Rent Tax Credit

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Rent tax credit

Budget 2023 saw the introduction of a new Rent Tax Credit which is available from 2022 to 2025.

The credit is 20% of the rent paid in a year, up to a maximum credit of either €500 for an individual or €1,000 for a couple, for:

  • A person’s principal private residence (i.e. sole place of residence).
  • A person’s ‘second home’ which they use to facilitate their attendance at their employment, office holding, trade, profession or a Revenue approved college course.
  • A property used by a child to facilitate their attendance at a Revenue approved college course.

Qualifying rents are any amounts paid in return for the use, enjoyment and special possession of the property but does not include payments made for security deposits, repairs or maintenance or any other services such as board, laundry, etc.

The main conditions of the relief are as follows:

  • The property must be a residential property located in Ireland.
  • The payment must have been made under a tenancy. Tenancy for rent tax credit purposes must fall under one of the following categories:
    • An agreement or lease which is required to be registered with the Residential Tenancy Board (RTB).
    • A licence for use of a room(s) in another person’s principal private residence. These arrangements are commonly known as “rent-a-room” or “digs”. (No RTB registration is required under these licences).
    • A tenancy for 50 years or more.
    • Tenancies under “rent to buy” arrangements.
  • The landlord and the individual making the claim cannot be parent and child. If they are otherwise related the credit may be available as long as the RTB registrations have been complied by. Therefore, the credit is NOT available where the tenancy is under different arrangements such as “digs” or “rent-a-room”.
  • The individual must not be a supported tenant (in receipt of any State housing supports such as HAP or RAS).
  • The landlord must not be a Housing Association or Approved Housing Body.

You can claim the Rent Tax Credit for rent paid during 2022 by submitting a 2022 Income Tax Return to Revenue.  For 2023 and subsequent years the claim can also be made in-year using Revenue’s Real-Time Credit Facility.

If you are not registered for self-assessment, you can submit your Income Tax Return via Revenues’ MyAccount. By selecting “Review your Tax 2022” and requesting a “Statement of Liability”, you can input the information under the “Tax Credits & Reliefs” page.

The Real Time Credit Facility for 2023 and subsequent years enables you to claim the Rent tax credits in during the year. To claim the credit you must select “Manage your Tax 2023” and “Add new credits”, there it will give you the option to add the “Rent tax credit” and input the relevant information. Once the claim has been processed by Revenue, an amended Tax Credit Certificate is issued, and an amended Revenue Payroll Notification will be made to your employer.

For further information about the Rent Tax Credit, please contact us.

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Tax Relief on Third Level Tuition Fees

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Tax-payers who pay third level fees on their own behalf or on behalf of another person will be happy to know that they can claim tax relief.

Tax relief at the standard rate is available in respect of certain third-level tuition fees paid to approved colleges. Revenue publishes a list each year of both private and public colleges approved for tax relief. The relief is given by way of a tax credit equal to the fees paid multiplied by 20% (the standard rate of tax). A credit for third level fees cannot result in an income tax refund.

What is an Approved College?

Revenue have provided guidance on what constitutes an approved college. This is a college or higher education institute in the state which provides approved courses (definition below) or an institute in the UK or another EU Member state which is maintained by recurrent grants from public funds of any EU Member State. The college in either the Irish State, the UK or in an EU Member State must be a duly accredited university or institution of that country.

What is an Approved Course?

Revenue have also provided guidance on what constitutes an approved college course. A full-time or part-time undergraduate course must be at least two academic years. A postgraduate course leading to a postgraduate award based on a thesis or on the results of an examination or both, which is between one to four years and requires the student to have a prior degree or an equivalent qualification.

Who can claim & how much can be claimed?

An individual can only claim the relief if they themselves incurred the cost of the fees. Relief is calculated on aggregated fees paid subject to a maximum of €7,000 per person, per course, per academic year where the first €3,000 (full-time) or €1,500 (part-time) is deducted.  The general effect of this is that claimants who are claiming for more than one student will get full tax relief for 2nd and subsequent children in their claim.

Relief does not extend to payments such as registration fees, administration fees or student accommodation.

If in receipt of any grant or payment towards the fees, this must be deducted from the claim being made when claiming the relief.

How to claim tuition fees?

There is no specific form required to claim relief for tuition fees paid for third level education courses. An individual can use PAYE services in myAccount to apply for relief for tuition fees by completing the Form 12 or if income tax registered can claim this through their yearly tax return.

Should you require any further information or assistance in claiming the tax relief, please contact us.

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Tax Appeals Commission Determination | Income Tax: Treatment of an IQA Allowance

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The Tax Appeals Commission’s (TAC) objective is to fulfil the obligations placed on it by the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”). To fulfil these, the TAC facilitates taxpayers in exercising, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

The Issue for Determination

Recently, the TAC issued a determination regarding an Appellant’s complaint about the treatment of an IQA allowance he received in respect of his contributory pension for the years 2019 and 2020. The Appellant was dissatisfied with how he was assessed in relation to his contributory pension, in respect of which he received an increase for his spouse as a Qualifying Adult (Increase for a Qualifying Adult, or “IQA”).

