Most forms of investments and savings in Ireland are subject to tax liability on any gains. Not sure what this means for you? Below we’ve outlined the most common investment and saving schemes in Ireland and what they mean in terms of your tax liability. Read on for more information!
Employee Share Option Schemes
Employees may take part in certain share options from their company. These may be tax free or tax efficient. Bear in mind, there are few benefits employees can receive that are tax free. There are three main ways where employees can benefit from share in the company. These include:
- Approved profit sharing schemes
- Share options
- Key employee engagement Programme [KEEP]
Gains from the first two types of share schemes are chargeable to the USC and PAYE, whereas gains from the KEEP programme on the practice of qualifying share options won’t be subject to income tax, PRSI, or USC at the date of exercise. This gain will instead be subject to Capital Gains Tax on future disposal of the shares.
Rules of the Employee Share options Schemes
Approved Profit Sharing Schemes
These allow an employer to give an employee shares in the company up to a max. Value of €12,700/year tax free. Approved Profit Sharing Schemes are subject to certain conditions set out in legislation and administered by the Revenue Commission. If this scheme meets the required conditions an employee will not pay tax on €12,700. The employer must hold the shares for a period of time and the employee must not dispose of the shares before three years. If an employee disposes of shares before this time, they are liable to pay income tax on the lower of the following:
- The market value of the shares when they were given to the employee
- The value of the shares at the time of sale
Approved Profit Sharing Schemes are subject to a number of conditions that should be checked with Revenue.
Share options in your employer’s company
Revenue approved savings-related Share Option Schemes which allow you to save for and purchase share options in your employers company tax-effectively. Check with Revenue and your employer to see which rules apply to your share options and when you are liable to pay tax. More information can be found here.
Key Employee Engagement Programme [KEEP]
KEEP allows small and medium-sized companies the use of share-based remuneration to key employees. It’s goal is to enable SMEs to compete with larger companies in the recruitment and retention of key employees. In the KEEP programme any gains to employees on qualifying share options will not be subject to income tax, PRSI, or USC at the date of exercise. The gain will instead be subject to Capital Gains Tax on future disposal of the shares. For more information on KEEP, click here.
Deposit Interest Retention Tax [DIRT]
DIRT is a tax on interest earned on paid or credited to bank accounts held within Irish financial institutions. These institutions include:
- A licensed bank of any EU member state
- A building society of any EU member state
- A trustee savings bank
- The Post Office Savings Bank
- A credit union
DIRT is deducted by your financial institution before they pay you the interest. It is up to your financial institution which deposits are subjected to DIRT but you can request a statement from them on the amount of DIRT they deduct.
How do you declare DIRT?
You are required by law to disclose any deposit interest you receive in your tax return. You must enter the total interest payment before you deduct DIRT. The type of tax return you complete depends on whether you are registered for self-assessment or Pay As You Earn [PAYE] worker.
If you are self-assessed you should disclose any DIRT on your Form 11 in section D ‘Income from fees, covenants, distributions.’ This can be done via Revenue’s online service.
If you are a PAYE taxpayer you should include abt DIRt on your Form 12 in the ‘Irish Deposit Interest’ section. This is only necessary if your taxable non-PAYE income is less than €5,000. If your taxable non-PAYE income is €5,000 or more, you must register for self-assessment and file a Form 11 for that tax year.
Who is charged DIRT
DIRT is deducted from the interest paid on all Irish-resident’s deposit accounts. The current rate of DIRT is 33% of your total interest.
Interest from accounts in EU and non-EU countries
If you receive interest from an account in an EU country you must pay the current DIRT rate on income from interest. You are required to disclose details of this on your tax return. If you do not do not submit this information on time, it will be taxed at 40%.
For non-EU countries, you will be taxed at the current DIRT rate if you are a standard rate taxpayer and have made your return on time. If you are a higher-rate taxpayer, or your return was not submitted on time, a DIRT rate of 40% will apply.
Exemptions from DIRT
You can receive interest without paying DIRT in specific circumstances if you complete a declaration form stating that you or your spouse/civil partner:
- Is 65 years of age or older when making the declaration. However, your total income for the year including interest must be below the annual exemption limit
- Is permanently incapacitated due to a physical or mental diability
If you are a trustee of a special trust for permanently incapacitated persons you can apply for an expemtion from DIRT. In this case you must be the holder of this account and the trust must meet the following conditions:
- It is set up only for the benefit of one or more permanently incapacitated individuals
- The funds of the truest are from subscriptions given by the public
- The specified incapacitate person owns the funds in the account
DIRT is not charged on:
- Individuals who: are not resident in Ireland, have have completed a non-resident declaration, who do not pay tax in Ireland, and do not have a joint account with an Irish resident
People aged 65 or older
You can get your deposit interest paid minus reduction of DIRT or you can claim a DIRt refund if:
- Your income [including your spouse/civil partner’s income] is less than the low income exemptions limit for people over 65
- Or your tax liability [including your spouse//civil partner’s income] for the tax year is less than your tax credits for that year
Generally, joint accounts where one of the account holders is 65 years of age or older will only qualify for the refund of DIRT if the other account holder is that person’s spouse/civil partner.
If another person [aka your son or daughter] has the authority to operate your bank account on your behalf and is named an account holder for this purpose, you will continue to qualify for the refund of DIRT provided you are the beneficiary of the account. In these cases when you claim a refund you must include a declaration that you [not your child] are entitled to all od the interest paid on the deposit.
If you aren’t a resident in Ireland for the tax year, you may be entitled to a refund on any DIRT deducted from your Irish deposit interest. To get a refund of DIRT, Ireland must have double the taxation agreement with the country you are a resident in. DIRT will be refunded under the terms of this agreement. Complete an IC5 form to apply for this refund of DIRT.
If you aren’t a resident in Ireland, you may have your Irish deposit interest paid without deduction of DIRT. A non-resident person doesn’t have to be a resident of a country that has a double taxation agreement with Ireland to apple for a DIRT exemption. Contact your financial institution to find out if you are exempt from paying DIRT. In this case you must complete a Non-Residence Declaration.
First time buyers must be registered for Local Property Tax [LPT] to make a claim for a refund of DIRT you must log into the LPT online system and enter your PPS number or tax reference number, or property ID and PIN.
When you’re in the LPT system you should click the ‘Claim DIRT FTB Refund Button’ which will display a claim form. The information you need to complete this form is as follows:
- Amount of DIRT to be refunded [max. 20% of the purchase price or build cost]
- Purchase price or completion value
- Purchase date
- Email address
- Bank details to which the refund will be paid
- Evidence of DIRT deducted
If you qualify for this relief, you will receive an email confirming this when your claim has been processed and the refund will be issued to your bank account.
Exemptions from DIRT
You can apply to have your deposit interest paid without deduction of DIRT.
- If you are over 65 years old you must complete form DE1 and return it to your financial institution
- If you are permanently incapacitated person or a trustee of a special trust for a permanently incapacitated person you must complete form DE2 and return it to Revenue
Congratulations! You’ve successfully reached the end of this article and your taxes are sound! Proud of you! Do you have any advice on this topic? Comment it below!