Exempt income

The sources of income in Ireland that are exempt from income tax have been reduced. The exemption from income tax still remains for income arising from woodlands, subject to any restriction imposed by the high income earners restriction detailed below. Dividends paid from exempt sources are not subject to withholding tax of 20%.

The recipient of profits or gains from exempt sources is required to report details to the Revenue on their annual tax return. It should be noted that there are quite stringent conditions to be met for these sources of income to qualify for an exemption from income tax. From 1 January 2011, the tax exemption for certain artists is subject to a limit of €40,000 per annum.

Restrictions on reliefs

Since 1 January 2007, certain high income individuals who utilised specified tax reliefs (e.g., property-based tax incentives, artist’s exemption) available to them have been restricted in the amount of tax relief which they can claim. The specified tax reliefs are restricted to €80,000 or 20% of the reliefs due before the restriction, whichever is the greater. An individual effectively pays income tax at approximately 30% - while the top rate is 41% where total income exceeds €400,000 and there are sufficient specified tax reliefs. The effective tax rate for individuals with total income between €125,000 and €400,000 is less, as the restriction applies on an incremental basis.

For individuals whose total income is less than €125,000 the restrictions to the tax relief do not apply.

For married couples/civil partners, the threshold of €125,000 is due independently to each spouse/civil partner, irrespective of how they are assessed for tax purposes. It is not possible to aggregate the threshold against aggregate income.

All individuals to whom restrictions apply are subjected to self-assessment provisions. In addition, those affected by restrictions must supply a statement to Revenue setting out details of reliefs and restrictions applied. There are rules relating to the apportionment of relief between specified reliefs and other tax reliefs where relief is carried forward to the following year. These rules apply where the carried forward relief consists of restricted and unrestricted reliefs.