Analysis of High Income Restriction
Report of the Office of the Revenue Commissioners
Analysis of High Income Individuals’ Restriction 2008
1. General
The 2006 and 2007 Finance Acts introduced, with effect from 1 January 2007, measures to limit the use of certain tax reliefs and exemptions by high–income individuals. Such individuals, by means of the cumulative use of various tax incentive reliefs, had in previous years substantially reduced their tax liabilities.
The overall objective was to ensure that, from 2007, individuals with an adjusted income1 exceeding €500,000 (i.e. where the full restriction applied) would pay an effective rate of approximately 20 per cent on a combination of adjusted income and ring–fenced income. That objective was achieved in 2007 and has also been achieved in 2008. Where adjusted income is less than €500,000, a tapering approach ensures that there is a graduated introduction of the restriction, with the effective rate of tax increasing towards 20 per cent as adjusted income increases towards €500,000.
The 2010 Finance Act introduced further restrictions in this area, which are not relevant to this report as they do not come into effect until the tax year 2010.
Further details of the operation of the restriction for the years referred to in this report and the specified tax reliefs covered by the restriction are set out in Annex 1.
2. Results for 2008
The results for 2008 indicate that the overall number of individuals who were subject to the restriction in 2008 was 423 and that the additional tax yield for 2008 was €39.68m. These figures are only marginally down on 2007 when the overall number of individuals affected was 439 and the additional yield was €39.99m. for that year.
A breakdown of the 2008 results showing the effect of the restriction for the second year of its operation are set out in tabular form in Annex 2. These results are based on actual returns received.
Cases where full restriction applies – Adjusted Income of €500,000 or more
Table 1A (Annex 2) shows that the 189 high–income individuals with an adjusted income of €500,000 or more (i.e. where the full restriction applies) paid an average effective tax rate of 19.86% per cent on the combination of adjusted income and ring–fenced income.
This meets the objective set out for the measure. The additional tax involved was €33.126m, representing a 152% increase on the tax that would otherwise have been paid if the restriction had not applied. An important outcome of the restriction is that 35 individuals with adjusted income of €500,000 or more, who would not otherwise have paid tax in 2008, were brought into the tax net for that year.
Table 1B (Annex 2) summarises the distribution of the effective tax rates, in bands of 5%, for the 189 cases with adjusted income of €500,000 or more. It shows that all of the high–income individuals within this category fall into the effective rate bands of 15% to 20% (157 cases) and 20% to 25% (32 cases).
Cases where restriction partly applies – Adjusted Income of up to €500,000
Table 2A (Annex 2) shows that the 234 high–income individuals with an adjusted income of up to €500,000 (i.e. where the restriction applies on a graduated basis) paid an average effective tax rate of 13.82% per cent on the combination of adjusted income and ring–fenced income. The additional tax involved was €6.559m, representing an 84% increase on the tax that would otherwise have been paid if the restriction had not applied. 65 individuals with adjusted income of up to €500,000, who would not otherwise have paid tax in 2008, were brought into the tax net for that year.
Table 2B (Annex 2) summarises the distribution of the effective tax rates, in bands of 5%, for the 234 cases with adjusted income of up to €500,000. The spread reflects the graduated nature of the application of the restriction for cases in this category.
3. Comparison with results for 2007
A comparison of the figures for 2008 with the figures for 2007 is set out below.
Total Number of Individuals |
Extra Tax |
Effective Rates |
Effective Rates |
|||||
Year |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
Over 500K |
189 |
214 |
33.12 |
34.15 |
7.89 |
8.79 |
19.86 |
20.08 |
Up to 500k |
234 |
225 |
6.56 |
5.84 |
7.50 |
7.24 |
13.82 |
13.63 |
4. Schedule of declared use of Reliefs
Table 3 (Annex 2), in relation to each specified relief, shows:
- the overall number of individuals subject to the restriction, who declared that they used the relief, and
- the total combined amount of the relief declared as used by those individuals.
