Revenue Note for Guidance

440 Surcharge on undistributed investment and estate income

Summary

This section provides for an additional charge of corporation tax (referred to as a “surcharge”) on close companies at the rate of 20 per cent of the excess of the distributable estate and investment income over the distributions made for an accounting period. There is no surcharge where the excess is €2,000 or less and marginal relief is provided where the excess is slightly more. There are provisions to prevent the relief being abused by the setting up of a number of associated companies.

The amount on which the surcharge is made is not to exceed the accumulated undistributed income at the end of the accounting period with the addition of any transfers to capital reserves, bonus issues or other transactions on or after 27 November 1975 which would reduce the accumulated income available for distribution.

Section 434 provides for the definition of terms used in this section and for the calculation of the various amounts referred to (and should be referred to in calculating any surcharge).

Details

(1)(a) An additional charge of corporation tax at the rate of 20 per cent is imposed on the excess of the distributable estate and investment income over the distributions for the accounting period.

(1)(b) There is no surcharge where the excess, in the case of a single company, does not exceed €2,000. In the case of a group of associated companies, the €2,000 threshold is divided by one plus the number of associated companies. The threshold is time apportioned where the accounting period is less than 12 months. Marginal relief is provided where the excess is somewhat more than €2,000.

Example

If the company shown in the example below does not make any distribution in the accounting period to 31.12.20X1 and before 1.7.20X3 does not pay a dividend for that accounting period, it will be surcharged as follows —

Distributable estate and investment income	€30,000
Distributions	NIL
Excess	€30,000
Surcharge 20%	€6,000

If the company makes a distribution of €28,500 for the accounting period the position will be —

Distributable estate and investment income	€30,000
Distribution	(€28,500)
Excess	€1,500

As this is less than €2,000 there is no surcharge.

If on the other hand, the company distributes €27,600 the surcharge will be —

Distributable estate and investment income	€30,000
Distribution	(€27,600)
Excess	€2,400
Surcharge 20%	€480

but the liability is restricted to 80% of the excess over €2,000 that is 80% of (€2,400 – €2,000) = 80% of €400 = €320 and this is the amount which will be payable by the company. (It should be noted that marginal relief runs out where the excess exceeds €2,666).

(2) The amount on which the surcharge is made cannot exceed the accumulated undistributed income at the end of the accounting period after taking account of any transfer to capital reserves or bonus issues or any other transaction occurring on or after 27 November 1975 which would have the effect of artificially reducing such accumulated income.

(3) In applying subsection (1) to an accounting period, a dormant associated company is to be disregarded if it was dormant throughout the accounting period (or dormant throughout the entire part of the accounting period for which it was associated).

(4) An associated company must be counted for the purposes of the surcharge even if it was an associated company for only part of the accounting period concerned. Two or more associated companies of another company are to be counted even if they were associated with that other company for different parts of the period.

(6) The surcharge is to be charged for the earliest accounting period which ends at a time which is 12 months or more after the end of the accounting period in which the surcharge arose. The surcharge is treated as corporation tax of that period. If, however, there is no such later accounting period, the surcharge is to be charged for the accounting period in which it arises.

(7) The corporation tax provisions regarding assessment and collection apply to the surcharge.

Relevant Date: Finance Act 2025