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A Guide to Saving Tax

May 2008


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A Guide to Saving Tax Contents 1. Business Structures 2. Business Tax 2.1 Business Taxation, Remuneration and Extracting Profits 2.2 Reducing Taxable Profits 2.3 Relief For Business Expenditure 2.4 Capital Allowances 2.5 Selling A Business 3. Capital Acquisitions Tax (CAT) 4. Employment Taxes 4.1 Benefits in Kind 4.2 Tax Efficient Benefits 4.3 Share Schemes 5. Personal Tax 5.1 Compliance 5.2 Planning 6. Capital Gains Tax 7. VAT 7.1 Compliance 7.2 Planning 8. Revenue Audits and Investigations Appendix I: Personal Tax Compliance Appendix II: Vat Compliance Appendix III: Income Tax & CGT Rates 2007 & 2008 Appendix IV: PRSI Rates Appendix V: Corporation Tax Rates Appendix VI: VRT Our Specialists Corporate M&A/Corporate Reorganisations & Reconstructions Corporate Tax Planning Estate Planning Family Business Planning Financial Services International Tax Inward Investment Personal Financial Planning Personal Tax Planning Property Share Schemes Stamp Duty Tax Investigations/Revenue Audits Tax Based Investments Vat 1 3 3 6 6 7 8 9 14 14 15 17 19 19 19 21 22 22 22 24 26 27 28 29 30 31 32 32 32 32 32 32 32 32 32 32 33 33 33 33 33 33

A Guide to Saving Tax

Welcome to Grant Thorntons guide to saving tax. Within this guide we cover; Business Structures, Business Tax, Capital Acquisitions Tax (CAT), Employment Taxes, Personal Tax, Capital Gains Tax, VAT and Revenue Audits and Investigations. We are ranked as one of the leading tax planning and tax transactional advisers in Ireland. Our tax specialists can assist you in saving tax and growing your business. We place great emphasis on developing personal relationships with clients. With the highest technical proficiency, we deliver our services with the hand-holding that other firms forget.

For further information contact a member of our tax team Dublin Frank Walsh Partner T: +353 (0)1 6805 805 D: + 353 (0)1 6805 607 M: + 353 (0)87 805 7542 F: + 353 (0)1 6805 806 E:

Bernard Doherty Partner T +353 (0)1 6805 805 D: + 353 (0)1 6805 611 M: +353 (0)86 856 8453 F: + 353 (0)1 6805 806 E:

Limerick Leslie Barrett Partner T +353 (0)61 312 744 D: + 353 (0)61 312 220 M: + 353 (0)87 987 1085 F: + 353 (0)61 317 691 E:

A Guide to Saving Tax

1. Business Structures
In comparison, the tax treatment of a company is as follows: Profits not extracted from the company are mainly taxed at 12.5% (trading) or 25% (passive); and Value can be built up in the company, possibly enabling tax savings on a sale owing to the availability of various capital tax reliefs or enhancing the funds available for investment with higher after tax income.

Peter Vale Director T: +353 (0)1 6805 805 D: +353 (0)1 6805 952 F: +353 (0)1 6805 806 E:

1.2 Incorporation of an Unincorporated Business

Eamonn Murphy Director T: +353 (0)61 312 744 D: +353 (0)61 313 221 F: +353 (0)61 317 691 E:
1.1 Business Structures Overview

For tax purposes incorporation involves the disposal of a business and its assets and this may trigger a capital gain. Incorporation relief allows this gain to be rolled over into the cost of the shares acquired in other words it reduces the base cost of the shares for tax purposes. The company acquires the assets at their market value and can subsequently dispose of them at that value with no capital gain arising. The transfer must be wholly or partly for shares in the company. Relief is given to the extent to which the proceeds are given by way of shares. There may be a Stamp Duty charge if property, or an interest in property or goodwill, is to be transferred into the corporate structure. There may be ongoing tax savings following incorporation and these should be weighed against the additional costs of running your business through a company. The level of savings will depend on the level of any profits and the overall percentage of profits retained within the business.

In tax terms there are two basic types of business structure unincorporated and incorporated businesses. The tax treatment of each type of structure is different and care must be taken in the early stages to decide which is appropriate. Unincorporated businesses include sole traders and partnerships, the features of which are: Profits are taxed as they accrue at the proprietors marginal rate of tax (usually 46% - 41% income tax + 5% PRSI & Health Contribution); and Losses may be relieved as they arise by setting these off against other taxable income of the proprietor. The decision-making process is not straightforward and professional advice should be sought to assist both with this process and with any subsequent

A Guide to Saving Tax

implementation of an incorporation strategy. In contrast to incorporation, there are no specific tax reliefs available for disincorporation and it can be difficult to convert from a company to a partnership or sole trader.
1.3 Participation Exemption - Sale of Subsidiaries 1.7 Share for Share Relief

If shares in a company are exchanged for shares in that company or another company and no cash proceeds are received, then for CGT purposes, there is no sale and the new shares are deemed, for tax purposes, to be the same asset as the original shares they replace. CGT is deferred until there is a subsequent disposal of the new shares.

Since February 2004 there has been an exemption from tax for any gains made by parent companies, provided certain conditions are met, on the sale of shareholdings in qualifying trading subsidiaries or subsidiaries that form part of a trading group.

1.4 Different Share Classes

There can be problems where a company with only one class of share wants to pay different amounts of dividends to its shareholders which are not in proportion to their shareholdings. Some shareholders could formally waive their dividends, but to be effective for tax, this must be done in a specific way and can have unexpected tax results. One solution is to have different classes of shares, with different levels of dividends voted on each class of shares. This has been aided by the abolition of capital duty from 7 December 2005.
1.5 Demergers

Revenue concession is available for splitting family trading companies into two or more parts. Where the conditions are satisfied, the only tax due will be stamp duty. This demerger concession is useful where it is perceived that greater shareholder value can be achieved through splitting out part of the business rather than keeping it all together. Advance clearance should be sought from the Revenue to ensure that the relief is available.
1.6 Purchase of Own Shares

A purchase of a companys own shares is a useful tax planning technique. Depending on whether or not certain criteria are met, the proceeds of the repurchase are either treated as income and taxed as a dividend or more attractively as a capital receipt (particularly useful where CGT retirement relief is available). It should be possible to structure the purchase of a companys own shares to achieve the desired treatment for all parties.

A Guide to Saving Tax

2. Business Tax
A penalty amounting to 950 may also be imposed by Revenue for failure to make a return. This penalty may also increase to 1,520.
2.1.2 Corporation Tax Rates

With effect from 1 January 2003 the following rates of corporation tax apply: Sasha Kerins Manager T: + 353 (0)45 449 322 D: + 353 (0)45 448 852 F: + 353 (0)45 449 324 E:
2.1 Business Taxation, Remuneration and Extracting Profits 2.1.1 Corporation Tax self-assessment file on time
Standard rate 12.5% Higher rate 25% Manufacturing rate 10%

The standard rate applies to trading income of a company resident in Ireland. The higher rate of 25% applies to passive income (interest, dividends, rental profits, royalties etc), certain land dealing activities and income from working minerals and petroleum activities. The manufacturing rate applies to the trading profits of manufacturing companies and certain IFSC and Shannon Airport Zone companies. This 10% rate is currently being phased out and is to be completely phased out by 31 December 2010.
2.1.3 Use of Trading Losses

A companys corporation tax self assessment return must be filed within 9 months of the end of the accounting period but no later than the 21st day of that month. Late returns are subject to a tax related surcharge between 5% and 10% of the tax liability, up to a maximum of 12,695 where less than two months late and 63,485 where submitted thereafter. The surcharge operates to increase the tax liability which increases the interest for late payment. In addition to the surcharge, there are restrictions on the use the company can make of certain reliefs and allowances in the event of the return not being lodged on time.

A company can maximise its use of losses to reduce taxable profits over a number of accounting periods. Trading losses can be offset against total taxable profits on a value basis for the current year or the previous year. All unutilised trading losses can be carried forward indefinitely to be offset against future trading income of the same trade. Loss relief is restricted if the returns are submitted late (see 2.1.6).
2.1.4 Buying Capital losses

There are rules to deny the use of capital losses brought into a group of companies. In a group situation, generally the pre-entry losses of a company joining a group cannot be used to offset subsequent capital gains within the group. The company entering the group will, however, be able to use such losses in the normal way, as if it had never joined the group.