July 2010
ANNEX 1
Operation of the restriction in 2008
The restriction works by limiting the total amount of “specified reliefs” that a high-income individual can use to reduce his or her tax liability in any one tax year.
In summary, the restriction applies only where:
- the adjusted income of an individual is equal to or greater than a “threshold amount”,
- the aggregate of specified reliefs used by the individual is equal to or greater than the “threshold amount”, and
- the aggregate of specified reliefs used by an individual is greater than 50 per cent of the individual’s adjusted income.
In general, the “threshold amount” is €250,000 but a lower threshold can apply where the individual has ring-fenced income.
In the case of a married couple, application of the restriction to each spouse is determined separately. Therefore, the restriction will apply to each individual spouse only where these three circumstances apply to that spouse.
Specified Reliefs
Broadly speaking, the reliefs that are restricted include:
- the various sectoral and area-based property tax incentives,
- certain exemptions e.g. relating to artists’ income, patent royalties etc.,
- certain investment incentive reliefs such as BES relief and film relief,
- relief for interest paid on loans used to acquire an interest in a company or in a partnership.
Normal business-related expenses, deductions for capital allowances on plant and machinery, genuine business-related trading losses, and genuine losses from a rental activity that do not arise from the use of specified reliefs are not restricted. In addition, personal tax credits are not affected.
ANNEX 2
Table 1A: Ranges of Adjusted Income-cases with Adjusted Income of €500,000 or more
Adjusted Income Range |
Number of Cases |
Number of Cases and Tax Before Restriction |
Tax After Restriction |
Additional Tax After Application of Restriction |
Average Effective Rate Before Application of Restriction |
Average Effective Rate After Application of Restriction |
|
€ |
No. |
Amount€ |
Amount € |
Amount € |
Rate % |
Rate % |
|
500,001 650,000 |
54 |
40 |
2,299,689 |
6,439,218 |
4,139,529 |
6.81 |
19.08 |
650,001 800,000 |
34 |
30 |
2,145,630 |
5,173,146 |
3,027,516 |
8.03 |
19.37 |
800,001 1,000,000 |
29 |
25 |
2,523,766 |
6,038,006 |
3,514,239 |
8.21 |
19.64 |
1,000,001 1,500,000 |
38 |
32 |
3,797,967 |
9,548,765 |
5,750,798 |
7.79 |
19.59 |
1,500,001 2,000,000 |
11 |
9 |
590,089 |
4,304,578 |
3,714,489 |
2.74 |
20.00 |
Over 2,000,000 |
23 |
18 |
10,468,219 |
23,448,331 |
12,980,112 |
9.08 |
20.34 |
Totals |
189 |
154 |
21,825,360 |
54,952,044 |
33,126,683 |
7.89 |
19.86 |
Table 1B: Effective Tax Rates-cases with Adjusted Income of €500,000 or more
Effective Rate |
No of cases |
% of cases in Table |
0% < 5% |
0 |
0% |
5% < 10% |
0 |
0% |
10% < 15% |
0 |
0% |
15% < 20% |
157 |
83.07% |
20% < 25% |
32 |
16.93% |
25% < 30% |
0 |
0% |
30% < 35% |
0 |
0% |
35% < 40% |
0 |
0% |
> 40% |
0 |
0% |
Totals |
189 |
100% |
Table 2A: Ranges of Adjusted Income-cases with Adjusted Income of up to €500,000
Adjusted Income Range |
Number of Cases |
Number of Cases and Tax Before Restriction |
Tax After Restriction |
Additional Tax After Application of Restriction |
Average Effective Rate Before Application of Restriction |
Average Effective Rate After Application of Restriction |
|
€ |
No. |
Amount€ |
Amount € |
Amount € |
Rate % |
Rate % |
|
Under 250,000 |
27 |
25 |
2,680,984 |
3,331,879 |
650,896 |
14.21 |
17.66 |
