Revenue Note for Guidance

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Revenue Note for Guidance

261A Taxation of interest on special term accounts

Summary

The term “special term accounts” refers to certain deposit accounts that could be opened in the period 1 January 2002 to 15 October 2013. The tax treatment applicable to such accounts is as outlined below. Section 23 of the Finance Act (No 2) 2013 provided that no new special term account could be opened on or after 16 October.

In relation to accounts opened before this date, the tax treatment outlined covers the following accounts:

  • special medium term accounts that have not reached the third anniversary of the opening of the account by 15 October 2013,
  • special long term accounts that have not reached the fifth anniversary of the opening of the account by 15 October 2013 and
  • special long term accounts that were originally opened as special medium term accounts and that have not reached the fifth anniversary of the opening of the account by 15 October 2013.

Special term accounts are accounts held for a duration of at least 3 years in the case of medium term accounts or at least 5 years in the case of long term accounts. A DIRT exemption applies for the first €480 per annum of interest where the funds are invested for a minimum of 3 years and for the first €635 interest where the funds are invested for 5 years.

Where an election is made to change a medium term account to a long term account, then for subsequent years only the amount of interest over €635 is liable to DIRT.

Any interest received in excess of these amounts will be liable to DIRT at 39 per cent from 1 January 2017.

Annual returns, with details of new special term account holders, must be made by financial institutions to the Revenue Commissioners.

The provisions of the section came into force by way of an Order made by the Minister for Finance with effect from 1 January 2002 and were ceased, with effect from the 16th October 2013, by Section 23, Finance (No. 2) Act 2013.

Details

(1)–(3) Interest on a special term account will be relevant interest for the purposes of the DIRT regime but only to the extent that it exceeds €480 in the case of a “medium term account” and €635 in the case of a “long term account”.

(4) &(5) An individual may elect in writing to convert a medium term account to a long term account. Where such an election is made, interest paid in a tax year, which starts on or after the date of the election, will be relevant interest only to the extent that it exceeds €635.

These exempted amounts are not to be taken into account in computing total income for the purposes of the Income Tax Acts.

(6) Relevant interest paid on a special term account is not to be reckoned in computing total income, except for the purposes of a repayment claim under section 267(3). This, however, does not apply to interest on an account which ceases to be a special term account.

(7) An account ceases to be a special term account if any of the conditions in section 264A(1) cease to be satisfied. Where that happens, all subsequent interest paid on an account will be relevant interest and subject to DIRT. All past interest will be treated as relevant interest to the extent that it has not already been so treated and DIRT must be deducted from such interest. If that interest has already been withdrawn, the amount of DIRT must be deducted from the relevant deposits in the account.

(8) Subsection (6) does not apply to any interest in respect of any relevant deposit held in the account which is paid, or treated as paid by virtue of subsection (7), on or after the date on which the account ceases to be a special term account.

(9) Section23, Finance (No. 2) Act 2013 provides that a special term account will cease to be a special term account:

  • (9)(a) On the third anniversary of the account being opened if the account is a medium term account.
  • (9)(b) On the fifth anniversary of the account being opened if the account is a long term account.
  • On the fifth anniversary of the account being opened if the account is a long term account that was originally opened as a medium term account.

The effect of Section 23, Finance Act 2013 is that DIRT will be deducted from the full amount of any interest paid or credited, on or after the 16th October 2013, to:

  • a medium term account that has passed its third anniversary of opening or
  • a long term account that has passed its fifth anniversary of opening.

Relevant Date: Finance Act 2019