The Background

The Appellant’s complaint related to how the Revenue Commissioners had interpreted an IQA allowance he received in respect of his contributory pension. According to the appellant, “this allowance [was] paid directly to his spouse”, who had “full and sole discretion over how it [was] expended”. In the appellant’s opinion, “whoever actually receives the money should pay the Tax on it. To expect someone else, who received none of that money, to pay the tax on it is unbelievable and very unfair”.

On 30 November 2021 and 6 December 2021, the Appellant received P21 Balancing Statements for the years 2019 and 2020. These indicated underpayments of income tax in the amounts of €3,660.36 and €3,810.69 respectively. On 16 December 2021, the Appellant duly appealed the P21 Assessments to the Commission, arguing that:

“Revenue’s position is that I am deemed to be the beneficiary of the Pension, plus the Increase for a Qualified Adult. They are clearly wrong in that stance. I am the beneficiary of the Pension only and my Wife is the beneficiary of the Qualified Adult Increase. Surely, the beneficiary has to be the person who actually receives the money and not somebody else? Regardless of what way the Government tricks around with the wording of the Acts, it cannot change that fact, which should override everything else.”

By contrast, the Revenue Commissioners’ position was that the IQA allowance was deemed to be the Appellant’s income for tax purposes, pursuant to section 126(2B) of the TCA 1997.

Opposing Arguments

The Revenue Commissioners submitted that “…it is incumbent upon [the Appellant] to demonstrate that Revenue has erred in the way he was taxed with regard to the QAD portion of his pension. Respectfully, the Respondent would argue that the assertion that Revenue is ‘clearly wrong’ does not meet that burden in a matter where the wording of the legislation is quite clear.”

For the Revenue Commissioners, that the appellant claimed “the government has tricked around with the wording of the Acts” implied dissatisfaction with the legislation itself, rather than with the Revenue Commissioners’ interpretation of the legislation.

Determination

The TAC in its determination considered all the facts and information presented, paying particular attention to the following:

  • Past case law examples – Lee v Revenue Commissioners [IECA] 2021 18 & Stanley v The Revenue Commissioners [2017] IECA 279.

The Commissioner determined that the Appellant had failed in his appeal and had not succeeded in demonstrating that the tax was not payable. It was noted that there is no discretion as regards the application of section 126(2B) of the TCA 1997 and the Revenue Commissioners were correct in their approach to the IQA income for the years under appeal.

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Tax Appeals Commission Determination | Income Tax: Payments Received Following a Termination of Employment

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Success Fees

The Tax Appeals Commission’s (TAC) objective is to fulfil the obligations placed on it by the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”). To fulfil these, the TAC facilitates taxpayers in exercising, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

The Issue for Determination

Recently, the TAC issued a determination addressing a taxpayer’s assertion that their amended assessment for tax year 2016, issued by Revenue Commissioners in January 2018, was incorrect. The taxpayer’s assertion related to certain payments received following the termination of his employment. The taxpayer contended that this payment – “success fees” – was a payment linked to the termination of his employment, taxable under S123 TCA 1997 (to which certain reliefs can be applied via S201 and Schedule 3 of TCA 1997). The amended assessment, however, had treated the payment as being a payment made in connection with his employment and therefore liable to income tax under S112 TCA 1997 (Schedule E).

The Background

Prior to the above complications, the taxpayer had been a senior employee of a company, (“his Employer”) by way of employment contract, since 2010, holding an annual salary of €150,000 and certain conditional share option entitlements.  In July 2015, having had differences of opinion with the Chairman regarding the future strategic direction of the company, the taxpayer and his employer entered a further written agreement (“termination agreement”). The termination agreement included dates for the earliest termination of the employment. While the potential date of termination was dependent on certain deliverables, the final date for this was to be no later in any event than March 2016. The termination agreement stated that “your salary and other contractual benefits will be paid up to the Termination Date less tax, employee PRSI, USC and any other deductions required by law”.

The termination agreement set out various types of payments to be made on termination. These included payments in excess of €500,000 (“success fees”), on the successful raising of finance by the taxpayer for the employer.

Opposing Arguments

The taxpayer argued that the “success fees” were not contingent in fact on the raising of finance for the company as this work was already substantially completed. The taxpayer argued that the termination agreement in this respect was drafted to give the Board of the company a belief that they were getting most value for money for the large termination payment.

The Revenue Commissioners argued that the “success fees” were intrinsically linked to the performance of the taxpayer’s employment and were not termination-related payment.