250,001 300,000 |
56 |
35 |
299,566 |
724,058 |
424,492 |
1.81 |
4.38 |
300,001 350,000 |
49 |
38 |
1,063,164 |
2,156,858 |
1,093,694 |
5.61 |
11.38 |
350,001 425,000 |
59 |
37 |
1,500,209 |
3,728,309 |
2,228,100 |
5.92 |
14.72 |
425,001 500,000 |
43 |
34 |
2,262,716 |
4,425,305 |
2,162,589 |
9.28 |
18.16 |
Totals |
234 |
169 |
7,806,639 |
14,366,409 |
6,559,771 |
7.50 |
13.82 |
Table 2B: Effective Tax Rates-cases with Adjusted Income of up to €500,000
Effective Rate |
No of cases |
% of cases in Table |
0% < 5% |
54 |
23.08% |
5% < 10% |
34 |
14.53% |
10% < 15% |
55 |
23.50% |
15% < 20% |
90 |
38.46% |
20% < 25% |
1 |
0.43% |
25% < 30% |
0 |
0% |
30% < 35% |
0 |
0% |
35% < 40% |
0 |
0% |
> 40% |
0 |
0% |
Totals |
234 |
100% |
Table 3-Schedule of declared use of different reliefs (for publication purposes, some categories have been amalgamated)
Ref Number |
Specified Relief |
Number of Cases |
Amount of Relief used in 2008 by those affected by the restriction. |
1 |
Sect 140 – dividends and distributions out of exempt income from stallion fees, stud greyhounds and woodlands. |
10 |
3,369,515 |
2 |
Sect 141 – dividends and distributions out of exempt patent income. |
43 |
35,996,842 |
3/4 |
Sect 142 and 143– dividends and distributions out of exempt income from certain mines and other mining operations. |
– |
– |
5 |
Sect 195 – Exempt income, profits or gains of artists, writers or composers. |
32 |
20,918,115 |
6 |
Sect 231 – Exempt stallion fees. |
4 |
673,690 |
7 |
Sect 232 – Exempt woodland income. |
5 |
178,567 |
8 |
Sect 233 – Exempt stud greyhound fees. |
– |
– |
9 |
Sect 234 – Exempt patent royalty income. |
25 |
10,454,810 |
10 |
Sect 248 – relief for interest paid on loans to acquire an interest in a company. |
36 |
15,057,233 |
11 |
Sect 248 – relief for interest paid on loans to acquire an interest in a company as extended by sect 250. |
37 |
11,453,837 |
12 |
Sect 253 – relief for interest paid on loans to acquire an interest in a partnership. |
15 |
2,450,673 |
Sect 272 – writing down allowances in respect of capital expenditure on: |
148 |
58,432,107 |
|
13 |
▪ hotels and holiday camps |
20 |
3,685,123 |
▪ hospitals, sports injury clinics and mental health centres |
18 |
4,570,180 |
|
14 |
Sect 273 – acceleration of writing down allowances in respect of certain expenditure on certain industrial buildings or structures |
12 |
897,646 |
Sect 274 – balancing allowances in respect of capital expenditure on: |
33 |
12,062,989 |
|
15 |
▪ hotels and holiday camps |
11 |
1,492,423 |
▪ hospitals, sports injury clinics and mental health centres |
6 |
1,681,322 |
|
15A |
Sect 304(4) – Carry forward of capital allowances in trading situations which are unused in a particular year. |
7 |
3,965,822 |
15B |
Sect 305(1) – Set off and carry forward of capital allowances in rental situations. |
32 |
18,171,965 |
16/17 |
Sect 323 and 324 – Custom House Docks Area: capital allowances for commercial premises and double rent allowance in respect of rent paid for certain business premises |
5 |
1,069,089 |
18/19/20 |
Sect 331, 332 and 333 – Temple Bar Area: capital allowances for industrial buildings, commercial premises and double rent allowance in respect of rent paid for certain business premises |
4 |
814,073 |
21 |
Sect 341 – Urban Renewal Scheme: capital allowances for industrial buildings. |
4 |
1,769,357 |
22 |
Sect 342 – Urban Renewal Scheme: capital allowances for commercial buildings |
19 |
8,942,967 |
23 |
