Tighter measures net €60m more tax from high earners

Hundreds of high earners who tried to use tax breaks and shelters to maximise their income ended up paying over €60 million tax under measures introduced in recent years.

The high-income individual’s restriction was introduced following controversy that wealthy individuals were paying little or no tax.

While the measure was introduced eight years ago, its real impact has only been felt since the scope of the restriction was significantly widened in recent years.

A new breakdown of how tax shelters were used in 2013 shows that over 900 people with six-figure incomes were obliged to contribute an additional €60.4 million in tax.

Of these, some 270 who would not otherwise have paid any income tax in 2013 were brought into the tax net.

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Those earning in excess of €400,000 ended up paying average effective tax rates of 40 per cent, including the universal social charge.

The most popular reliefs being used by wealthy individuals included capital allowances for property-based incentive schemes for hotels, nursing homes and urban renewal.

The use of exemptions and reliefs, many of them introduced by Fianna Fail-led governments during the boom years, were long the subject of political controversy.

Until recent years, successive studies showed that many of the country’s highest earners were using reliefs to minimise their tax payments to below 10 per cent of the income.

The 2007 Finance Act introduced measures designed to ensure that all those with an income over €500,000 would pay an effective rate of 20 per cent in tax. Many, however, were still able to trim their tax bills using other loopholes.

New restrictions introduced in the 2010 Finance Act have been more successful in ensuring individuals with an income of €400,000 or more paid an effective tax rate of at least 30 per cent. The income on which the restrictions begin to apply was reduced to those on incomes of €125,000 or more from 2011 onwards.

Attempt to extract tax from non-resident and wealthy tax exiles have had less success.

New figures show just 15 people paid the domicile levy in 2013, yielding €1.8 million for the exchequer.

The measure was introduced in 2009 by former finance minister Brian Lenihan as a means of getting non-resident and wealthy Irish tax exiles who paid little or no income tax to "make a contribution to the State, especially during times of economic and fiscal difficulty".

Citizenship clause

It was amended by Minister for Finance

Michael Noonan

to remove a citizenship clause, on the grounds that individuals couldn’t avoid the tax by renouncing their citizenship.

The latest figures show the limited success of the regime in clawing back tax revenue from Ireland's wealthy who may be domiciled here, but have their tax residence in a low-tax jurisdiction such as Malta or Monaco.

The levy is worth €200,000. A credit is available on any Irish income tax paid, which means that not everyone will pay the full €200,000.

For example, if someone pays €150,000 in Irish income tax in a year, their liability to the domicile levy for that year will be just €50,000.

The levy applies to those with worldwide income of more than €1 million and Irish assets worth more than €5 million, but who pay Irish income tax of less than € 200,000.