High earners paid extra €38.5m in tax as rules curbed reliefs

Some €38.5 million in additional tax was paid by 521 high income taxpayers in 2016 due to rules that limit their ability to use reliefs and allowances . The bulk of the money came from 149 taxpayers earning more than €400,000 a year, who paid €25.7 million in additional income tax, or an average of just over €170,000 each, according to a Revenue Commissioners report to be published on Monday by Minister for Finance Paschal Donohoe.

The report shows that a group of less than 10 people with earnings of more than €2 million a year paid an extra €6.3 million in tax due to the restriction.

The rule is known as the high-income individuals’ restriction. It was introduced in 2007 following evidence that many better off people were using tax breaks to pay little or no income tax.

The rules were amended in 2010 and limit the amount of certain tax reliefs that anyone earning over €125,00 can use, with the tightest restriction applying on those earning over €400,000 .

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Peak

The overall number of people affected by the restrictions was 521 in 2016. The total numbers affected have fallen steadily from a peak of more than 1,500 in 2010, as many of the tax reliefs involved, notably a group of property reliefs, have been closed to new entrants.

However, the figures show that had the restriction not been in place, 54 taxpayers earnings over €400,000 a year and 164 earning between €125,000 ad €400,000 would have been able to use reliefs to pay no income tax at all.

The additional €25.8 million collected from the group earning more than €400,000 represented a 175 per cent increase compared to what they would otherwise have paid and brought their effective income tax rate to 30.1 per cent. When USC is added they paid 40.9 per cent of their incomes in tax.

Income tax of €12.5 million collected from the group earning between €125,000 and €400,000 more than doubled due to the restriction.

Targeted rates

A statement from the Department of Finance said that the figures showed that the restrictions were working as intended and ensuring higher earners paid at the targeted rates.

The report shows that the main tax reliefs involved are those relating to investment in hotels, nursing homes and hospitals, urban renewal and car-park schemes, and reliefs for landlords and those leasing premises, some now abolished.

Among those using the reliefs are the highest income group earnings over €2 million. Numbering fewer than 10 – an exact number is not given – they paid an income tax bill of €9.9 million due to the restriction, compared with €3.6 million had it not been in place.