Both sides quoted differing Irish and UK cases and indeed the Revenue Taxes and Duties Manual (part 05-09-19) to aid their respective positions.

Determination

The TAC in its determination considered all the facts and information presented, paying particular attention to the following:

  • The termination agreement expressly stated that all payments were conditional upon the taxpayer agreeing to all the terms of the agreement. These terms included the termination of his employment and no future right to sue his employer
  • The termination agreement drew a distinction between the taxpayer’s entitlements in connection with the termination and those from his employment contract
  • The taxpayer’s circumstances within in the company gave the taxpayer no option but to leave the company

The TAC determined that the taxpayer was entitled to succeed in his appeal, that he was overcharged to income tax, and that the Notice of Assessment be reduced accordingly.

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Amendments to Dwelling House Exemption

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There were two amendments made to the Capital Acquisitions Tax Dwelling House Exemption by Finance Act 2017, in such cases where the recipient of the dwelling house is a dependent relative of the disponer.

A ‘dependent relative’ is defined as a relative who is permanently and totally incapacitated due to mental or physical infirmity from maintaining himself or herself, or who is of the age of 65 years or over at the date of gift or inheritance.

The position following the amendments is as follows:

  1. In the case of a gift or an inheritance of a dwelling house taken by a dependent relative, the dwelling house is not required to have been the only or main residence of the disponer.
  2. A gift of a dwelling house that becomes an inheritance as a result of the disponer dying within two years of making the gift can qualify for the dwelling house exemption, where the beneficiary is a dependent relative.

All other provisions to the exemption remain unchanged.

The amendments to the Dwelling House Exemption take effect from the date of passing of the Finance Act 2017, 25 December 2017.

Should you require any further details on the above, please contact a member of our Tax Department.

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Salary Sacrifice Arrangements

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What is a salary sacrifice arrangement?  

The term salary sacrifice is generally understood to mean an arrangement between the employer and employee under which the employee forgoes the right to receive any part of his or her remuneration due under the term of  his/her contract of employment and in return their employer provides a benefit of a corresponding amount to the employee.

Where an employee forgoes salary payable under an existing contract of employment in exchange for a benefit, the employee remains taxable on the “gross” income payable. The salary sacrificed will be an application of income earned by the employee, not an expense incurred by the employer.

Exceptions

However, there are Revenue approved salary sacrifice arrangements which are exempt from the tax treatment outlined above. These include the following scenarios where the employee’s gross salary is reduced in return for:

  • bus, rail or ferry travel passes through a travel pass scheme
  • exempt shares appropriated to employees under approved profit sharing schemes, provided certain conditions are met
  • the provision of bicycles and safety equipment through the cycle to work scheme

If you have any questions about salary sacrifice arrangements or other employee benefit queries, please contact us.

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Tax Treatment of Unapproved Share Option Schemes

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Many companies operate share option schemes for their employees.  Please see below a summary of the tax treatment and reporting requirements in relation to Unapproved Share Option Schemes.

What do I receive when I am granted a share option by my employer?

When a company grants a share option to an employee, they are given the right to acquire a pre-determined number of shares at a pre-determined price for a predetermined period. Such option schemes are commonly referred to as “unapproved share option schemes”.

What information will I get from my employer when I am granted a share option?

Where a company grants a share option to an employee, it will generally issue documentation covering the following:

  • the number of shares that the employee can acquire
  • the price that the employee has to pay for the shares (“Option Price”)
  • the dates from which, and by which the employee may exercise his or her option (“Exercise Period”), and
  • the conditions regarding the right to exercise the option

What is meant by “date of exercise”?

The “date of exercise” is the date at which the employee takes up their right to acquire shares.

Must I pay to acquire the shares under a share option?

The shares may be at no cost to the employee (nil option) or at a predetermined price that the employer has set. In some cases, the employee will have to pay something for the option itself.

Are there different types of unapproved share option schemes?

There are two types of share options for tax purposes:

(a) a ‘short option’ – which must be exercised within seven years from the date it

is granted; and

(b) a ‘long option’ – which can be exercised more than seven years from the date

it is granted.

What are the tax consequences if I exercise a share option?

When an employee exercises his/her right to the share options and acquires the shares at the pre-determined price, the difference between the price paid to acquire the shares (the exercise price) and the market value of the shares at the date of exercise of the option is called the share option gain. The share option gain can be reduced by any payment made by the employee for the initial grant of the option.

Where an employee exercises a share option he or she must pay what is referred to as “Relevant Tax on Share Options” (RTSO) in respect of any income tax due on any gain realised on the exercise of the share option. RTSO is payable within 30 days of an option being exercised.

Will my employer look after the payment of tax when I exercise a share option?

No. RTSO is payable within 30 days of an option being exercised and as it is outside the PAYE collection system the employee is responsible for making this payment to the Collector General.

What forms must I file with the Revenue Commissioners if I exercise a share option?

