Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
Dirt
Can you clarify the position regarding tax/DIRT on investment income arising from building society interest? Throughout the 1970s and 1980s, and up to about 1993, while my salary was subject to PAYE, I disclosed the additional income derived from such interest and had it taxed at rates varying from 65 per cent to 48 per cent. Since the society deducted tax at the standard rate, I was obliged to pay up the difference, generally by adjustment to my tax-free allowances.
It seems that, around 1993, this additional tax on taxed interest was suspended. As there was no public comment on the matter, I wondered if I was unique in having declared my modest interest income over the years.
I now find it disturbing that the recent Public Accounts Committee hearing, the main question is on whether the banks will have to pay DIRT arrears. Is there any intention to pursue the depositors and to subject them to the code that was so diligently applied to me from the early 1970s?
Ms A.M., Wicklow
At the outset, let me say I am sorry I had to edit your letter somewhat for reasons of space, but its tone quite clearly conveys your anger at what has emerged in the recent hearings of the Dail Committee of Public Accounts on the non-payment of Deposit Interest Retention Tax (DIRT) by banks on bogus non-resident accounts.
Despite your feelings in 1993, you were not by any means the only person to have quite correctly paid the full marginal rate of tax on your interest income from building society or bank accounts. As you point out, any tax due over and above the basic rate deducted at source by the banks had to be declared by the account holder in their annual tax return. This practice was ended in the 1993 Finance Act, which determined that DIRT would henceforth be deducted only at the standard rate on all interest.
The reason the banks have been targeted by the Committee on Public Accounts inquiry is that responsibility for deducting DIRT lay with the banks. It was done by self-assessment and, as emerged at the hearings, went largely unpoliced by the Revenue. However, while it is the banks that will be penalised, if anyone, as the errant collectors of the tax, I have no doubt that many of them will pursue those ultimately responsible for the missing tax - the holders of the irregular nonresident accounts.
One of the concerns, especially of the Revenue, is that some of the initial deposits may themselves have been untaxed while, as you point out, you and others were paying exorbitant rates of tax on income which had already been taxed under the PAYE system before it was lodged in the building societies and banks.
Whether all the tax due will be retrieved is uncertain due to various factors, including cost and the two tax amnesties under which some of the due tax may have been declared. Given the public mood at present, it is nonetheless likely that many will find themselves with tax bills and penalties of varying sizes.
Property
I am an Irish citizen living and working in the Republic. I am thinking of investing in property in the UK and need clarification on my liability to tax. Does the Bacon report extend to income generated from overseas sources? That is, am I liable for tax on the rent or the amount of monies remitted to Ireland? I am thinking of going through a UK agent, who will collect the rent, pay off the mortgage and deduct charges. Therefore the amount remitted to the Republic would be minimal compared to the rent. I believe that non-residents purchasing property in the Republic and using agents to pay off the mortgage are only liable to tax on the difference between the rent and mortgage.
Ms C.N., e-mail
Post-Bacon, the system is very clear and, I am afraid, not in your favour. The first thing to say is that, as an Irish tax resident, your worldwide income is liable for tax in the State, regardless of where it is earned or from what sources.
Secondly, the terms of the Bacon report as they apply to allowable deductions operate equally on property held by Irish tax residents within and outside of the State.
What that means in practice is that the landlord can deduct costs incurred in renting property - agent's and other relevant fees, insurance, maintenance and possibly, in the case of lettings outside the euro zone, currency costs. You can also offset the cost of fixtures and fittings, such as furniture, wardrobes, cookers etc. This is done at the rate of 15 per cent for the first six years and the remaining 10 per cent in the seventh year.
What you cannot deduct is the cost of servicing the mortgage on the property, or indeed the interest on any money borrowed to repair or improve the property. These restrictions apply in the case of foreign properties from May 1998.
Although it is not directly applicable in your case, I believe the situation applies to all money borrowed in this State for the purchase of property in the State, even by non-residents. If they have borrowed money abroad the situation may be different, but they would, in any case, be liable to pay tax.
