Getting interest on savings without DIRT
Q&A I am 67 and in receipt of a pension of €17,000. My wife is 61, and she earns €8,000 working in a local shop part-time. Between the pension lump sum I received at retirement and an inheritance from my mother, we are fortunate to have savings. We earn about €5,000 jointly annually from An Post savings bonds and certificates, and a further €5,500 interest on jointly held bank accounts (before DIRT is deducted).We also have a rental property which makes €6,000 per annum, before deductions for repairs and interest of about €3,500. The DIRT stopped on the bank interest works out at about €1,700 per annum. My wife and I are jointly assessed.
A friend of mine has suggested that I should be getting the bank interest without DIRT being stopped because of my age. He filled out a form for the bank and it worked for him. He is around the same age as myself and is single, but I don’t think he would have the same level of savings as my wife and I.
I would appreciate if you could outline what the income exemption related to age is, based on the circumstances outlined above whether my wife and/or I would qualify for the exemption, and what forms need to be supplied to Revenue and/or the banks to ensure DIRT is not stopped on any interest we earn with the banks.
Mr T.I., Kildare
Your friend is right, but only in part, as you suspected. It is true that people over 65 can apply to have their interest paid without deduction of Deposit Interest retention Tax (DIRT) – but they will only succeed if their income is below the income exemption limit. With the rate of DIRT now 33 per cent, the exemption could certainly make a difference.
In the current year (as in 2012), the income exemption limit for a couple over the age of 65 is €36,000. The single rate is half that. On your rough reckoner, your family income is about €38,000, which would make you liable for DIRT.
But, as you note, your DIRT will account for 85 per cent of the difference between the exemption limit and your income. While you will have DIRT deducted from your accounts at source, it is possible you may find yourself in a position to claim a partial refund – under marginal relief.
Marginal relief is open to people over the age of 65 whose income is above the exemption threshold but less than double the threshold.
Essentially, you deduct the threshold from your income and assess tax at the “marginal” rate of 40 per cent. If this is more beneficial to you financially than claiming credits and paying tax through the standard rate bands (20 per cent up to income of €41,800 – plus an allowance of up to €23,800 for lower-earning spouse – and 41 per cent above this).
In your case, it appears that you would pay €755 income tax under the normal regime as against €800 under marginal relief. However, you also have the €1,700 DIRT, so it is worth seeing at the end of each year from the age of 65 if you can reclaim some of it. You will need to complete a Form 54.
For pensioners whose income is below the threshold and who want to get their interest free of DIRT, they should fill out a DE1 Declaration Form. They will need to complete a separate form for each account with each financial institution on which they want the DIRT exemption to apply.