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High Earners Restriction - An Expert Analysis

Budget 2011 came along and, as anticipated, did no one any favours, including budding philanthropists...but there may be a glimmer of opportunity for some.

One of the biggest dampeners on charitable giving from a tax perspective has to be the high earners’ restriction. Individuals who use specified tax reliefs are restricted in the amount of tax relief they are able to claim. They can only claim annually the greater of €80,000 or 20% of their total income, so to be greater than €80,000 they would have to have total income greater than €400,000.

The point of this is to ensure that individuals with an income of greater than €400,000 all pay an effective income tax rate of 30% and those with an income of between €125,000 and €400,000 pay an effective rate rising to 30%. Not an unreasonable starting point, of course, but the problem for charities is that charitable donations are one of the specified reliefs for the self-employed and so affected by the high earners’ restriction. The Community Foundation and other philanthropic and charitable organisations have been lobbying to de-couple charitable giving from the high earners’ restriction, but without success.

However, the restriction does not begin to kick in until someone is earning €125,000 per annum and there is marginal relief on incomes between €125,000 and €400,000. So, it is possible that, with income levels falling, the impact of the restriction will be less and more relief on charitable donations can be claimed. While not wishing a falling income on anyone, it may provide a tax-effective opportunity for philanthropic and charitable giving that was not there before. And it is still the case, for the time being at least, that any unused reliefs can be carried forward to future years.

According to Revenue in December, in 2010, 3,000 taxpayers will earn €500,000 or more, while 608 of these individuals will earn between €1 million and €2 million with 188 earning over €2 million, so tax issues aside, there is still wealth and potential for philanthropy in Ireland.
 

Jeremy Mitchell, Director, LLB Solr (Irl, UK)
Astons