The Finance Bill replicates the tone of the Minister for Finance’s budget speech last December in that “High Earners Must Pay Their Fair Share”. The Finance Bill introduces a number of measures which will not only restrict the amount of tax relief high earners can claim, it will also ensure that certain individuals who continue to have close ties to the State will pay make a contribution to the State in respect of their citizenship.

We have detailed below some of the important Private Client Tax measures contained in the Finance Bill.

€200,000 Domicile Levy

The Finance Bill introduces the legislation for the new annual domicile levy of €200,000 which will apply for 2010 and subsequent tax years.

The levy will apply to individuals:
• Who are Irish citizens and Irish domiciled in the tax year,
• Whose worldwide income for the year is more than €1 million,
• Whose liability to income tax in the State for the tax year is less than €200,000, and
• Whose Irish property has a market value on the valuation date in the tax year in excess of €5 million. In estimating the market value of the property, no deduction will be made for any debt.

The Bill provides that an individual’s income will include income from all worldwide sources as computed under Irish tax law.  As the tests are applied on an individual basis, a husband and wife’s income is treated separately.

For the purposes of the €5 million property test, the Bill provides that Irish property includes all property situated in Ireland at the valuation date.  The valuation date in relation to a tax year is 31 December in that year. Shares in trading companies (or holding companies whose main value derives from subsidiary trading companies) are excluded from the definition of Irish situated property for the purposes of this test. However, shares in certain foreign companies which derive the greater part of their value from Irish situated assets will be deemed to be Irish property for the purposes of valuing the €5 million.

The Bill states that an individual will be allowed a credit against the levy for Irish income tax already paid for that tax year. Therefore, the levy will de facto not apply to individuals who have an Irish income tax liability over €200,000.
The new levy applies from 2010 and is payable on a self-assessment basis, so for 2010, the levy will be payable on or before 31 October 2011.
There are various ways of potentially avoiding this domicile levy. One such way is transferring Irish assets to a spouse in advance of 31 December 2010 (assuming the transferee spouse does not have income of €1 million in their own name). This should ensure that the spouse who has income of €1 million does not have Irish assets in excess of €5 million.

Remittance Basis of Income Taxation

The Finance Bill replicates the tone of the Minister for Finance’s budget speech last December in that “High Earners Must Pay Their Fair Share”. The Finance Bill introduces a number of measures which will not only restrict the amount of tax relief high earners can claim, it will also ensure that certain individuals who continue to have close ties to the State will pay make a contribution to the State in respect of their citizenship.

The Bill proposes to abolish the existing remittance basis of income taxation for Irish domiciled individuals who are tax resident but not ordinarily resident in Ireland. Therefore the remittance basis of income taxation will only apply to individuals who are tax resident but not domiciled in Ireland and they will continue to benefit from the remittance basis of taxation in respect of no n-Irish source income.

This change applies with effect from 1 January 2010.

Restriction on tax reliefs for high earners

The Finance Bill introduces the legislation to give effect to the changes announced by the Minister for Finance on budget day to restrict tax reliefs for high income earners. With effect from 1 January 2010, the effective rate of income tax for high-income earners who are availing of tax reliefs will increase from 20% to 30%.

Mortgage Interest Relief

The Finance Bill provides for the measures announced in the Budget to extend mortgage interest relief until the end of 2017 for those whose entitlement was due to end in 2010 or later. Loans taken out after 1 January 2013 will not qualify for the relief and it is proposed that the relief will be abolished for the tax year 2018 and thereafter.

Health Expenses

The Bill removes the requirement that medical institutions must be approved before tax relief to individuals can be allowed.  Nursing home fees and payments to foreign-based hospitals will also qualify for relief. The Bill also announces that a contribution made towards the cost of care under the Fair Deal Scheme will qualify for tax relief. It is proposed that the changes will take effect for 2010 and subsequent tax years.

Service Charges

The service charges relief is to be terminated from 2011 which was one of the recommendations in the Commission on Taxation report. As the relief is granted one year in arrears, an individual will be able to claim relief in 2011 for service charges paid in 2010.

Capital Gains Tax

The Bill has amended the 80% “windfall tax” introduced by the NAMA legislation by providing an exemption for the disposal of small sites under 1 acre with a market value below €250,000.
The windfall tax is also extended to profits and gains attributable to an increase in land value which arises due to planning decisions which infringed on the development plan for the area.
The Bill also provides that restrictions will apply on allowable capital gains tax losses in cases where arrangements were in place to secure a tax advantage.

Please note that amendments could be made to the Finance Bill before it passes through the Oireachtas and becomes law on or before 09 April 2010.

The Mazars Private Client team

Frank Greene         01 – 449 6415

Paul Mee (Galway) 091 – 570 100