The High Earner’s Restriction was introduced in the 2006 Finance Act with effect from 1st January 2007. The objective was to limit the use of certain tax reliefs and exemptions and to ensure that high income individuals who were eligible for these “specified reliefs” paid an effective tax rate of at least 20%.
Changes were introduced by Finance Act 2010 which extended the scope of the restriction to ensure these individuals now pay an increased effective rate of 30%. From 2010 onwards, the High Earner’s Restriction applies to a much greater number of tax payers which we can see from published figures (*Dáil PQ 25 March 2014)
|Year||No. of Tax Payers||Additional Tax Yield|
To whom does the High Earner’s Restriction apply?
From 2010 the restriction applies to an individual who meets all three of the following criteria:
How do we calculate the tax?
The effect of the High Earner’s Restriction is to increase the individual’s taxable income liable to Income Tax at the normal rates.
Mr A has the following income for 2013:
He also has Section 23 Type Property Relief of €300,000
Case I Trading Income €200,000
Case V Rental Income €300,000
Section 23 Relief (300,000) Nil
Taxable Income (T) €200,000
A = T + S – R €200,000 + €300,000 – Nil = €500,000
Therefore, the Higher Earner’s Restriction applies.
(T) i.e. €200,000 + (S) i.e. €300,000 – (Y) i.e. €100,000 = €400,000
Carry Forward of Excess Reliefs (S.485F TCA 1997)
Any “unutilised reliefs” in the tax year in question can be carried forward for offset against the individual’s total income in subsequent tax years.
The following points should be kept in mind:
What items are included in the list of specified reliefs?
Appendix 3 – list of Specified Reliefs is available on www.revenue.ie and the full list is set out in Schedule 25B of the Taxes Consolidated Acts 1997.
Here are some of the items included:
Examples of what’s not included are:
What about Double Taxation Relief?
Finance (No. 2) Act 2013 amended how Double Taxation Relief was calculated for those individuals subject to the High Earner’s Restriction.
The formula to be used is:
Irish Tax (after applying the High Earner’s Restriction)
Adjusted Income (A)
Previously the credit was calculated before applying the High Earner’s Restriction.
A repayment of an under claimed foreign tax credit is available for individuals who filed a tax return after 1st January 2008 and who would be entitled to a greater tax credit for double taxation suffered as a result of this new provision than under the pre Finance (No. 2) Act 2013 legislation.
Any individual subject to the High Earner’s Restriction must file a Form 11 (Self Assessment) and Form RR1 setting out details of the calculations of the H.E.R.
The details to be included in the RR1 Form are:
Following Finance Act 2007, a jointly assessed married couple or civil partnership will be treated as two separate individuals in determining if the restriction applies.
A single Form RR1 should be completed providing details of the application of the restriction to each spouse or civil partner where relevant.
Property Relief Surcharge (S.531AAE TCA 1997)
Finance Action 2012 introduced the 5% Property Relief Surcharge which applies where the individual’s aggregate income (i.e. gross income for Universal Social Charge purposes) is €100,000 pre annum or more and where certain property based incentive reliefs have been claimed in that tax year.
By property reliefs, we mean Section 23 type reliefs, property based capital allowances, etc.
The 5% Property Relief Surcharge is collected as additional Universal Social Charge.
There is an exception to this rule in the case of owner occupiers for residential properties.
Revenue’s view is that the surcharge does not take into consideration any restriction imposed by the High Earner’s Restriction. In other words, the surcharge applies to the specific property reliefs which would have been available in calculating the taxable income of the individual had the restriction been ignored.
Mr A’s income for 2013 was as follows:
Case V – Rental Income €250,000
He also has Section 23 Type Relief €300,000
The Property Relief Surcharge will be 5% of €250,000 being €12,500
The surcharge is computed by reference to the S.23 Property Relief used in calculating Mr A’s taxable income before applying the High Earner’s Restriction.
This is an area currently under scrutiny by the Revenue Commissioners. If this is something that affects you, it might be worth reviewing the information contained in the previous tax returns you’ve submitted as well as double checking that your 2013Tax Return, which must be filed by 31st October 2014, is accurate and correct in line with Finance Act amendments.
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