Taxation of Investment Income

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Taxation of Investment Income

Monday, March 21, 2016 - 11:00

THERE are many types of income which are treated as Investment Income by the tax code. The principal types are Deposit Interest, Government Stock Interest, Foreign Rents and income from Foreign Employments. 

Bank Deposit Interest earned from an Irish Bank will be subject to DIRT tax deducted at source, now at a rate of 41%. The recipient will also be liable to PRSI, which will normally increase the liability to 45% of interest earned. Foreign banks usually pay the interest without any deduction but then fully liable to Irish taxes.

Interest paid on Government Stock will be without any tax deducted but fully liable to taxes. The profit on sale or redemption of Government Stock is exempt from Income Tax.

Rental income from property outside the State is treated as Investment Income. Any rental loss arising from Irish property cannot be offset against foreign rents. All of the foreign rents can be grouped together so that a loss on one property can be offset against a profit in another country.

Many people who are resident in Ireland have a foreign employment, typically if might be as a Director of a UK-based company. The foreign source income is liable to Irish Income Tax as the person is resident with credit given for foreign tax paid on the same income.

If the person pays PRSI in Ireland then it is usually possible to arrange that no social security charge (in UK its NIC) will be deducted. This avoids paying social security twice on the same income.

While the Revenue has become very sophisticated in detecting undeclared Investment income, there are still many people who, for example, have not declared their Spanish Holiday Apartment. If it does come to Revenue attention then Revenue will want to know how it was financed. If someone does nothing about it then, when that person dies, it will show up on their Probate Schedule of Assets and that will trigger a Revenue enquiry.

Foreign Bank Interest is harder for Revenue to detect but if funds have been transferred abroad or later back to Ireland then it may be detected passing through the Clearing House handling payments into or out of the State via the Banking system.

If a person is on PAYE and has investment income not declared to Revenue then what is the position? If the gross income before expenses is over €50,000 per annum or the net income after expense is more than €3,174 per annum then the self-assessment provision applies and a person should submit an Annual Tax Return regardless of whether a Return was received by post or not.

If not subject to Self-Assessment and no Return is received then it would still be wise to regularise the situation as a person is likely only to build up liabilities which the Revenue will ultimately want paid in one go. If in doubt go to your tax advisor and take their advice. With Investment Income peace of mind can be very important.

Bray People