualifying tenancy

High Earner Restricton

Certain tax breaks available to high income earners are restricted with a tapering restriction applying to individuals with income in excess of €125,000 to ensure a minimum effective tax rate of 30%.

Taxable income is calculated by restricting qualifying deductions to 20% of the taxable amount.

If the individuals’ income is less than €125,000 or if the reliefs claimed are less than €80,000 the restriction will not apply.

There is a full restriction on income in excess of €400,000. Where there is a claim for specified relief in excess of €80,000, the amount that may be claimed is limited to the greater of €80,000 or 20% of the adjusted income.

A tapering relief applies to income between €125,000 and €400,000.

The following items specifically need to be considered:

  • Calculation of double taxation relief and top slicing relief is applied before the relief to be claimed.
  • Credits for any relief’s or deductions are given before the application of the restriction (but after the carry forward of excess relief’s from prior periods).

The effect of the restriction is to disapply the age limit for income tax.

There was a temporary removal of the high earners restriction from the Employment and Investment Incentive (EII) for share subscriptions amde between 16 October 2013 and 31 December 2016.  This was made permanent from 1 January 2017.

From 1 January 2016 the income tax for profits derived from the management of woodlands in the State is not treated as a specified relief for the purposes of the high earners restriction.
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