The employee must submit a Form RTSO 1 within 30 days from the date of exercise of the share option. A payment of Relevant Tax on Share Options must also accompany the submission. The relevant tax at 40% is calculated on the share option gain as well as universal social charge (USC) at 8% and PRSI at 4% (unless you have advance approval from Revenue to pay at a lower rate).

Employees liable to pay RTSO must then submit the usual self-assessment return, containing details of all share option gains in a tax year, by 31 October following the year in which the gains are realised. The income tax return must be filed for the relevant year in addition to the form RTSO1.

What happens if I decide to sell the shares?

An employee who acquires shares by the exercise of a share option is chargeable to capital gains tax (CGT) on any chargeable gain realised on the subsequent disposal of those shares.

An individual must file a return by 31 October in the year after the date of disposal. A return is required even if no tax is due because of reliefs or losses. An individual must file a Form CG1 if not usually required to submit annual tax returns; Form 12 if a PAYE worker or a Form 11 if considered a chargeable person for tax purposes.

Please contact us if you require assistance with the above.

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New tax deduction of up to €5,000 for pre-letting expenses incurred by landlords

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Up to recently, landlords were not entitled to a tax deduction for pre-letting expenses such as mortgage interest, insurance and repairs incurred before the date a property was first let out.

To encourage owners of vacant residential properties to offer those properties for rent, Finance Act 2017 has introduced a new tax deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more.

The pre-letting expenses are now given as a deduction against rental income from that property in the first year it is let out.

Conditions

The property in question must have been vacant for a period of at least 12 months prior to its first letting during the period 25 December 2017 and 31 December 2021.

The expenditure must have been incurred in the 12 months before the property was let out and a cap of €5,000 per vacant property applies.

Claw Back

Where the landlord

  • ceases to let the property as residential premises or
  • sells the property

within 4 years of the first letting, this tax deduction will be clawed back in the year the property ceases to be let by the landlord.

If you have any questions about pre-letting expenses or other rented residential property queries, please contact Eddie Murphy, Partner and Head of Tax Services.

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KEEP – Share Option Scheme

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The Finance Bill 2017 has introduced a tax efficient share option scheme for employees of SMEs. The Finance Bill provides that from 1 January 2018, SMEs in Ireland will be able to grant KEEP (Key Employee Engagement Programme) share options to their employees.

The change in a tax treatment of these share options means an employee may exercise a “qualifying” share option without incurring the liability to income tax, PRSI and USC that he would have under the current rules. Currently, gains arising on the exercise of a share option at a discount on market value are subject to income tax, PRSI and USC. However, KEEP provides that tax on such shares will be deferred until the shares are disposed of and the employee will pay only capital gains tax at 33% on his profit when the shares are sold.

The KEEP Scheme was introduced to facilitate the use of share-based remuneration to attract and retain key employees in unquoted companies.

A number of conditions must be satisfied in order to avail this tax advantageous KEEP Share Option incentive, which are briefly set out below:

Qualifying share options

  • Shares must be new, ordinary fully paid up with no preferential, current or future rights to dividends or assets on a winding up or redemption
  • Share options must have an exercise price that is not less than the market value of the underlying shares on the date the option is granted
  • There must be a written contract in place setting out number and type of shares, option price and exercise period
  • Share options cannot be exercised within 12 months of grant other than in limited circumstances and options cannot be exercised more than 10 years after date of grant
  • Share options must be granted for bona fide commercial purposes the main purpose of which is to recruit or retain employees in the company and not part of a tax avoidance scheme or arrangement.

Qualifying company

  • For the purpose of the relief the company must be a “qualifying” company i.e. must have been Ireland/EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency
  • Qualifying company must be carrying on trading activities with the exception of certain excluded activities set out in legislation. The most notable of these excluded activities include professional service companies, companies dealing in or developing land, financial activities and the building and construction industry
  • The company must be unquoted and remain within the definition of an SME i.e. a company with less than 250 employees and with turnover less than €50m or less than €43m balance sheet
  • The company can only have a maximum of €3m value of share options in issue and unexercised at any one time.

Qualifying individual

  • Must be a fulltime employee/director working at least 30 hours per week
  • The employment held must be capable of being held for at least a further 12 months from the date the option is granted
  • The employee must not acquire or be connected to a person who controls more than 15% of the ordinary share capital of the company during option period
  • Market value of all shares which can be granted in any year of assessment to an employee cannot exceed €100k in any one tax year, €250k in any three consecutive years or 50% of the employee’s annual emoluments for the year in which the option is granted.

KEEP will be available for qualifying share options granted between 1 January 2018 and 31 December 2023. As State Aid approval will be required to introduce this scheme, the scheme is subject to a Ministerial Order.

Contact our Tax Department if you have any questions about KEEP share options or other employee share scheme matters.

 

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