A Guide to Saving Tax

2.1.5 Corporation Tax Instalment Payments

For accounting periods ending on or after 1 January 2006 preliminary tax is due and payable one month prior to the end of the accounting period, but not later than the 21st day of that month. The minimum payment which must be paid is either; 90% of the final tax liability for the current accounting period, or 100% of the final tax liability for the previous accounting period where the company is deemed to be what the Revenue term a small company because its total tax liability for that period did not exceed 200,000.

then the distribution will not attract the close company surcharge in the receiving company. A surcharge of 15% also applies to professional service companies. No credit is given to the shareholders for the surcharge if and when the balance is distributed.
2.1.8 Dividends

2.1.6 Groups

The concept of fiscal unity or consolidated group tax does not exist in Ireland. However, trading losses may be offset on a current period basis, against taxable trading profits of another group company. Being in a group confers certain tax benefits. The principal benefits are that inter group payments can be made without deduction of tax and group losses can be surrendered by one group company for the benefit of another group company. The definition of group companies differs for intra-group payment and group loss relief. There is a 51% shareholding requirement in respect of intra-group payment relief and a 75% shareholding requirement in respect of group loss relief. Group relief is restricted where a company submits a corporation tax return late.
2.1.7 Close Company Surcharge

Dividends are not an allowable expense for the purposes of calculating corporation tax. A company may wish to pay a dividend in order to avoid a close company surcharge. A company when paying a dividend may have to deduct dividend withholding tax, at the standard rate (currently 20%). In some instances, however, the dividend may be paid gross, for example: Dividends to an Irish resident company; Dividends to individuals resident in a country with which Ireland has a tax treaty; and Dividends to individuals resident in a country within the EU. Companies must make a return of all dividends paid by the fourteenth day of the month following the distribution.
2.1.9 Tax Treaties

A surcharge of 20% is chargeable on a close company where it does not distribute its after tax passive income (e.g. rental and investment income) within 18 months of the end of its accounting period. A close company is a company which is controlled by five or fewer participators or under the control of its directors. A participator includes any person who has a share or interest in either the capital or income of the company. The Finance Bill 2008 has provided that where a dividend or a distribution is paid from one Irish tax resident close company to another and an appropriate election is made by both companies,

The Irish tax treaty network continues to be expanded and updated and now numbers 44 tax treaties. A new treaty has been negotiated with Chile and subject to necessary parliament procedures being completed by Chile, it is expected that this treaty will become effective for tax periods beginning in 2009. Negotiations are underway on treaties with Argentina, Egypt, Kuwait, Malta,

A Guide to Saving Tax

Morocco, Serbia, Singapore, Thailand, Tunisia, Turkey and Ukraine. In addition, some existing treaties, such as those with Cyprus, Germany, Italy, Korea, Pakistan, and France are being reviewed. Irish resident companies may avail of these treaties. The double tax treaties can mean a reduction or elimination of withholding taxes on royalties and interest. Where a double taxation agreement does not exist, unilateral credit relief is available against Irish tax for tax paid in the other country in respect of certain types of income (e.g. dividends and interest).
2.1.10 Foreign Dividends

12.5% rate will not be available for offset against tax on dividends taxable at the 25% rate. However there will be no similar restriction in the case of dividends taxable at 25%.
2.1.11 Other Foreign Income

Foreign taxes paid by an Irish resident company (or EU branch), whether imposed directly or by way of withholding tax, may be available in Ireland as a credit against Irish tax. The credit is limited to the Irish tax referable to the particular item of income. The credit is computed on an item-by-item basis (except for dividends from 5% subsidiaries as above) and excess credits can be relieved only by deduction; there is no carry-back or carry-forward of excess credits.
2.1.12 Corporate Capital Gains

Double taxation relief is available on dividends paid by subsidiaries to parent companies. The relief is part of Irelands holding company regime and it makes it more attractive for headquarter operations to be located in Ireland by reducing the shareholding requirements from 25% to more than 5% and by also allowing the Irish recipient company to pool the tax credits arising on foreign dividends. In addition, credit can also be taken for local tax suffered by a branch of a foreign subsidiary. Onshore pooling is useful as it allows companies to mix the credits for foreign tax on qualifying dividends received from different foreign countries and to use up any excess credit above the Irish tax payable on a dividend, against another foreign dividend where Irish tax would still be payable in the same period. Any unused overall credit balance can be carried forward and offset against tax or dividends in subsequent accounting periods. The Finance Bill 2008 revises the treatment of foreign dividends from EU or tax treaty resident companies, which will apply to dividends received on or after 1 January 2007. Effectively dividends paid out of trading profits will in future be chargeable to tax in Ireland at 12.5% instead of the 25% rate. Where dividends do not qualify to be charged at the 12.5% rate they will continue to be charged at the 25% rate. The Finance Bill also amends the rules for pooling of the tax credits arising on foreign dividends so that in the future the rules apply separately to dividends taxable at 12.5% and 25%. Any surplus of foreign tax arising on dividends taxable at the

Irish tax resident companies are taxable on world wide gains. Non resident companies are chargeable on capital gains arising on the disposal of Irish sites assets and shares in unquoted companies whose value is derived from Irish lands. Capital losses may only be utilised against future capital gains. In addition a capital loss cannot be offset against a gain in another company within a group; however it may be possible to transfer an asset intra-group before its disposal outside the group to utilise capital losses generated or to offset group capital losses against such a gain. As part of Irelands holding company regime there is an exemption from tax on capital gains arising to Irish-based holding companies on disposals of certain shareholdings or assets related to shares in an EU/double tax treaty resident (DTA) company (which is a 5% subsidiary of the Irish parent company) see section 1.3.
2.1.13 Salary v Dividend

Shareholders of a private company frequently have the ability to decide how to extract the profits of their business. This is normally done via a salary or a dividend. Dividends have the following disadvantages: They do not count as pensionable earnings; and They are not tax deductible for the company.

A Guide to Saving Tax

As a rule of thumb, salary is usually more taxefficient.
2.2.4 Subcontracting

2.2 Reducing Taxable Profits

From an employers point of view, there is a lower PRSI cost if self-employed workers can be used instead of employees. However, the distinction between employed and self-employed is a grey area and often the Revenue Commissioners disagree with an employer over the status of workers. Care needs to be exercised if you do engage subcontract workers in your business, as it can be expensive if you get it wrong.
2.3 Relief for Business Expenditure 2.3.1 Non Deductible Expenditure

2.2.1 Accounting Policies

The amount of a companys profit which is subject to tax is based on the accounting profit, as adjusted in line with tax law. There are many situations where accounting practice permits different methods of recognising income and expenditure. You should consider the options carefully in situations where there are alternatives.
2.2.2 Change of Year-End

Non-capital expenditure incurred in the course of business will normally be tax deductible. Exceptions to this rule include certain entertainment expenses, general provisions, depreciation and a proportion of lease expenses for cars costing over 24,000.
2.3.2 Pre-trading Expenses

A change of year-end can be useful in group situations. Companies can shorten or lengthen their accounting period (subject to company law) to maximise the amount of losses being transferred from one company to another. Only contemporaneous losses can be surrendered and claims are limited to profits of a corresponding accounting period. Where accounting periods are shortened, payment of tax liabilities may be accelerated. For seasonal businesses, it can be beneficial to choose a yearend date just before a seasonal surge in income and profitability so as to give the maximum delay between earning the profits and paying the tax.
2.2.3 Employment of Spouses

Non-capital expenditure incurred three years prior to commencement of business is an allowable deduction in the computation of business profits. Capital allowances may also be available on pre trading capital expenditure.
2.3.3 Interest

The payment to a spouse of a wage of up to 26,400 per annum (2008) may result in the full utilisation of the 20% rate band and use up any otherwise wasted personal allowances. It is important that the spouse carries out duties which justify a salary of this level. The spouse may also qualify for the contributory old age pension if they are in an insurable employment.

Interest incurred wholly and exclusively for the purposes of the trade is tax deductible from income on an accruals basis. The main exception is interest paid to a non-resident non trading parent or associated company where there is a 75% or greater ordinary shareholding relationship. Such interest is classified as a deemed distribution and is not tax deductible. Since 6 February 2003, non-trading interest paid to a 75% related company in an EU Member State is treated as a tax deduction rather than as a deemed dividend. In addition, there is a restriction on the amount of interest deductible in the case of interest payable to an Irish tax resident (or foreign company controlled by Irish tax resident persons) connected person. The cumulative deductions for loan interest cannot exceed the cumulative amount chargeable to tax in the hands of the recipient in the same chargeable period. Interest on borrowings used for non-trading purposes, for example for the acquisition of shares in other companies, may be deductible on a paid basis subject to certain conditions.

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2.3.4 Expenditure on Scientific Research and Development

A credit of 20% of the incremental expenditure on revenue items, royalties, plant and machinery related to research and development (R&D) is available for offset against a companys corporation tax liability. This credit is in addition to any existing deductions or capital allowances for R&D expenditure. The following conditions must be fulfilled in order to qualify for this credit: R&D activities must be carried out in the European Economic Area; Relief is granted provided the expenditure is not deductible in any other territory; Qualifying expenditure will be reduced by any grant or State Aid received; Payments to a connected party in respect of taxexempt patent royalty income will not qualify for the relief; and Payments made other than at arms length will not qualify for relief. Any amount of the credit unused in a particular period can be carried forward until it is used up but there are no carry back provisions. There is significant relief for qualifying R&D expenditure on buildings or structures. The credit for such expenditure is given over a 4-year period.

on R&D under the tax credit scheme is being fixed at 2003 for a further 4 years to 2013. The change will provide an additional incentive for increased expenditure on Research & Development in future years. Where R&D is incurred, it is worth exploring whether there are any patents which can be registered.

