Finance Act 2007 Changes

Section 18 amends the provisions introduced in Finance Act 2006 to limit the use of certain tax reliefs, including certain exemptions, by some high-income individuals. The measure addressed the issue of a small number of individuals with high incomes who, mainly by means of the cumulative use of various tax incentive reliefs, reduced their income tax liability to very low levels or to zero. From 2007, under the measure introduced in 2006 as amended by this section, such individuals will have an effective rate of income tax for each year of not less than about 20 per cent on the income sheltered by such schemes.

A number of issues were left over from Finance Act 2006 that are addressed in this section. In addition, there are a number of other amendments to last year's legislation to facilitate the principal changes proposed in this section, to ensure the restriction operates as intended, to correct various references and to modify some of the terminology used in various provisions of the overall measure.

The principal changes to last year's provisions are:

• Adjustments to the provisions governing the taxation of married couples to ensure that the restriction applies only to an individual with sufficient income in his or her own right and to ensure that a spouse whose income is below the threshold is not inadvertently subject to the restriction because of the income aggregation rules that apply to certain married couples. The adaptations also ensure that married couples who opt for joint assessment will retain their entitlement to married tax bands and tax credits and, in the case of a married couple who opt for separate assessment, the ability to transfer unused tax rate bands and reliefs to his or her spouse.
• To ensure that tax return and tax payments rules apply to everyone subject to the restriction, a full tax return will be required from such individuals for each tax year in which the restriction applies and, in addition, the tax payment rules applicable for self-assessment purposes, including the preliminary tax payment rules, will apply.
• In order to monitor and assess the impact of the restriction in terms of the numbers affected, the additional tax paid and the nature of the reliefs restricted, those affected by the restriction will be required to provide a statement to Revenue setting out the calculation of the restriction and identifying precisely the reliefs restricted. Revenue will be able to seek further information on the calculations and the reliefs used in any particular case. The ability to seek information will extend to seeking information from those with high incomes, claiming substantial tax reliefs, who might be expected to be subject to the restriction but who, for whatever reason, have not submitted the statement.
• Rules are introduced to govern the apportionment of relief carried forward from the tax year 2006 to the tax year 2007, where the relief carried forward consists of a mix of reliefs, some of which could be regarded as attributable to restricted reliefs and some of which could be regarded as attributable to unrestricted reliefs. The apportionment will operate by applying to the amount of tax relief carried forward from 2006 to 2007 in respect of various categories of tax reliefs a fraction where, broadly, the numerator is the total of the individual's restricted reliefs of that category over the previous four years and the denominator is the individual's overall use of tax reliefs of that category over the same period. It will be open to the taxpayer to apply to Revenue for the apportionment to operate on such longer or shorter period that, in the opinion of the taxpayer, gives a fairer apportionment. If Revenue do not accept the period put forward by the taxpayer, or if some other apportionment period cannot be agreed, the taxpayer will be entitled to appeal to the Appeal Commissioners for apportionment on the basis of the period set out in his or her application.