Revenue Tax Briefing Issue 43, 2001
Section 19 Finance Act 2001 amends section 470 TCA 1997, which provides tax relief for medical insurance premiums. It has two aims:
The first change being effected by section 19 is that the expenses that may be included in medical insurance policies qualifying for tax relief will be the same as those for which health expenses tax relief is allowed (under section 469 TCA 1997). This widening of the range of qualifying expenses will, in particular, include items of primary care (such as the services of a general practitioner) which would not -under present arrangements - come within the scope of qualifying medical insurance policies.
The second change is that under the TRS scheme tax relief for qualifying medical insurance premiums will no longer be given through the tax system. Instead, the relief will be granted at the time the insurance premium is paid to the medical insurer. The premium will be reduced by a percentage equal to the standard rate of income tax - thereby giving relief to the person paying the premium. The medical insurer will be reimbursed the equivalent of the standard rate reduction by the Revenue Commissioners.
Supporting regulations will deal with administrative aspects of the scheme. In particular, the regulations will deal with the making of repayment claims by medical insurers, the making of annual information returns to Revenue by those insurers and the provision of information to Revenue for the purposes of the regulations.
Up to 5 April 2001, tax relief for medical insurance premiums (at the standard rate of income tax) was given through the tax system. In the case of PAYE taxpayers, the relief was given in the certificate of tax-free allowances; and in the case of self-employed persons, the relief was given through the self-assessment system.
The relief was allowed in the year following the year in which the premium is payable.
From 6 April 2001, tax relief for medical insurance premiums will no longer be given through the tax system but will instead be granted “at source”, that is, the tax relief element will be netted off against the gross premium. At the standard rate of income tax of 20%, subscribers will pay a reduced premium (80% of the gross amount) to the medical insurer and the insurer will claim the tax relief back from Revenue.
The new TRS system is a more efficient way of giving tax relief in respect of medical insurance premiums. Subscribers will get the correct relief in the form of reduced insurance premiums as the payments are made. It will not be necessary to claim the relief in an annual tax return or to contact the tax office. Adjustments to the tax relief (for example, if an individual changes from a particular health insurance plan to another in the course of the tax year) will be made automatically by the insurer.
The new system will apply to existing policies which are renewed on or after 6 April 2001 and for new policies taken out after that date. For example, if a subscriber would normally be billed for a gross annual premium of £1,000 on the renewal date of 1 June 2001 (for the year to 31 May 2002), that subscriber will now, under the new relief-at-source scheme, be billed instead for £800 (i.e. £1,000 x 80%). The £200 tax relief (i.e. £1,000 x 20%) will be netted off against the gross premium and claimed by the insurer from Revenue.
Under the new TRS scheme from 6 April 2001 relief for medical insurance premiums will be given on a current year basis. In order to ensure that tax relief for premiums paid in the tax year 2000/01 is not lost in the move to a current year basis, the full amount of such premiums will also be relieved (through the tax system) in the short tax “year”.
As the pre-April 2001 scheme allowed tax relief in the year following the year in which the premium was payable, premiums payable in the tax year 2000/2001 will continue to be allowed through the tax system. In other words, the tax relief for premiums paid in the year to 5 April 2001 will be given for the short tax “year”, 6 April 2001 to 31 December 2001.
If in the example above the subscriber was billed on 1 June 2000 for a premium of £950 (in respect of the year to 31 May 2001), this amount of £950 will be allowed in full, through the tax system, in the short tax “year” commencing 6 April 2001.
The new method of giving relief for medical insurance premiums will mean an extension of that relief to persons paying such premiums but who, at present, do not get tax relief because their taxable income is insufficient to avail of the relief. Under the TRS scheme, all individuals regardless of their income level and their tax liability will be entitled to the same reduced premium payments.