2.4 Capital Allowances 2.4.1 Plan the Timing of Capital Expenditure

Where capital allowances are available on expenditure incurred within an accounting period, there is a cash flow benefit if the expenditure is incurred near the end of the period. For tax purposes, the expenditure is incurred when the obligation to pay becomes unconditional. In some circumstances you can place an unconditional order late in an accounting period and claim capital allowances for that period, even if you do not pay until the following period (provided the assets are in use at the year end).
2.4.2 Plant and Machinery

Capital allowances for plant and machinery are calculated on a straight line basis at a rate of 12.5% per annum. Computer software is treated in the same way as plant and machinery. State grants are deducted in arriving at the qualifying expenditure. Most buildings contain plant and machinery on which capital allowances can be claimed. It can be worth investing in specialist advice so as to obtain the relief on all eligible items.
2.4.3 Industrial Buildings

There is a provision for clawback of the relief granted where the building or structure is sold or ceases to be used for R&D activities within 10 years of the period in which the expenditure was incurred. The base year for expenditure which is used to calculate the qualifying incremental expenditure

Expenditure on industrial buildings may qualify for an industrial building allowance (IBA), provided that the building is in use for the purpose of a qualifying trade carried on by the company. It should be noted that the qualification of a building as an industrial building depends on the nature of the trade for which it is in use and not on the characteristics of the building itself. Allowances are given at rates between 4% and 15% per annum on a straight line basis. In relation to administrative offices, if they are part of a single building, and represent no more than

A Guide to Saving Tax

10% of the total cost, they could qualify in full for IBAs. If they are created as a separate block, they will not qualify for any relief at all.
2.4.4 Acquisition of Second-hand Industrial Buildings

being introduced. For capital allowance purposes cars will be categorised by reference to CO2 emissions. Vehicles are to be categorised as follows: Category A Category B/C Category D/E Category F/G 0 120g/km 121 155g/km 156 190g/km 191g/km and over

Industrial buildings have a deemed tax life and the purchaser of a second-hand industrial building needs to be aware of how old it is at the time the ownership changes. If it is approaching the end of its tax life, this can be advantageous for the purchaser. On the sale of an industrial building, the original owner will have all the allowances clawed back if he sells for at least the original cost. These allowances are then potentially available to the purchaser, spread evenly over the remaining life of the industrial building. Therefore, if the building is bought second-hand in the final year of its life, the whole of the original cost will be given as a deduction in that period to the purchaser, with no restriction being made to the writing down allowance.
2.4.5 Avoid Clawback of IBAs

Vehicles under categories A, B and C continue to qualify for the same capital allowances as present up to a value threshold of 24,000. Vehicles in categories D and E will only qualify for 50% of the allowances. Vehicles in categories F and G will not qualify for capital allowances. The granting of leasing expenses incurred will be on a similar basis to the new capital allowance scheme. The revised scheme will come into effect in respect of cars purchased or leased on or after 1 July 2008.
2.5 Selling a Business 2.5.1 Assets or Shares

If an industrial building is sold within its tax life for more than its tax written down value there will be a clawback of the allowances previously given. However, there is no clawback if the owner of the building grants a lesser interest rather than sells the property. This means that the owner of the freehold industrial building can grant a 999 year lease (which is, for all intents and purposes, the same as selling) but because he retains the freehold there will not be a clawback of allowances. Similarly, the grant of an inferior lease out of a lease will not trigger a clawback. IBAs will not be available to the purchaser in these circumstances.

If you have shares in a company, it generally makes sense to sell them rather than the assets of the business, thus paying one charge to tax and making use of the CGT reliefs. In contrast, if you sell assets from the company there are two charges to tax one on the company on the gains it realises and another when those proceeds are extracted from the company by the shareholders. When selling the shares in a business as opposed to the assets, the purchaser may seek a discount on the basis that there are underlying tax liabilities in respect of the assets in that business.

2.5.2 Due Diligence 2.4.6 Motor Vehicles

The wear and tear allowance on new and secondhand passenger motor cars is restricted by reference to the cost of the vehicle. From 1 January 2007 the maximum amount claimable in respect of any passenger motor vehicle is restricted to 24,000 regardless of actual cost. This restriction does not apply to commercial vehicles. A revised scheme of capital allowances and leasing expenses for cars used for business purposes is

Normally there is more risk in purchasing an incorporated business as the business would have underlying liabilities, tax and otherwise. Therefore the purchaser will undertake an enquiry process (due diligence) prior to purchase. In order to reduce the costs and time involved in the sale of a business, the part of the business being sold can be transferred to a newly formed company. The newly formed company would have no underlying liabilities and therefore the due diligence process would be more straightforward and less costly.

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3. Capital Acquisitions Tax (CAT)

Planning for the transfer of assets requires consideration of a number of legal and tax issues. After these issues have been discussed and decisions have been taken, appropriate mechanisms must be put in place to give effect to the decisions made. Where no immediate gift is intended, provision for transfer should be made through an appropriately drafted Will. Aoife Walsh Director T: +353 (0)1 6805 805 D: +353 (0)1 6805 984 F: +353 (0)1 6805 806 E:
3.1 Annual Exemption

The importance of having an appropriately drafted Will cannot be overstated. The Will should give effect to the wishes of the testator while taking account of legal and taxation issues.
3.3 Tax Free Threshold

Everyone has a 3,000 annual exemption for small gifts received from any one donor.

3.2 Estate Planning

Every individual has a threshold below which they will not pay CAT. This is a lifetime threshold i.e. the threshold may be reduced by the value of any relevant previous gifts and inheritances received since 5 December 1991. The indexed Group thresholds for 2006, 2007 and 2008 are set out in the table below.

Planning the transfer of assets from one generation to the next is a task which throws up many varied circumstances. It is important to strike a balance between maintaining financial independence and security for retirement, while providing scope for the most efficient transfer of assets at the earliest opportunity. It is likely that most people will dispose of their assets in a combination of the following ways: By gifts made during their lifetime; Through the use of trusts made during their lifetime and intended to carry on for a period after death; and By inheritances taken on death. The making of gifts and transfers to trusts will involve capital gains tax (CGT) (with the possibility of retirement relief) and CAT. Inheritances will trigger liabilities to CAT unless they are covered by one of the reliefs.

Group Relationship to Disponer

Group Threshold 2008 (after indexation)


Son/Daughter Parent/Brother/Sister/ Niece/Nephew/Grandchild Relationship other that Group A or B


e52,121 e26,060

3.4 Legal Issues

The Succession Act 1965 imposes obligations on individuals to make certain provision for their spouses and children in disposing of their assets by Will. A surviving spouse is entitled to a one-third share of the estate of the deceased spouse who has made

A Guide to Saving Tax

a Will. This is a legal right and a recent Supreme Court decision has confirmed that a one third share of the estate of the deceased vests automatically in the surviving spouse, where no provision has been made for that spouse in the Will. Pursuant to Section 117 of the Succession Act 1965 a child of any age has the right to apply to court for a level of benefit if they consider their parents have failed in their moral duty to provide for them. This is a more difficult issue to advise on because there are no statutory guidelines indicating the level of benefit to be conferred. A broad range of factors will be taken into account including the lifetime provision made for that child, their age and position in life and their conduct. It is difficult to give definitive advice in relation to Section 117; it is sufficient to say that the position of all children should be carefully considered when a Will is being prepared. If an individual dies intestate (having made no Will), the Succession Act 1965 regulates the division of that persons estate. If an individual is survived by a spouse only, the spouse takes the entire estate. When an individual is survived by a spouse and children, the surviving spouse takes a two thirds share and the children take the remaining one third share between them equally. If an individual is survived by children only, the entire estate is divided among them in equal shares. Under the rules of intestate succession, where survivors include a spouse and children, no provision will be made for remoter relatives who may have been in receipt of informal support in a family situation. In making a Will an individual should consider all of these issues as they apply. Making a Will also provides an opportunity to appoint Testamentary Guardians for children who may be left without a parent while under the age of 18. If guardians are not appointed by Will, an application has to be made to the Circuit Court to make an appointment after the parents death. A Will should be prepared to give effect to long term decisions which have been made about the distribution of the property and to ensure that available tax reliefs are used to best effect.
3.5 Discretionary Trusts to Provide for Incapacitated Relatives

A common use for a discretionary trust is to provide for incapacitated relatives, usually children. Where proper provision is not made for an incapacitated person, the Courts may step in and institute Wardship proceedings in order to make that person a Ward of Court. Wardship proceedings take place when a Court decides that a person is incapable of managing his/her own affairs. Ward of Court procedures can be expensive, they are very slow and it can be difficult to access funds. A discretionary trust is a useful mechanism through which the welfare of an incapacitated family member can be provided for. Funds within a discretionary trust are administered at the absolute discretion of the Trustees and are not under the control of the beneficiary. Therefore the choice of trustee is very important. A professional trustee is usually chosen for their impartiality in administering the trust. It can also be a good idea to appoint a family member as a co-trustee who would be aware of the settlors wishes as to how the trust should be administered and who would personally know the beneficiary. Wishes as to how the trust is to be administered can be also separately expressed through a letter of wishes. It is important to choose the trust assets carefully depending on the requirements of the beneficiary i.e. income or capital.

