TAXATION ADVISORY
INVESTING IN TAX DESIGNATED PROPERTY
The 2012 Budget proposes the introduction of a surcharge with effect from 1st January 2012 in respect of Section 23 type reliefs and accelerated capital allowances. The surcharge will apply to individuals with gross incomes in excess of €100,000. The surcharge will apply at a rate of 5% on the amount of the income sheltered by property reliefs in a given year. The Budget proposes this surcharge (essentially a higher rate of Universal Social Charge) will apply to all investors regardless of whether they invested in Section 23 or accelerated capital allowances schemes with this level of gross income. Residential owner-occupier relief is unaffected by these changes.
Accelerated Capital Allowances
Investors in accelerated capital allowances schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1st January 2015. Where the tax life of a scheme has ended before 1st January 2015 no carry forward of allowances into 2015 will be allowed.
Need for Professional Advice
If you are an existing investor in these properties or you are contemplating investing seek professional advice as the mechanics of the "revised" rules, regulations and restrictions attaching to property reliefs are now complex. Investors clearly need to ensure that their scheme satisfies the required conditions and also to have crystal clear clarification and appropriate documentary evidence as to the particular tax incentive. From 7th April 2009 the tax deductions for interest on monies borrowed for purchase, improvement or repair of rented residential premises is restricted to 75% of the amount which would otherwise have been deductible.
PERSONAL TAX CREDITS AND RELIEFS- TAX DEDUCTIBLE AT 20% RATE
| Single Person Married Couple Single Person with dependent children |
2012 €1,650 €3,300 €3,300 |
| WIDOWED PERSON Without dependent children Widowed person (in year of bereavement) |
€2,190 €3,600 |
| ONE PARENT FAMILY Widowed person (except in year of bereavement) Other person (Deserted, Separated or Unmarried) |
€1,650 €1,650 |
| WOIDOWED PARENT First Year After Bereavement Second Year After Bereavement Third Year After Bereavement Fourth Year After Bereavement Fifth Year After Bereavement |
€3,150 €2,700 €2,250 €1,800 - |
| Home Carer's Credit - Max. | €810 |
| Employee Tax Credit | €1,650 |
| AGE CREDIT Single/Widowed Married |
€245 €490 |
| INCAPACITATED CHILD CREDIT | €3,300 |
| DEPENDENT RELATIVE CREDIT | €70 |
| (INCOME LIMIT)) (2012) | (€13,837) |
| BLIND CREDIT Single Person Both spouses blind |
€1,650 €3,300 |
The personal tax credit and relief system replaced the old tax free allowance based system and equalises the value of tax allowances to all taxpayers. Accordingly, every €1,000 of a personal tax allowance is now equivalent to a tax credit of €200 (i.e. €1,000 at 20%) for each taxpayer irrespective of whether they are taxable at 20% or 41%. The current level of basic tax credit for a single person is €1,650 allowing them to earn €8,250 tax free (€16,500 for a married couple). For a farmer with off-farm PAYE income in excess of €8,250 an additional employee tax credit of €1,650 (single) €3,300 (married) may be claimed enabling tax free earnings of €16,500 for a single person (€33,000 for a married couple).
Set out below are the tax credits available in 2012 which will yield a 20% tax saving.
Health/Medical Expenses
Un-reimbursed health/medical/dental expenses, including certain Nursing Home expenses (see below) incurred by the taxpayer in respect of themselves, their spouse and their dependents (including dependent relatives) may be claimed at the standard rate against taxable income.
Tax deductible medical expenses from 2010 onwards are restricted to the cost of maintenance or
treatment in a hospital or other location to such expenses where necessarily incurred in connection with:
(1) the services of a medical practitioner or
(2) diagnostic procedures carried out on the advice of a medical practitioner.
It is no longer necessary for such treatment to be given in a hospital for expenses on the treatment
to qualify as tax deductible health expenses.
For the tax year 2007 onwards there is no longer a requirement that persons are related to each other in order to claim relief for medical expenses. Tax relief is not available for any expenditure that has been or will be reimbursed by VHI, BUPA, VIVAS Health, HSE, or where a compensation payment is made or will be made.
Health Expenses
Health expenses include the following: Services of a practitioner, drugs and medicines, hearing aids, physiotherapy or similar treatment, wheelchair/wheelchair lift, orthopedic bed/chair, home nursing/ special nursing, kidney patient’s expenses including a mileage allowance where the patient attends hospital for dialysis (For home dialysis patients tax relief is allowed for electricity, laundry, telephone and travel to and from the hospital) maternity care, child oncology patients, educational psychological assessments and speech and language therapy for children, Invetro fertilization, glucometer machine for a diabetic, gluten free food for coeliacs, nursing care and certain payments to nursing home for dependent relatives. (See below).