Sect 343 – Enterprise Area: capital allowances for certain buildings. |
13 |
871,524 |
24 |
Sect 344 – Multi Story Car Park capital allowances |
12 |
807,605 |
25 |
Sect 345 -Urban Renewal, Enterprise Area, Multi Story Car Park: double rent allowance in respect of rent paid for certain business premises |
16 |
2,696,832 |
26 |
Sect 352 – Qualifying Resort Area: capital allowances for certain industrial buildings |
3 |
73,092 |
27 |
Sect 353 – Qualifying Resort Area: capital allowances for certain commercial buildings |
8 |
1,004,892 |
28 |
Sect 354 – Qualifying Resort Area: double rent allowance in respect of rent paid for certain business premises |
2 |
368,849 |
29 |
Sect 372C – Qualifying (Urban) Areas: capital allowances for certain industrial buildings |
35 |
7,937,458 |
30 |
Sect 372D – Qualifying (Urban) Area and Living over the shop scheme: capital allowances for certain commercial buildings |
13 |
6,344,490 |
31/32 |
Sect 372M and Sect 372N – Qualifying Rural Areas: capital allowances for certain industrial and commercial buildings |
8 |
848,159 |
33/34 |
Sect 372V and 372W – Park and Ride Scheme: Capital allowances for Park and Ride Facilities and for certain commercial buildings |
– |
– |
35 |
Sect 372AC – Town Renewal Area: capital allowances for certain industrial buildings |
4 |
151,987 |
36 |
Sect 372AD – Town Renewal Area: capital allowances for certain commercial buildings |
3 |
668,557 |
36A/36B |
Sect 372AX and 372AY – Mid Shannon Corridor Tourism Scheme: capital allowances for certain registered holiday camps and tourism infrastructure facilities |
– |
– |
37 |
Sect 372AP – Relief for lessors of residential premises |
25 |
9,236,156 |
38 |
Sect 372AU(1) – Relief for lessors of residential premises: old schemes |
– |
– |
39 |
Sect 381 – Repayment of tax due to losses |
7 |
2,186,332 |
40 |
Sect 381 – Repayment of tax due to losses, as extended by Sect 392 |
2 |
1,950,127 |
41 |
Sect 382 – Carry forward of losses to future years |
3 |
918,068 |
42/43 |
Sect 383 and Sect 384 – Relief under Case IV and Case V for losses |
39 |
13,219,083 |
44 |
Sect 385 – Terminal loss relief |
– |
– |
45 |
Sect 481 – Relief for investment in Films |
1 |
25,400 |
46 |
Sect 482 – Relief for investment on significant buildings and gardens |
13 |
4,823,677 |
47 |
Sect 485F – Carry forward of excess relief |
105 |
29,269,718 |
48 |
Sect 489(3) – BES relief |
20 |
2,104,235 |
49 |
Sect 843 – Capital allowances for buildings used for third level education purposes |
8 |
1,589,669 |
50 |
Sect 843A – Capital allowances for certain child-care facilities |
14 |
2,130,739 |
51 |
Sect 847A – Donations to certain sports bodies |
5 |
86,015 |
52 |
Sect 848A – Donations to approved bodies |
99 |
3,744,309 |
53 |
Paragraph 11 of Schedule 32, Urban Renewal Scheme 1986: Capital allowances for certain commercial premises in designated areas |
4 |
683,930 |
54 |
Paragraph 13 of Schedule 32, Urban Renewal Scheme 1986: Double rent allowances in relation to certain premises in designated areas |
4 |
563,819 |
Source: Department of Finance. www.finance.gov.ie.Copyright Acknowledged.
Footnotes
1Adjusted income is the taxable income of an individual before the restriction is applied, to which is added the amount of income sheltered in the year through the use of the specified reliefs. It excludes “ring–fenced income” which is already chargeable to tax at a rate of 20% or more on a final liability basis (e.g. where an individual has income from deposit interest).