Where the trust deed clearly states that the trust is exclusively for the maintenance and upkeep of the beneficiary, discretionary trust tax does not apply. There is an exemption from CAT on payments made by the trust for medical care and related expenses but all other distributions/payments may be subject to CAT.


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A discretionary trust can be set up either during a persons lifetime or by Will. The advantage of setting one up during a persons lifetime is that any payments made to the beneficiary from the trust (even after your death) would qualify for the annual small gift exemption of 3,000 (6,000 if there are two settlors). This is provided the settlor(s) survive for two years after the creation of the trust. Trustees pay income tax at the standard rate of 20% on the trust income and are not entitled to claim any of the personal allowances or reliefs which are normally available to individuals. Income is also subject to a surcharge at a rate of 20% if it is accumulated and has not been distributed within eighteen months of the end of the year. Where the beneficiary of the trust is the sole person entitled to the trust income, the Revenue can assess the beneficiary to tax directly instead of the Trustees. The beneficiary will receive a credit if any additional tax has been suffered by the trust. There is no CGT on the transfer of cash into a trust. However, on the transfer of assets into the trust, CGT at 20% is payable on the deemed gain. If the trustees make a disposal of any assets in the trust, the trustees are liable to CGT at 20% on any gain on the disposal. beneficiary has continuously occupied both properties as his or her only or main residence for a total period of three of the four years immediately prior to the date of the gift or inheritance. The individual has no beneficial interest in any other residential property at the date of the benefit. The individual remains in the property or a replacement property for six years after taking the benefit. The requirement to continuously occupy the property for six years is relaxed in the case of absences imposed by employment obligations and removed if the beneficiary dies, is over 55 years old or has to sell the property to go into a nursing home. Finance Act 2007 introduced the following restrictions to this relief in relation to a gift of residential property: Unless the individual making the gift was compelled by reason of old age or infirmity to depend on the services of the beneficiary, the period of occupancy during the initial three year period by the beneficiary will be disregarded for the purposes of this relief. The individual gifting the house must have owned the house during the initial three year period. There is no requirement that the disponer and beneficiary be related and there is no cap on the value of the property which can qualify for the relief. This relief is useful for cohabiting couples because one partner may inherit the house from the other free of CAT if the conditions are satisfied. It is also of use in a situation where a child has remained at home to look after their parents and ultimately receives the family home.
3.7 Business Property Relief

3.6 Dwelling House Relief

This relief was introduced in Finance Act 2000 and is not to be confused with principal private residence relief which applies in the case of CGT. This relief allows an individual to receive a gift or inheritance of a residential property free from CAT if the following conditions are met: The property was the beneficiarys principal private residence for three years prior to the gift or inheritance. Where the dwelling house has directly or indirectly replaced other property, this condition may by satisfied where the

Business property relief reduces the taxable value of relevant business property by 90%. This combined with the 20% rate of CAT means that assets qualifying for business relief would suffer an effective tax rate of 2% after the relevant thresholds have been used up.


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The features of the relief are as follows: - The relief applies to business property as follows: a) Property consisting of a business or an interest in a business; b) Unquoted shares or securities of a company (whether Irish incorporated or not) subject to certain conditions; c) Land, buildings, machinery or plant owned by the disponer but used by a company controlled by the disponer or by a partnership in which the disponer was a partner; d) Quoted shares or securities of a company which were owned by the disponer prior to their becoming quoted. The business carried on must not consist wholly or mainly of dealing in land, shares, securities or currencies or of making or holding investments. The relevant business property must have been owned by the disponer, or by the disponer and his spouse, for at least five years prior to a gift, or for at least two years for an inheritance taken on the disponers death. Assets not used wholly or mainly for the business concerned are ignored in valuing the relevant business property. Agricultural property qualifies for the relief whether held by a company or an individual, provided all the above conditions are satisfied and that agricultural relief does not apply. Business relief will be clawed back if the business property is sold or otherwise disposed of within a six-year period after taking the gift or inheritance. This clawback provision was extended in Finance Act 2006 to the effect that if the business asset comprises development land or shares in a company holding development land and the land or company shares are sold after six years but before the expiration of ten years, the relief attributable to the development value will be clawed back i.e. the relief attributable to the current use value only is allowed. Where the gift/inheritance consists of quoted/ unquoted shares in a company, the beneficiary must after taking the gift or inheritance: - control more than 25% of the voting rights relating to all questions affecting the company Where a donee or successor is a farmer within the meaning of the Act, the market value of all agricultural property is reduced by 90%. For qualifying assets the effective rate of CAT in the case of a gift or inheritance is 2%. A farmer is an individual 80% of whose property, after taking the gift or inheritance, consists of agricultural property on the valuation date of the gift or inheritance. He or she must be resident in the State for each of the three years of assessment immediately following the year of assessment in which the valuation date falls. Prior to Finance Act 2006 it was necessary that he or she is domiciled in the State but this is no longer the case. Agricultural property is defined as meaning agricultural land, pasture and woodland in the State and crops and timber grown thereon, together with houses and other buildings appropriate to the property. It also includes livestock, bloodstock and farm machinery. - as a whole; or control the company within the meaning of section 27 of the Capital Acquisitions Tax Consolidation Act 2003 (i.e. the beneficiarys shareholding taken together with his/her relatives shareholdings exceed 50%); or own 10% or more of the aggregate nominal value of all the issued shares and securities of the company and have worked full-time in a management or technical capacity in the company (or in the case of a group, for any company or companies in the group) throughout the period of 5 years ending on the date of the gift or inheritance.

3.8 Agricultural Relief


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The relief is clawed back if the agricultural property is sold or compulsorily acquired within six years from the date of the gift or inheritance and is not replaced within one year by other agricultural property. As with business relief, the clawback provisions were extended to the effect that if the agricultural property comprises development land and the land is sold after six years but before the expiration of ten years, the relief attributable to the development value will be clawed back.
3.9 Favourite Nephew Relief

Working substantially on a full time basis means: Where the benefit consists of a property used in connection with the disponers business trade or profession, more than twenty four hours per week, or More than fifteen hours per week for the disponer if the business is carried on exclusively by the disponer, the disponers spouse and the beneficiary. Favourite nephew relief does not apply to a benefit taken from a Discretionary Trust.
3.10 CGT/CAT Set Off

This relief applies where CAT and CGT are payable on the same event. It was modified in Finance Act 2006. The relief applies where CAT is payable on the happening of an event and that event is also a disposal of an asset for CGT purposes. In these circumstances, in calculating the amount of CAT payable, a credit is allowed for the amount of CGT payable on the same event. The amount of the credit is to be the lesser of the CGT and CAT attributable to the relevant asset. What happens, in effect, is that the CGT is payable in priority and any CAT payable on the same event is relieved up to the maximum of the CGT that was paid on that event. Finance Act 2006 modified this relief to include a two year holding period: the relief claimed is clawed back if the beneficiary does not retain the benefit for a period of at least two years.

The relief is set out in Schedule 2 CATCA 2003 and it provides two significant benefits where an individual qualifies for it: The individual can obtain the benefit of the Group A threshold in relation to certain benefits from his aunt or uncle. The aunt or uncle can claim CGT retirement relief under Section 599 TCA 1997 on a disposal to a favourite nephew/niece as if he or she was their child. A beneficiary who is a nephew or niece of the disponer is regarded as a child of the disponer for the purposes of the relief if he or she worked substantially on a full time basis: In the disponers business, trade or profession and the benefit consists of property used in connection with that business, trade or profession, In a company carrying on the business, trade or profession and the benefit consists of shares in the company.


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4. Employment Taxes
4.1.2 Benefits from Employment

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Benefits from employment are a legitimate form of remuneration and can be very attractive to employees. Governments often pursue their wider policy objectives by offering tax breaks to encourage the provision of certain benefits. A current example is pension contributions, which attract generous relief from both tax and PRSI. Also the exemption threshold for an annual gift from an employer to an employee increased from 100 to 250 from 1 January 2005. To be tax-efficient, a benefit in kind must give a taxable amount which is significantly below the true value of the benefit. Despite the legislation gradually catching more items, there are still some which give a tax benefit. Examples include monthly or annual bus or rail passes, professional subscriptions and the provision of canteen meals. The PRSI rules mean that most benefits now attract employers PRSI and usually employee contributions as well.
4.1.3 Valuation Rules

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4.1 Benefits in Kind 4.1.1 Employer Obligations

The amount of the taxable benefit in kind which is liable to PAYE and PRSI is the higher of: the expenses incurred by the employer in providing the benefit to the employee; or the value realisable by the employee for the benefit in money or moneys worth; less any amount made good to the employer by the employee.
4.1.4 Cars Used for Business

From 1 January 2004 employers are obliged to calculate the taxable value of benefit in kind items and operate PAYE/PRSI on the relevant amounts by processing them through the payroll. New company law obligations, expected to be introduced shortly, will mean that directors of certain companies will be obliged to confirm in writing that they have implemented procedures that ensure compliance with company law, tax law and other laws that may have a material effect on the companys financial affairs.

