High earners paying 30-40% tax, Revenue finds

A new Revenue report shows that people earning more than €400,000 annually, who were subject to tax restrictions, paid 30 to 40 per cent average income tax .

However, the report referenced by Minister for Finance Michael Noonan in his budget speech found that additional tax yield from high earners was down by a fifth in 2011.

Mr Noonan said the report showed that tax restrictions introduced for high earners were “working to improve the balance between promoting tax equity” for those on high incomes, while keeping the “incentive effect of various tax reliefs introduced to achieve a particular public good”.

The Revenue Commissioners’ report on High Earner Restrictions in 2011 looks at measures introduced to limit certain tax reliefs and exemptions by high-income individuals.

The report shows that the number of high earners (on some €125,000 and upwards) subject to restrictions fell by 25 per cent in 2011 to 1,153, compared with 2010. The additional tax yield from such high earners was down by a fifth on 2010 to €63.6 million.

This is “due to the income of these individuals falling and to the closure of tax reliefs, such as the abolition of the patent and stallion fees exemptions and the capping of the artists’ exemptions”, Mr Noonan said today.

As a result, many of those individuals have moved “into the regular income tax system”, he said.

In Budget 2010, limitations were introduced with the aim that people earning over €400,000 would pay an effective rate of 30 per cent. Further restrictions for high earners were introduced in 2011, mainly applying to those earning over €125,000. Changes were also introduced for 2011 to the artists’ exemption, which would only apply to income earned up to €40,000.

In 2011 there were 286 people earning over €400,000 who were subject to restrictions and paid an average effective rate of 30.7 per cent (or 39.7 per cent when Universal Social Charge is included). If the restrictions had not applied, the average rate for these high earners would have been 17 per cent, it notes.

A fifth of people in this category paid a 25 to 30 per cent tax rate, four fifths of people paid 35 to 40 per cent income tax while just one individual paid a rate of over 40 per cent. Tax rates paid are higher when USC is included.

For those earning between €1.5 million and €2 million the tax rate was 32 per cent (or 39 per cent with USC). The report says that without restrictions the income tax would have been 10.5 per cent.

The report also looks at some 800 high-earning people with incomes of €125,000 to €399,000 for whom the restrictions apply. In total these high earners paid €23.8 million extra in tax because restrictions were applied.

The average income tax rate for these high earners was 19 per cent,increasing to 29 per cent when USC is included. If restrictions had not applied they would have paid an average 10.4 per cent in tax , the report finds.

It also shows a graduated tax increase from an average of 10.5 per cent for those earning €125,000 (rising to 17.7 per cent with USC) to 28 per cent for those earning €325,000 to €400,000 (rising to 37 per cent with USC).