Nursing Home Expenses
Un-reimbursed health/medical/dental expenses, including certain Nursing Home expenses (see below) incurred by the taxpayer in respect of themselves, their spouse and their dependents (including dependent relatives) may be claimed at the standard rate against taxable income.
Tax deductible medical expenses from 2010 onwards, at the 20% rate, are restricted to the cost of
maintenance or treatment in a hospital or other location to such expenses where necessarily
incurred in connection with:
(1) the services of a medical practitioner or
(2) diagnostic procedures carried out on the advice of a medical practitioner.
It is no longer necessary for such treatment to be given in a hospital for expenses on the treatment
to qualify as tax deductible health expenses.
Certain Nursing Home expenses claimable at the 41% tax rate
Where an individual has defrayed health expenses on healthcare in relation to maintenance or treatment in a Nursing Home, and where there is 24 hour nursing care on-site, there is a deduction for these expenses against total income available to that individual. It would appear that relief for such expenses is only available where the treatment or maintenance in the Nursing Home is necessarily incurred in connection with the services of a medical practitioner or in connection with diagnostic procedures. In other words, the availability of relief for expenses on Nursing Home maintenance where the maintenance is not medically required might be in doubt. However, it is understood that in practice the only question for availability of relief would be whether the 24 Hours Nursing Home Cover on-site is available.
Contributions by the individual in defraying Nursing Home fees under the "fair deal" scheme are to be treated as health expenses qualifying for relief, however, the law would seem to indicate the relief is limited to the standard 20% rate but it is understood, in practice, relief at the marginal rate may be available. If incurring Nursing Home expenses, check out the tax position prior to incurring the expenditure to enable you secure the best tax deal.
Dental Expenses
Dental treatment which is not considered "normal" qualifies and in this context includes: crowns, veneers, tip replacing, gold posts, gold inlays, endodontics, root canal treatment, periodontal treatment orthodontic treatment and the surgical extraction of impacted wisdom teeth. In order to claim un-reimbursed dental expenditure it is necessary for the dentist to supply a signed MED2 form which indicates that the treatment is tax deductible. Routine dental treatment is excluded from tax relief and this includes the extraction, scaling and filling of teeth, bridge work and the provision and repairing of artificial teeth and dentures. Routine Ophthalmic treatment is also excluded and this includes sight testing and advice as to the use of spectacles or contact lenses and the provision and repair of spectacles or contact lenses.
Home Carer's Credit
The Home Carer's Credit may be claimed by a married couple, who are jointly assessed, where one spouse works at home to care for children or an aged or incapacitated person. Where the Home Carer has income exceeding €5,080 (2011) for the tax year the credit is reduced by 60 cent for every extra €1 of income and any Home Carer's allowance from the Department of Social Community and Family Affairs is disregarded in calculating the Home Carer's income.
PAYE / Employee Tax Credit
To claim this credit an individual must be in receipt of PAYE income and in the case of married
couples where each spouse is in employment the credit is available to each spouse. The credit
may be claimed in respect of farmers children working on the farm provided they are full-time
employees and
(a) PAYE must be operated in respect of the employment, and
(b) The son/daughter's income from employment on the farm must be at least €4,572.
Age Credit
If the taxpayer or his spouse is over, or will reach, the age of 65 during the tax year, the
following credits apply:
Single or Widowed - €245
Married Couple - €490
Incapacitated Child Credit
Available if an incapacitated child is living at any time during the tax year with the taxpayer.
Dependent Relative Credit
This credit is granted for each dependent relative of a taxpayer, or spouse, who is incapacitated, and, even if not incapacitated, the widowed mother or mother-in-law of the taxpayer. Also available in respect of a son/daughter maintained by the taxpayer and on whose services he/his wife depend because of old age or illness. The credit is reduced euro for euro where the dependent's income exceeds the maximum contributory old age pension rate for someone aged 80 or over and living alone.
Blind Person's Credit
Claimable by a person where he or his spouse is blind during the tax year. Where both husband and wife are blind the credit is doubled. An additional allowance of €825 at the marginal rate is available for a guide dog.
Dental Insurance
Relief is available for premiums paid on Dental Insurance Policies for non-routine dental treatment.