The benefit of a company car to an employee is measured by determining a cash equivalent of the private use of the company car. The cash equivalent is determined by applying a business mileage related percentage to the Original Market Value (OMV) of the car supplied. It may however be worth allowing employees to use their own cars for business purposes. The employer can then reimburse business mileage using the Revenue Commissioners authorised mileage rates which are free of tax and PRSI.


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4.1.6 Company Vans

The taxable benefit of a company van is calculated at 5% of the Original Market Value of the vehicle supplied. There will be no tax where an employee that is required to take a van home at night, is allowed no other private use, spends at least 80% of his / her time away from the work premises and the van is necessary in the performance of the duties of the employees employment. These rates are often higher than the cost incurred by the employees in using their cars. In considering running costs, employees need to think about the depreciation in the value of the cars that they own. Personal leasing or contract hire arrangements may be more cost-effective over the life of the car. The new VRT system (Appendix VI), which will come into effect from 1 July 2008, will result in the OMV of the car being lower for cars with low CO2 emission levels and higher for cars with high CO2 emission levels. Therefore the CO2 emission levels should be considered when acquiring a company car as this will affect the charge to BIK for new cars acquired after that date.
4.1.5 Alternatives to the Company Car 4.1.7 Loans to Employees

Loans given by employers to employees at preferential rates of interest are subject to PAYE and PRSI. The taxable benefit is the difference between the interest paid or payable on the loan and the amount of interest which would have been payable if the loan had been subject to interest at the specified rate. From 1 January 2008 the specified rate for qualifying home loans is 5.5% and for all other loans is 13%.
4.1.8 Accommodation

It may be worth looking at alternatives to the company car. These include: Extra salary in place of the company car Employees leasing directly from a vehicle provider Loan to the employee to help buy a car Offering company vans. When doing the calculations, consider: Are there penalties for changing an existing lease? Will extra salary and pension scheme payments cost more than the car? If employees buy their own cars will it portray the right image for your company? Will employees be disgruntled if you take away their company cars? What about employment contracts? How much value does the employee place on having a fully expensed company car?

Where a company owner/director wishes to acquire a second home, this could be purchased by the company and provided to him/her as a benefit in kind. The director will pay tax by reference to the annual value of the use of the house. This value is the annual rent which would be obtainable if the property were let on the open market. The company should get a full tax deduction for the interest payments on the money used to buy the house.
4.2 Tax Efficient Benefits 4.2.1 Car Parking

There is currently no benefit in kind charge arising from the provision of a car parking space at or near the employees place of work, regardless of how it is provided or paid for. This can be a very valuable benefit in city centres.
4.2.2 Travel Pass

PAYE and PRSI is not applied to the value of certain monthly or annual bus, train and Luas passes given to employees for use on a licensed passenger transport service and commuter ferries operated within the State.


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4.2.3 Mobile Phones/Laptops/Home High Speed Internet Connection 4.2.8 Course or Exam Fees

When employers provide the above for business use and bear the costs of installation and use, a tax charge will not apply to the employee provided that private use is merely incidental to the business use of the item.
4.2.4 Computers

Course or exams fees paid by an employer will not give rise to a taxable benefit if the course undertaken by the employee is relevant to the business of the employer.
4.2.9 Professional Subscriptions

Professional subscriptions paid by an employer will not give rise to a taxable benefit if membership of that professional body is relevant to the business of the employer.
4.2.10 Examination Awards

Examination awards paid to an employee will not give rise to a taxable benefit if the amount can be regarded as a reimbursement of expenses considered to be incurred while studying for an examination relevant to the business of the employer. Special increments of salary awarded on passing an examination are chargeable as part of an employees remuneration in the normal way.
4.2.11 Long Service Awards

The employer can provide computer equipment in the employees home without a taxable benefit arising to the employee provided that it is for business use and private use is incidental. A computer supplied for the employees private use is taxable. The amount of the taxable benefit is calculated at 5% of the market value of the asset when first provided to the employee.
4.2.5 Company Pension Schemes

No taxable benefit will arise in respect of an award made to mark long service where the following conditions are met: The award marks service of not less than 20 years; The award takes the form of a tangible article(s) of reasonable cost; The cost does not exceed 50 for each year of service; No similar award has been made to the recipient within the previous 5 years. The treatment does not apply to awards made in cash or in the form of vouchers, bonds, etc.
4.2.12 Termination Payments

There is no tax charge arising on contributions to Revenue-approved superannuation schemes or Personal Retirement Savings Accounts (PRSA) by the employer in respect of an employee.
4.2.6 Crche/Childcare Facilities

A taxable benefit does not arise where the employer is at least partly involved in financing and managing the provision of childcare for employees children and the premises meets certain requirements of the Child Care (Pre-School Services) Regulations 1996.
4.2.7 Medical Check-ups

If employees are required by their employer to undergo medical check-ups it will not be considered a taxable benefit where provided for by the employer.

Where a payment is made on retirement or removal from an employment, and it is not otherwise chargeable to income tax, tax is charged only on the excess of the payment over the basic exemption or an amount calculated by a formula (SCSB) based on the number of years of service.


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The basic exemption is 10,160 plus 765 for each complete year of service in that employment. This basic exemption may be increased by claiming an additional 10,000 exemption, once every 10 years. This additional 10,000 is available where the individual is not a member of an occupational pension scheme or irrevocably gives up the right to receive a lump sum from such a scheme. If the member receives or is entitled to receive a pension lump sum, then the additional 10,000 exemption is reduced by the pension lump sum. Approval is required from the Inspector of Taxes before the additional exemption can be applied.
4.3 Share Schemes 4.3.1 Employee Share Schemes

Revenue reserve the right to tax the employee on the difference at grant at the marginal tax rate. For share options exercised on or after 30 June 2003 the tax due is payable within 30 days after the exercise. In addition Capital Gains Tax is payable on disposal of the shares. Tax is charged on the difference between disposal proceeds and original cost (option price). Approved Share Option Schemes A company may qualify to operate an approved share option scheme by applying in writing to the Revenue Commissioners. Under an approved scheme the employee will be chargeable to capital gains tax on the full gain on disposal of the shares. There is no income tax chargeable on the exercise of the option. There are certain conditions which must be met in order to gain Revenue approval, including: The option price must not be less than the market value of the shares at date of grant; The shares acquired must not be sold within 3 years of the date of grant; Share options must be awarded to all eligible employees on similar terms. However it is permissible to have a discretionary element whereby the level of options granted to certain key employees might be determined at the discretion of the company and not under the similar terms provisions. The number of discretionary options cannot exceed 30% of the total number of options granted under the approved scheme in the same tax year. In addition, where a key employee is granted discretionary options in any year he cannot also be granted options under the regular employee element.
4.3.3 Share Subscription Schemes

The Government has been keen to promote the concept of extending share ownership to the workforce generally and also to key managers. Tax reliefs have been applied to particular arrangements (approved schemes) by bringing them into the more favourable CGT regime.
4.3.2 Share Option Schemes

Share options are agreements entitling the holder to buy shares in the future at a fixed price, usually the current value of the shares. The holder can make a profit if the shares increase in value and the option is exercised. Options are often used to motivate selected, key staff in a company by tying their remuneration to the share price.

Where an eligible employee subscribes for eligible shares in a qualifying company he/she will be entitled to a deduction against their total income up to a maximum of 6,350, subject to the following conditions: Unapproved Share Options Schemes Under unapproved share option schemes Income Tax is charged for the year of exercise of the option, on the difference between the price paid (option price) and the market value at that date. If the option is capable of being exercised more than seven years from the date of grant and it is granted at less than market value, Shares must be subscribed for at not less than market value Shares must be new ordinary shares in the employer company


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Company issuing shares must be a trading/ holding company, resident in Ireland and not resident anywhere else and incorporated in Ireland Shares must be retained for 3 years or tax relief will be withdrawn. The tax deduction granted is excluded for the base cost on future sales.
4.3.4 Save As You Earn (SAYE) schemes

an Employee Share Ownership Trust (ESOT) to an APSS subject to certain conditions. The disposal of shares will be subject to capital gains tax. Participation is open to every full-time director/ employee and part-time employee chargeable to tax under Schedule E who satisfies the qualifying period (not more than 3 years). Shares may not be allocated to any individual holding a material interest (more than 15% of the ordinary shares) in the company where it is a close company.
4.3.6 Employee Share Ownership Trusts (ESOT)

This scheme allows employees to save part of their after tax salary over a three year period at the end of which the employee can use those savings to purchase shares in their employer company. Membership of this scheme must be made available to all employees. The minimum savings amount is 12 per month and the maximum is 320 per month. The shares can be purchased at a discount of 25% of their market value at the beginning of the three year savings period. No charge to income tax arises on the purchase at this discounted price. If you acquire shares under a SAYE scheme, consider putting them into your personal pension plan if the plan rules allow. The value of the shares will be grossed up at the basic rate of tax like a normal cash contribution to a pension plan.
4.3.5 Approved Profit Sharing Scheme (APSS)

An ESOT is a tax-favoured trust mechanism within which shares can be retained for up to 20 years for distribution to employees (and former employees, within certain limits). They are designed to work with profit sharing schemes so that shares can be released from the ESOT each year into the companys profit sharing scheme. All employees and certain full-time directors of the founding company or a group company who are chargeable to tax under Schedule E and who satisfy the qualifying period (not more than 3 years) must be eligible to be beneficiaries under the ESOT. However, employees and directors with material interest (5% of the ordinary share capital) cannot be beneficiaries under the ESOT. The following are some of the reliefs available to the company operating an ESOT: Any chargeable gain arising from the transfer of shares from the ESOT to an approved profit sharing scheme is exempt from capital gains tax; The ESOT is not chargeable to income tax on dividend income arising on the shares if that income is used for a qualifying purpose within nine months of the date of receipt; A corporation tax deduction may be claimed for the costs of setting up the scheme.

