Richard Bruton
Question:109 Mr. R. Bruton asked the Minister for Finance the tax relief which applies with respect to PRSAs special saving or investment accounts, credit union accounts or other saving vehicles. [27971/03]
Written Answers. - Tax Code.
The following outlines the position in regard to the various areas. Contributions paid into a PRSA benefit from tax relief at an individual's marginal income tax rate. There will also be relief from PRSI and the health levy for employees. The maximum allowable contributions for tax purposes in any year are as follows:
|
Age |
% of Net Relevant Earnings |
|
Under 30 |
15% |
|
30-39 |
20% |
|
40-49 |
25% |
|
50 or over |
30% |
There is also full tax relief on the investment returns accruing to the fund into which the PRSA contributions are paid.
I assume that the Deputy is referring to the special savings incentive accounts, SSIAs. The Government tops up the savings deposited to these accounts each month by 25%. This top-up is equivalent to a tax credit at the standard rate of income tax in respect of the amount saved each month. If the SSIA runs its full course, then only the investment returns will be subject to tax and then only at a rate of 23%. The amount saved and the Exchequer contributions will then belong to the saver tax free. However, if a withdrawal is made from the account before the scheme expires, a 23% tax will apply on the full amount withdrawn.
As with most other income, interest on savings is subject to tax. With effect from 6 April 1986, deposit interest retention tax, DIRT, has been deducted at source from interest paid or credited on accounts with the licensed banks, the Post Office Savings Bank and the building societies. All interest on deposits held by residents is subject to DIRT at 20% as final liability and this is regarded as satisfying an individual's full liability to tax in respect of that interest. Deposits held by non-residents are exempt from DIRT when an appropriate non-resident declaration is made.
The Finance Act 2001 provided for the introduction of special term accounts. The tax treatment of these accounts differs according to the term of the investment. An exemption from DIRT and income tax will apply for the first €480 of interest received where the funds are invested for a minimum of three years and for the first €635 of interest received where the funds are invested for five years. Any interest received in excess of those amounts will be liable to DIRT at the standard rate. This DIRT is regarded as satisfying the individual's full liability to tax in respect of that interest.
Under section 57 of the Finance Act 2001, an obligation to deduct DIRT at source was extended in certain circumstances to credit unions. With regard to regular share accounts in the credit union, members can choose to continue with the existing DIRT-free status but with consequential liability to income tax at his-her marginal tax rate if there is a tax liability. A special share account with a credit union has DIRT at 20% automatically deducted from dividend payments as final liability. Finally, a credit union member may hold shares in a special term share account which is a version of the special term accounts. An exemption from DIRT and income tax will apply for the first €480 of dividends received where the funds are invested for a minimum of three years and for the first €635 of dividends received where the funds are invested for five years. Any dividends received in excess of those amounts will be liable to DIRT at the standard rate. This DIRT is regarded as satisfying the individual's full liability to tax in respect of these dividends.
Individuals aged 65 or over are entitled to a refund of DIRT paid depending on their level of income. In budget 2003, the exemption limit for the over 65s was increased to €15,000 for single or widowed persons and €30,000 for married persons. However, DIRT will not be repaid where levels of income are above these thresholds.
A new regime for taxing investors on the return from investments in life policies and investment undertakings was introduced in the Finance Act 2000. The legislation provides that no tax is paid on the income and gains accruing to an investor within a life company or undertaking but that tax is withheld at the rate of 23% on the gains arising on the encashment of the policy or on the disposal of the fund by individuals who are resident or ordinarily resident in Ireland. This is regarded as satisfying an individual's full liability to tax in respect of that gain.