Long Term Care Policies
Tax allowance for premia is available on qualifying insurance policies designed to cover, in whole or in part, future care needs of individuals who are unable to perform at least two activities of daily living or are suffering from severe cognitive impairment.
Rent Paid for Private Accommodation
A tax credit of 20% may be claimed by tenants (who were paying rent under a tenancy on 7th December 2010) for rent paid for rented residential accommodation which is their sole or main residence subject to certain rent limits as follows in 2012:
| Over 55 years | Rent Limit | Under 55 | Rent Limit | |
| Single Person | €480 | €2,400 | €240 | €1,200 |
| Married and Widowed Persons | €960 | €4,800 | €480 | €2,400 |
Credit for payment of Service Charges
A 20% tax credit is available for service charges paid in the previous tax year, subject to a maximum tax credit of €80 (€400 x 20%). Service charges include those charges imposed by Local Authorities for the provision of a domestic water supply, domestic refuse collection, or domestic sewage disposal and includes payments made to a Group Water Scheme for domestic water supplies. The relief is being abolished in 2012 so tax year 2011 (to be filed before 31st October 2012) is the last tax year for which the service charge deduction may be claimed.
Third-Level Tuition Fees
Subject to a maximum limit on qualifying fees of €5,000 p.a., tax relief at the 20% rate is available for certain third-level tuition fees paid to approved colleges in Ireland and the EU. Course registration fees are not allowed. However: The Finance Act 2011 reduced the amount of qualifying fees on which relief can be claimed as follows:
- Relief will not apply to the first €2,000 of qualifying fees or, if less, the full amount, where the qualifying fees relate to a full-time course.
- Relief will not apply to the first €1,000 of qualifying fees or, if less, the full amount, where the qualifying fees related to a part-time course.
Fees paid for Training Courses
Tax Relief at the 20% rate may be claimed for tuition fees ranging from €315 to €1,270 for approved training courses of at least two years duration in the areas of information technology and foreign languages. The course must be approved by FAS as to quality and standards and the course must result in the awarding of a certificate of competence.Mortgage Interest Relief
Relief is available, at the 20% rate, for interest on money borrowed after 1st January 2004 for the purchase, erection or improvement of a principle private residence, or the residence of a former or separated spouse, or the residence of a dependent relative who is living in the house rent free. The relief is subject to an interest ceiling depending on when the house was purchased and if it was a first time purchase. The relief is available for 7 years from the year in which the mortgage interest tax relief was claimed for the first time on qualifying loans taken out before 1st July 2011. Transitional measures are provided for such loans taken out between 1st July 2011 and 31st December 2013.
2012 Budget Proposals
Mortgage Interest Relief will be increased to 30% for first-time buyers who purchased their residence in the years 2004-2008.
In order to stimulate activity in the residential property sector, for those who wish to buy a home in 2012 the Budget provides that:
- First-time buyers will get mortgage interest relief at a rate of 25% and,
- Non first-time buyers will benefit from a relief at 15%.
Where the Lending Institution is aware that the mortgage is for the purchase, erection or improvement of a principal private residence the tax credit will already have been netted off the interest payable to the Lending Institution.
If the money was borrowed for business or farm purposes it should be charged against profits in the profit & loss account thereby having no restriction on the amount of interest claimable against profits. Where the mortgage/part thereof was taken out for purposes other than the purchase, erection or improvement of a principal private residence, the tax credit applied by the Lending Institution should be restricted proportionately.
Payment of Wages to a Spouse
The 20% rate band for a married couple where only one of the spouses has an income is €41,800 (2012). However, where both spouses have income the rate band is increased to €65,600, which is an additional €23,800 or the amount of the spouse’s second income, if less. Where it is commercially justified, a farmer with sufficient income taxable at 41%, by paying a wage to his spouse of up to €23,800 could effect a tax saving of up to €4,998 (€23,800 x 21%).
In reading this taxation section interpret the word "he" as meaning he or she and the law stated as at 6th December 2011 incorporating the 2012 budget proposals.
Disclaimer: The taxation content prepared by IFAC Accountants in this publication is intended as an aid to farmers and has been written in general terms and is intended as a guide only and is not intended to be a comprehensive statement of relevant law or regulation with its application to specific situations depending on the particular circumstances involved.
It should not be used as a basis of any conclusion drawn or argument made and the original legislation should be consulted at all times. Accordingly, the reader should seek proper professional advice if acting on any of the issues outlined in this publication and this publication should not be relied upon as a substitute for such advice. While every effort has been made to ensure accuracy, the author or publisher will not accept any liability for loss, distress or damage resulting from any errors or omissions.