Under an APSS the costs of providing shares in a profit sharing scheme and the costs of running the scheme are tax deductible for the company subject to certain restrictions. The recipient employee is exempt from income tax on shares received up to an annual limit of 12,700 in a tax year and is also granted favourable income tax treatment on any growth in the value of the shares. However if the employee sells the shares within three years income tax is charged at 100% of the value of the shares at the date of sale. However this holding period will not apply where shares are transferred from


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5. Personal Tax
The 70,800 band for a two income couple is transferable from one earning spouse to the other, subject to a maximum individual band of 44,400 for either spouse.
5.2.3 Medical Expenses

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Relief at the marginal tax rate is available on certain medical expenses which are not reimbursed by medical insurers/other authorities. Medical expenses incurred on behalf of a relative may also be claimed. It may be worth considering re-arranging the financial affairs of a dependent relative who is not availing of tax relief to ensure maximum tax efficiency. Routine dental treatment and ophthalmic treatment are specifically excluded from the relief.
5.2.4 Rent Relief

In recent years, the amount of paperwork associated with tax compliance has increased dramatically. However, it is important to keepup-to date to ensure that you claim all the reliefs, allowances and credits to which you are entitled and retain the supporting documentation This will also ensure that you avoid interest and penalties for failing to comply with Revenues requirements.
5.1 Compliance

A tax credit may be claimed by tenants for rent paid on residential accommodation. For 2008 the credit is 400 per person under 55 years and 800 per person where over 55 years.
5.2.5 Third Level Educational Fees

See Appendix I.

5.2 Planning 5.2.1 Bare Trusts

Parents can pass ownership of assets to their children by means of a bare trust. Any gains are those of the child, who can take advantage of the annual CGT exemption. This arrangement is not effective for income tax purposes and the income is taxed as that of the parent. Consider using a bare trust to hold assets designed to achieve capital growth rather than income-producing assets.
5.2.2 Individualisation

Tax relief is available at the standard rate for fees paid for third level education. The relief is granted where an individual pays the qualifying fees on his or her own behalf, or on behalf of a dependent. The maximum relief available for the academic years 2007/2008 and 2008/2009 is 5,000.
5.2.6 Service Charges

For the tax year 2008 the following tax bands apply:Single Person 35,400 Married Couple - One Income 44,400 Married Couple - Two Income 70,800

A tax credit is available for local authority service charges paid in full and on time. The maximum amount qualifying for relief is 400 per annum.

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5.2.7 Charitable Donations 5.2.9 Restrictions on Tax Reliefs for High Income Individuals

Relief may be claimed by both individuals and companies on charitable donations over 250 in a year. Donations by PAYE taxpayers are granted relief on a grossed up basis to the charity rather than a separate claim by the donor. Self-employed taxpayers make a claim for relief as part of their return and there is no grossing up arrangement. Tax relief is only available on donations to Revenue approved charities and other approved bodies.

A limit on the use of tax reliefs by certain high income individuals will apply from the tax year 2007 onwards. The restriction will only apply to those individuals with income and tax reliefs in excess of 250,000 per annum.

5.2.8 Interest Relief

Interest payable Relief is available for interest on money borrowed: For the purpose of a trade or profession carried on by an individual or company (but may be restricted in certain tax avoidance situations); For the purchase of, or expenditure on, a rented property (relief is given against rental income); By an individual to invest in or to lend to a trading partnership in the conduct of whose business the individual acts as a partner. Individuals borrowing to acquire an interest in property companies are no longer able to claim the interest as a deduction. The deduction was abolished in the Finance Act 2006 and applies to loans taken out after 7 December 2005. The Finance Act 2006 also restricted interest relief against rental income. A deduction for interest paid on rented premises is only available where the registration requirements of the Private Residential Tenancies Board are met. Relief is also available to individuals and companies for interest on money borrowed to acquire an interest in or to lend to a company, which is a trading company, a rental company or a holding company subject to certain conditions. This is a very valuable relief, as it is given against the individuals highest marginal rate of tax and there is no monetary limit on the amount of the loan. It therefore makes sense, from a tax standpoint and where commercially possible, for owner-managers to organise their affairs so that they use all their borrowings to lend to their business, thereby obtaining maximum tax relief on the interest. In this respect it is possible to re-arrange existing borrowings to meet this aim.


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6. Capital Gains Tax

In the case of unquoted shares, large discounts usually have to be applied in valuing minority shareholdings to take into account their relative lack of control and marketability. Where shares are held by both husband and wife, it may be possible to reduce the impact of this principle by transferring shares between them to create a larger single holding by one spouse and thereby establish a higher 1974 value.
6.4 Retirement Relief

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6.1 Use of Annual Exemption

Where a person who has attained 55 years of age disposes of the whole or part of his/her qualifying assets for a consideration which does not exceed 750,000 relief is given for the full amount of the Capital gains tax chargeable. Qualifying assets include, in the case of a sole trader/partnership, chargeable business assets held for 10 years and in relation to shares in a family company, where the individual has owned and worked in the company for the last 10 years, 5 of them as a full time director. Marginal relief is available on disposals over 750,000. There is no limit on the consideration where the disposal is to a child or favourite nephew. However, there is a clawback of the relief if the child or favourite nephew disposes of the property within six years of acquisition.

The annual exemption for CGT of 1,270 is lost if it is not used. Thought should be given before the end of each tax year to realise gains to use this exemption.
6.2 Negligible Value Claims

It is not always necessary to dispose of assets which have become valueless, a loss can sometimes be claimed without sale or liquidation. Such a loss is allowable only in the year of claim. However, in practice, a claim made within twelve months of the end of the year of assessment or accounting period for which relief is sought will be admitted, provided that the asset was of negligible value in the year of assessment or account period concerned.

6.5 Transfer of a Business to a Company

This relief provides that where the consideration for the transfer of assets of a business to a company is the issue of shares in the company, the total gain is not assessed but the base cost of the shares for the purposes of a future disposal is reduced by the total gain on the transfer of the assets. The business must be transferred as a going concern.

6.3 April 5th 1974 Valuation of Shares

An asset owned before 5 April 1974 can take its value at that date as its base cost for CGT purposes.


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7. VAT
From 1 July 2008, all leases of property (other than ownership-type leases) will be exempt from VAT. Landlords will be entitled to opt to tax such lettings (i.e. charge VAT) assuming certain conditions are satisfied. Options to tax will be on a property-byproperty basis. Depending on the history of the property and the profile of the tenant, it may be attractive for a landlord to opt to tax certain lettings while not opting to tax other lettings. For example, a landlord who owns a property and has a potential tenant with no VAT recovery may (in consultation with the tenant) choose not to opt to tax the letting and increase the rent amount instead. While this course of action may have implications for the landlord under the capital goods scheme, the extra rent achieved may be more significant. Due to the introduction of the Capital Goods Scheme on 1 July 2008, it will be important to consider the VAT consequences of the transfer of second-hand properties after that date. It may be that in certain cases, vendors and purchasers will be satisfied that VAT is not chargeable on certain sales. This may be the case in particular where the purchaser does not have full VAT recovery. It is also possible that there will be transactions whereby a vendor will want to charge VAT on the sale of a second-hand property. For example, a financial institution may be able to recover a substantial amount of VAT in the event that it sells a second-hand property and charges VAT (this assumes that it was not able to recover all of the VAT when the property was acquired, which is generally the case). It will be vital that detailed records are kept of all property transactions including refurbishment work etc. These records will be required when properties are being sold or if businesses are being transferred (e.g. as part of due diligence process). It is a legal requirement to maintain such a record. Note: Property-related transactions are generally complicated and the specific circumstances will dictate the best course of action. Specialist advice should be sought in advance of concluding any

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Some of these ideas offer outright VAT savings, whilst others aim to provide cash flow benefits. For most fully taxable businesses, cash flow planning represents the biggest opportunity for VAT savings. Depending upon the size of the VAT cash flows, the benefits can be significant.

7.1 Compliance

See Appendix II.

7.2 Planning 7.2.1 Property Transactions

Short term leases (lettings of less than 10 years) are exempt from VAT. This means that the property owner would be unable to reclaim the VAT incurred on associated costs. It is possible to make an election to waive the exemption for commercial properties only, so that rents are subject to standard rate VAT enabling VAT to be recovered on related costs. The Finance Act 2007 introduced a new Section which removed the right to waive exemption from VAT for residential lettings. The provision applies to properties acquired on or after 2 April 2007 and does not affect lettings in existence prior to this date. The new VAT rules to be introduced in July 2008 will refer to this as opt to tax.


