Q&A Dominic Coyle

PRSI levy on unearned income gives no benefit


I read with interest your article last month regarding PRSI on unearned income with effect from January 1st next. Given that I am in the profession of accountancy, tax and pensions I was aware of this measure coming into place. What I was not aware of, and only came across the other day while looking into a PRSI matter for a client, is that seemingly the PRSI which is going to be levied on unearned income will not give rise to any social insurance benefits.

Were you aware of this fact? If so, would you have any comments on it? Is it not simply a tax by another name and not “pay related social insurance”. I wonder how aware the public (and other tax advisers/accountants) are of this matter?

Mr R B, email

Yes, I was aware from an early stage that the introduction of PRSI on unearned income would not deliver any additional social insurance benefits for individuals paying the tax.

And yes, you’re quite correct, it is effectively a tax. The Government is having to contort the tax code in ever more inventive ways to raise revenue while – nominally at least – sticking to its programme for government pledge not to raise the rate of income tax and lower the level of core social welfare benefits.

As most people will by now be aware, this was an absolutely hollow commitment. Given our parlous budgetary position, money had to be raised and, if you rule out tapping areas that deliver large chunks of tax revenue or account for a significant portion of spending, you are effectively forcing those who frame budgets to find creative measures that have precisely the same effect on the taxpayers – higher tax and fewer benefits.

It hardly chimes with the same Government’s commitment to open and transparent government but entirely in keeping with generations of political cowardice across all parties in facing up to difficult decisions and being straight with the electorate.

The PRSI measure on unearned income is precisely such a case. Anyone earning more than €3,174 a year in “unearned income” – ie things like share dividends, bank deposit interest or rental from investment properties – is, from January, liable to PRSI at 4 per cent under Class K of the PRSI code.

Class K has traditionally applied to certain public office holders – the President, judges, TDs, MEPs, councillors etc. This year, it was extended to income earned by civil or public servants outside the scope of their public service earnings – either from income earned in a self-employed capacity over and above the public service role or unearned income.

The Government argues that next year’s measure merely brings other taxpayers into line with the rules for public or civil servants on unearned income.

Class K has never conferred any PRSI benefits on those who fall under its scope.

My understanding of the thinking behind it is that people paying PRSI under Class K generally have other income subject to PRSI in a different class under which they will be entitled to social insurance benefits – although this may well not be the case for people with either rented investment properties or significant savings.

Are the public fully aware of it? I doubt it. Are practitioners? I would hope so.

Is my house
exempt from property tax?

Does one have to pay property tax on a house that is uninhabitable at present. One could not live in it due to the condition of the house
– it has a leaking roof, damaged kitchen and a water-damaged ceiling in the sitting room; the windows need to be replaced due to rotting timbers.

Ms S B, email

There are a series of very specific exemptions outlined in the legislation governing the local property tax but, as far as I can see, none of them covers people in your position. You don’t say whether the problems with the property are of recent origin – following a fire, for instance – or whether it is a case of gradual decline on an inherited or otherwise acquired property over time.

My worry is that your letter would lead me to believe you have not yet paid any property tax on this building. That could leave you open to pursuit by the Revenue.

I think you need to contact Revenue urgently to make your case personally for non-payment. If that is accepted, well and good. If, as is more likely, it is not accepted as the property falls outside the scope of exemptions to the tax, you will be seen as proactively trying to regularise your position which will leave you in a better position with the tax authorities.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com