485E Recalculation of taxable income for purposes of limiting reliefs

This is the substantive provision that limits the benefit to be obtained from the use of specified reliefs in a tax year. The section provides for the substitution of an increased (recalculated) taxable income figure for the figure determined under the normal tax computational rules.

The formula T + (S – Y) is used to calculate the recalculated taxable income amount for the tax year

where-

T = the individual’s taxable income (before the restriction),

S = the aggregate amount of specified reliefs used in the year, and

Y = the relief threshold amount (€80,000) or, if greater, 20 per cent of the individual’s adjusted income for the tax year.

In cases with adjusted income of more than €400,000, the amount of the increase is the amount arrived at by reducing the specified reliefs used by an amount equal to 20 per cent of the adjusted income figure. Effectively, this means that the individual is allowed tax reliefs in the tax year up to 20 per cent of the adjusted income figure.

In cases with adjusted income of less than €400,000 where 20 per cent of adjusted income is less than €80,000, an amount of specified reliefs up to €80,000 can be allowed. In this way, the restriction applies on an incremental basis as income increases with the full restriction, and a 30 per cent effective rate, applying at €400,000.

Relevant Date: Finance Act 2021