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transaction. Some of the scenarios referred to above would have potential implications for other taxes. VAT deduction for bad debts. There is one situation where VAT relief in respect of bad debts is not available - where the bad debt is in respect of VAT arising on the grant of a long term lease (10 years or greater) of immovable goods. This should not apply to leases granted after 1 July 2008.
7.2.6 Recovery of VAT on Pension Fund Expenses

7.2.2 Accruing for Purchase Invoices

VAT can be reclaimed on all purchase invoices received and dated within the period covered by the return. However, it is possible that by the end of a VAT period not all purchase invoices will have been posted to the purchase ledger. Consider making an accrual for VAT on purchase invoices dated within, but not posted until after, the end of the VAT period. Any such accrual must, however, be reversed at the beginning of the next VAT period.
7.2.3 Credit Notes

In certain cases provided both parties agree, VAT can be excluded from credit notes. This means that the supplier will not have to refund the VAT element to the customer and may give them a cash flow benefit.
7.2.4 Business Gifts

The management of a pension fund for a companys own employees (excluding the business activities of the pension fund) is part of the employers business. An employer who is registered for VAT can recover any input tax incurred on establishing the fund and its on-going management (subject to the normal rules). This recovery can be made even if the management of the fund is undertaken by trustees and they are responsible for paying the management costs.
7.2.7 Export Companies

Subject to certain rules, no VAT is due on business gifts costing not more than 20 (excluding VAT).

Businesses with significant export sales can achieve cash flow savings by obtaining authorisation from the Revenue Commissioners to receive goods and services without incurring VAT. A trader who derives 75% or more of annual turnover from zero rated intra-Community supplies of goods or from exports of goods may apply to have most goods and services received by him and intra-Community acquisitions and imports made by him zero rated.

In addition, gifts in reasonable quantities to actual or potential customers of industrial samples in a form not normally available for sale to the public are also not subject to VAT.
7.2.5 Bad Debt Relief

Ensure you have systems in place to recover VAT accounted for on sales invoices that must be written off. Where the actual payment received in respect of a debt is less than the amount which would otherwise be liable due to a bad debt, relief is given for the sum not received. Bad debts are subject to agreement with the Inspector of Taxes and it is possible to seek advance approval before claiming a


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8. Revenue Audits and Investigations

If there is an incomplete disclosure to Revenue the penalties are now much more significant. These risks include the imposition of full civil penalties and the possible consideration by Revenue of further proceedings; There can be severe consequences ensuing from making a less than complete voluntary disclosure or indeed from not making any disclosure at all when one should have been made. Revenue have stated that both of these cases are ones that they will consider for further prosecution; If the net underpayment of VAT for the twomonth period being corrected is less than 5,000, the amount of the tax can be included (without interest or notification to Revenue) as an adjustment on the next VAT return to be submitted. The only tax this applies to is VAT and the taxable person must be a bi monthly remitter; The code also provides for a hard-line approach in relation to underpayments of Capital Gains Tax where Revenue forms a view that professional valuations of property were spurious; The code introduces a concept of self-correction of tax returns. Where the taxpayer becomes aware of an underpayment of tax due to negligence, they can avoid penalties (but not interest) by advising Revenue in writing of the underpayment and by submitting a cheque in payment of tax and interest due. In summary, the new code takes a hard-line approach and puts a much greater emphasis on up-front disclosure and payment of tax by the taxpayer. There has been an increase in the frequency of audits and this is likely to increase in the future. To further complicate matters, negligence is not defined but the code sets out three categories of negligence each of which carries their own penalties which can be further reduced depending on the level of disclosure and co-operation (see table below). There is also the concept of prompted and unprompted qualifying disclosure and there is even a further concept of a repeat voluntary disclosure.

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8.1 Revenue Code of Practice

There is a Revenue code of practice which now applies to notifications of all Revenue audits after the 1st September 2002. There has been a fundamental revision by the Revenue to their auditing procedures and there is a greater onus of disclosure (in writing) placed on the taxpayer. Following is a brief summary of what is involved in the new procedures: Greater onus on the taxpayer to make a written voluntary disclosure to the Revenue Commissioners in advance of their visit; Within fourteen days of notification the taxpayer must inform Revenue if he wishes to make a voluntary disclosure; Within sixty days the taxpayer must self assess for penalties and interest on late payment of tax as well as the tax involved. Previously, a taxpayer was simply required to disclose an underpayment of tax when Revenue visited and it was then a subject of negotiation. From 1st September 2002 the taxpayer is now required to make an up-front effective admission of tax underpayment. A cheque for tax, interest and penalties is to be paid at the outset of a Revenue audit. This eliminates the old negotiation tactics; The voluntary disclosure must be in writing and signed with a certifying statement of complete disclosure;

A Guide to Saving Tax

Category Tax Default

Net Tax-geared Penalty

Net Penalty After mitigation where there is: Co-operation including Unprompted Qualifying Disclosure 10% 5% 3%

Co-operation Co-operation Only including Promted Qualifying Disclosure Insufficient Care 20% 15% 10% Gross Carelessness 40% 30% 20% Deliberate Default 100% 75% 50%

8.2 Revenue Investigations

Revenue Investigations are becoming a regular feature of the Irish tax system. The Revenue Commissioners have recently undertaken an audit and intervention programme targeting the construction and property development sectors. Up to 25% of the Revenues audit personnel have been concentrating specifically on the construction sector. The Revenue Commissioners are currently examining tax compliance in a number of business sectors. Current reviews include the property / rental income sector, computer and software sector, the licensed trade, the building industry (relevant contracts tax), hairdressing and beauty parlours, management consultants, high earning doctors and late filers of annual VAT returns.
8.2.1 General Pattern

declared. The interest and penalties that arise can be substantial, sometimes up to 3 times the actual liability. Statutory interest on tax, PRSI and Levies, runs from the due date for tax payment in each tax year. The penalty payable is a tax geared penalty and tends to be a percentage of the unpaid tax, PRSI and Levies.
8.2.2 How Your Advisor Can Help

It is vital to engage a tax advisor as soon as it becomes apparent that a disclosure should be made. The tax advisor will examine all the relevant records to determine the extent of the undeclared income and calculate the tax, interest and penalties due. A tax advisor can also be instrumental in entering negotiations with Revenue in agreeing a settlement.

The investigations have been following the same general pattern. Firstly there is an announcement by the Revenue Commissioners that an investigation into a particular source of income will commence. This is generally followed by a 60 day period in which taxpayers are invited to make a submission to Revenue regarding any undeclared income relating to this source. The submission required will usually consist of a full disclosure of the undeclared income, a calculation of tax, interest and penalties and a payment of the full liability. Revenue encourage taxpayers to make this form of voluntary disclosure within the 60 day period by offering some incentives. These incentives usually relate to mitigated penalties, non publication and non prosecution. The additional tax arising on the undeclared income is taxable at the taxpayers marginal rate that was applicable in the year the income should have been

A Guide to Saving Tax

Appendix I: Personal Tax Compliance

(i) File Your Tax Return on Time and On-line

Your tax return must be submitted by 31 October after the end of the tax year i.e. your tax return for the year 2008 must be submitted by 31 October 2009. Late Returns will be subject to a tax related surcharge between 5% and 10% of the tax liability, up to a maximum of 12,695 where submitted less than two months late and 63,485 where submitted thereafter. It is now also possible to file your return online through Revenues Online Service (ROS).
(ii) Pay on Time

reduced premium (80% of the gross amount) to the medical insurer. Revenue will give a credit for the remaining 20% to the medical insurer. The effect of the TRS is that an individual who had not previously been in a position to claim tax relief on medical insurance premiums (e.g. an individual exempt from tax), will now get tax relief at source by paying a reduced premium (i.e. there is no need to claim relief in your tax return)
(vi) Deposit Interest Retention Tax (DIRT)

Under self-assessment it is your responsibility to make payments of tax at the prescribed times. Late payments lead to interest and surcharges, so dont delay. The filing deadline date of 31 October is also the payment date for payment of Preliminary tax for the current tax year. A number of liabilities must be paid by 31 October, namely - Balance of tax for the prior tax year - Preliminary tax for the current year - Preliminary tax for capital gains on the disposals in the period 1 January to 30 September in the current tax year.
(iii) Keep Adequate Records

Standard rate DIRT accounts: Income tax at the standard rate (20%) is deducted at source by banks, building societies, credit unions, trustee savings banks and the Post Office Savings Bank from interest paid or credited annually, or at more frequent intervals, on deposit accounts in the beneficial ownership of individuals resident in Ireland. The tax deducted will satisfy the full liability of the individual to income tax on such interest. However, the Health Levy (2%) is also payable on such interest received. 23% DIRT accounts: For interest paid or credited on other deposit accounts (e.g. where interest is credited at maturity), income tax at the standard rate plus 3% (i.e. 23%) is deducted at source. Repayments: DIRT deducted will only be repaid to the following: individuals or their spouses aged 65 or over who are not liable to income tax incapacitated individuals charities recognised by Revenue companies which do not have a corporation tax liability Non-residents: Deposit accounts held by nonresidents are exempt from the retention tax. A declaration must be made to the appropriate bank before interest can be paid without retention tax.

