- Standard Rate DIRT Accounts
- 30% DIRT Accounts
- Incapacitated Individuals and over 65s
- Post Office Saving Certificates
- Investment Undertakings
- Credit Unions
- Post SSIA Maturity schemes
- Non-residents
- European Savings Directive
- Reporting of Deposit Interest
Standard Rate DIRT Accounts
With effect from 1 January 2011 there is a 2% increase in the rate of tax applying to interest on deposits and profits/gains from investments and life assurance policies and investment funds.
Income tax at 27% (25% in 2010) is deducted at source by banks, building societies, Post Office Savings Banks, Credit Unions, Agricultural Credit Corporation and Industrial Credit Corporation from interest paid or credited on deposit accounts in the beneficial ownership of individuals resident in the State.
The tax deducted satisfies the individual’s full liability to income tax but this income must be disclosed in the individual’s return. However, the health levy of 2%/2.5% is payable on interest income. The 3% income levy (max) does not apply to EU deposit interest which are subject to standard rate deposit interest i.e. 27%.
30% DIRT Accounts
For interest paid or credited on certain deposit accounts where interest is credited at maturity e.g. tracker bonds, tax at 30% (28% in 2010) is deducted at source.
DIRT will not be repaid except to the following:
- individuals or their spouses aged 65 or over who are not liable to income tax
- incapacitated individuals
- charities
- companies that do not have a corporation tax liability
Incapacitated Individuals and over 65s
DIRT will not be deducted at source from individuals who are incapacitated or who are over 65 (self or spouse), where an appropriate declaration is made to the deposit taker. This means that such individuals no longer needs to file a tax return in order to get a repayment of DIRT deducted at source.
Post Office Saving Certificates
These are exempt from tax, with the maximum investment being €80,000.
Tip: As well as the income tax exemption there is no CGT on the disposal of Government Savings Certificates.
Investment Undertakings
The income from certain life assurance products and collective funds is not taxed as it arises and grows tax free within that fund (Gross Roll-Up). The increase in value of the investment is subject to income tax on encashment at 20% plus a further exit tax of 10% (previously 8%). It should be noted however that a 20% surcharge applies to funds, which are under the personal control of the investor.
Anti-avoidance measures provide for exit tax to apply, from 7 April 2009 this rate has been increased to 30% (28% in 2010) if the policy is not encashed within eight years of its inception. This is to prevent the avoidance of tax by continuously rolling over a policy. A repayment will be available if the policy is disposed of, this is to ensure that the total tax paid does not exceed the tax that would have been payable had the deemed disposal rules not applied (an election not to have the excess tax repaid may be made where the investment by Irish investors in the fund <15% of the value of the fund, in effect tax refunds may be claimed from the Revenue instead of the fund). Similar provisions apply to foreign policies, however there are relieving provisions where Irish investors account < 10% of the fund’s overall investment whereby it is not necessary for the fund to calculate the deemed disposal amount.
Tip: As the income is taxed on exit or after eight years you have the benefit of reinvesting the gross value of the funds thereby earning income on amounts that would otherwise be subject to tax.
Credit Unions
These offer different forms of share accounts, as follows:
Special Share Account
Shares in a special share account are liable to 30% (28% in 2010) DIRT on dividends.
Special Term Share Account
A special term share account for a term of either three or five years is available whereby the first €480 per annum of dividends in the case of the three year fund and €635 per annum in the case of the 5 year fund is exempt from DIRT and Income Tax. Any dividends received in excess of these amounts are liable to DIRT at 30% (previously 28%). Equivalent tax exemptions will apply in relation to interest on deposits held in special three and five year term accounts with other deposit taking financial institutions.
Regular Share Accounts
Tax at the marginal rate will continue to apply to interest on regular share accounts.
Post SSIA Maturity schemes
Special savings incentive accounts expired on 30 April 2007, however a post SSIA scheme incentivises contributions to pension schemes. It is targeted at those earning under €50,000 a year. The scheme allows monies from SSIA accounts to be transferred to a pension without triggering exit tax of 30% (28% in 2010), and also provides for an additional bonus contribution of €1 for every €3 contributed to a pension scheme subject to a maximum of €2,500.
The contribution must have been made within 3 months of the SSIA maturing.
The investment in a pension product can be by way of: -
- An AVC (additional voluntary contribution to an occupational pension scheme),
- A contribution to an standard PRSA or
- A premium in respect of an RAC (a retirement annuity contract).
Tip: The provisions may apply to a stay at home spouse with income of less than €50,000.
Anti avoidance legislation provides for a clawback of tax credits where a person availing of the credits withdraw any funds from the pension product within one year. This clawback is by way of a deduction from the payment from the pension administrator. The clawback is calculated by reference to the withdrawal and is proportionate to the amount of the total pension subscription.
Non-residents
Non-resident individuals who complete a declaration of non-residence may receive interest without deduction of DIRT.
European Savings Directive
Deposit takers are required to capture information relating to foreign residents who earn deposit interest in Ireland , this information is returned to Foreign Revenue authorities annually (in respect of interest payments made on or after 1 July 2005).
Reporting of Deposit Interest
Revenue powers exist to allow Revenue to make regulations obliging Financial Institutions including credit unions to return details of all interest and other like payments made to customers. On making appropriate regulations the Financial Institution will be obliged to get details of the person’s tax reference number and provide this together with the customer’s name and address to Revenue.
The new reporting requirement will be phased in over a period of time but has not yet been initiated.