There are substantial penalties, of up to 1,520, if you do not retain sufficient records to support the entries required on your tax return. This applies for each year where there are insufficient records.
(iv) Personal Allowances and Rates of Tax

Every taxpayer, of whatever age, has an annual personal tax credit for 2008 this is 1,830 for single people and 3,660 for a married couple. Employees in PAYE employment also receive a PAYE credit of 1,830 in 2008. It may be feasible to move income-producing assets within families to make sure the family unit takes full advantage of the available allowances and individuals standard rate band.
(v) Tax Relief at Source (TRS) - Medical Insurance

Tax relief for medical insurance is granted at source. With a standard rate of income tax of 20% for the 2008 tax year, the policyholder will pay a

A Guide to Saving Tax

Appendix II: VAT Compliance

(i) VAT Registration

Businesses that are VAT-registered will normally be entitled to recover input tax incurred on business expenses. Businesses that are not required to be VAT-registered, e.g. because turnover is below the registration limits, may still elect to do so. This could benefit some businesses as, although they would have to charge VAT on their sales, they could recover the VAT incurred on their purchases (subject to the normal rules). This would be beneficial if the customers of the business are VATregistered. Some businesses may benefit from the cash accounting or annual accounting schemes. However, certain conditions have to be satisfied before these schemes can be used.
(ii) VAT Group Registrations

Taxable persons under common control can register for VAT together, as part of a VAT group registration. Most transactions between members of the same VAT group registration are ignored for VAT purposes. This can give a cash flow benefit by avoiding the need for associated companies to charge and reclaim VAT on inter-company transactions. One exception to this is the inter group transfer of property which remains subject to VAT. It also reduces administration costs. Real VAT savings can also be achieved, e.g. if any of the companies are prevented from reclaiming all of the VAT that they incur on purchases. However, the benefits of group registration must be compared with the joint and several liability for VAT debts accepted by all VAT group members.
(iii) Exempt Companies

Groups of companies whose only activities are wholly exempt can use a VAT group registration as a means of avoiding VAT on inter-company transactions.
(iv) Reclaiming VAT Incurred in Other Countries

A special scheme exists enabling VAT incurred for business purposes in other EU countries to be reclaimed from the foreign tax authority. This scheme is subject to certain conditions, including minimum amounts that have to be claimed and deadlines within which claims have to be made. A similar scheme exists for VAT incurred in non-EU countries. This scheme is also subject to certain conditions.

A Guide to Saving Tax

Appendix III: Income Tax & CGT Rates 2007 & 2008
Income Tax
Personal Circumstances 2007 E 34,000 @ 20% Balance @ 41% 2008 E 35,400 @ 20% Balance @ 41% Single/Widowed without dependant children

Single/Widowed qualifying for One Parent Family Tax Credit

38,000 @ 20% Balance @ 41% 43,000 @ 20% Balance @ 41% 43,000 @ 20% with increase of 25,000 max. Balance @ 41%

39,400 @ 20% Balance @ 41% 44,400 @ 20% Balance @ 41% 44,400 @ 20% with increase of 26,400 max. Balance @ 41%

Married Couple one spouse with Income Married Couple both spouses with Income

Capital Gains Tax

Annual Exemption 1,270. Rate: 20%


A Guide to Saving Tax

Appendix IV: PRSI Rates

PRSI & Health Contributions Employers/Employees
Class A (Normal rate at which contributions are made) Tax Year 2007 Employees Income chargeable as below: Income up to e48,800 to PRSI @ 4% plus a Health Contribution @ 2% Income over e48,800 to a Health Contribution @ 2% Income over e100,100 to a Health Contribution @ 2.5% Total 6% 2% 2.5%

Tax Year 2008

Income up to e50,700 to PRSI @ 4% plus a Health Contribution @ 2% Income over e50,700 to a Health Contribution @ 2% Income over e100,100 to a Health Contribution @ 2.5%


6% 2%

Employees are exempt from PRSI on the first 127 per week or 26 per week for employees on a modified PRSI rate. Employees earning 300 or less per week are exempt from PRSI and Health Contribution. However, where earnings exceed 300 per week, the employees PRSI Free Allowance remains at 127 per week or 26 per week for employees on a modified PRSI rate. Employees earning 480 or less per week in 2007

and 500 or less per week in 2007 are exempt from the Health Contribution of 2%. Note: Recipients of a Social Welfare Widows or Widowers Pension, Deserted Wifes Benefit/ Allowance or One-Parent Family Payment are exempt from paying the 2% Health Contribution. All Medical Card holders (including people aged 70) are also exempt from this contribution.

PRSI & Health Contributions Self Employed

Tax Year 2007 Class S (Self-Employed) Total 5% or 5.5% 5% or

3% PRSI and 2% Health Contribution on all income (2.5% health contribution on income over e100,100)

Tax Year 2008

3% PRSI and 2% Health Contribution on all income (2.5% health contribution on income overe100,100)


Self employed persons are exempt from Health Contribution of 2% where the annual income is less than 26,000 or less in 2008. The minimum annual PRSI contribution is 253. Medical Card Holders, people aged 70 and over and recipients of a Social Welfare Widows or Widowers Pension, One-Parent Family Payment or Deserted Wifes Benefit / Allowance or Widows or Widowers Pension acquired under the social security legislation of a country covered by EC Regulations do not have to pay the 2% Health Contribution, even if their pay is more than 500 per week.


A Guide to Saving Tax

Appendix V: Corporation Tax Rates

Rates of Corporation Tax General
Accounting Period Standard Rate Higher Rate Manufacturing Rate 10%

Y/E 31/12/03 onwards 12.5% 25%

*Higher Rate applies to Case III, Case IV, Case V and income from mining and petroleum activities and dealing in non residential land.

Rates of Corporation Tax Property Dealing & Development

Year UNDEVELOPED Non Residential Land UNDEVELOPED Residential Land Development Residential Developed Non Residential 12.5% Construction Services 12.5%

2003 et seq 25% 20% 12.5%


A Guide to Saving Tax

Appendix VI: VRT & Annual Motor Tax

A new VRT system related to CO2 emissions has been introduced with effect from 1 July 2008. Currently the tax rate of vehicles is based on the engine capacity i.e. the CC, of a vehicle. The CC determines the rate/tax payable as a percentage of the open market selling price (OMSP) of a vehicle. However, for new and used cars registered on or after 1 July 2008 the rate will be determined by the CO2 emission of the car. Motor vehicles will be classified into seven categories A-G based on their CO2 emissions with corresponding VRT rates. Previously there were only three rates; therefore the new system will be a little more complex. A sliding scale of minimum VRT charges will also be introduced on 1 July 2008, entailing a range of minimum VRT charges of between 280 and 720, in place of the single minimum charge of 315 at present.

The following table outlines the new VRT and Motor Tax rates:
CO2 Emissions Bands A B C D E F G g CO2/KM 0-120g 121-140g 141-155g 156-170g 171-190g 191-225g 226g and over VRT Rates 14% 16% 20% 24% 28% 32% 36% Minimum VRT e280 e320 e400 e480 e560 e640 e720 Motor Tax e100 e150 e290 e430 e600 e1,000 e2,000

Motor Tax - Purchases Pre July 2008

New cars registered between 1 January 2008 and 30 June 2008 will initially have their motor tax charged on the basis of the existing engine size (c.c.) system. However, a low CO2 emitting new car registered between 1 January 2008 and 30 June 2008 will have its motor tax switched to the lower CO2 based motor tax rate on first renewal of motor tax post 1 July 2008, when the new CO2 based system commences. New cars which are registered in the first 6 months of 2008 whose tax would be more under the new CO2 based system will continue to pay motor tax on the basis of engine size cars with low CO2 emissions purchased after 1 January 2008 will qualify for lower motor tax rates from the next payment after July. However, they will not be able to claim a refund for duties paid before the introduction of the system.
Effect of New Rules

There will be considerable opportunity for purchasers of cars across a broad spectrum of car options to reduce their VRT costs by making reasonable choices in relation to CO2 emission levels.
VRT Relief Scheme for Hybrid Electric and Flexible Fuel Vehicles

The existing VRT relief scheme i.e. 50% rebate of tax payable, for series production hybrid electric vehicles and flexible fuel vehicles has been extended until 30 June 2008. From 1 July 2008 the relief will be amended to a maximum of 2,500 of the VRT payable. This relief will apply until 31 December 2010. Effect: This has the effect of rendering it more economical to purchase an energy-efficient hybrid vehicle before 1 July 2008.
VRT Exemption for Electric Vehicles

Many mid-range vehicles in the 1300 CC to 1900 CC range will see either increases or decreases in the VRT payable post July 2008 and the majority of winners appear to be those with diesel engines. Differences, VRT-wise, range from savings of 1,200 to 2,500 to additional charges of similar scales. .

With effect from 1 January 2008, series production electric cars (i.e. cars which can be propelled solely by a rechargeable battery) and electric/battery-assisted bicycles are exempt from VRT. Electric vehicles (categories A & B) and motorcycles are now VRT-exempted until 31 Decembe


A Guide to Saving Tax

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