Revenue Tax Briefing

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Revenue Tax Briefing Issue 5, January 1992

Income Tax - Self Assessment - Retirement Annuity Relief

1. Income Tax - Self Assessment

1.5 Retirement Annuity Relief and “Net Relevant Earnings”

We have been asked how “Net Relevant Earnings” interact with such matters as Capital Allowances, Mortgage Interest, Deposit Interest, B E S Investment, Covenanted Payments/Receipts.

The terms “Relevant Earnings” and “Net Relevant Earnings” are defined in Sections 235(7) & 236(4), ITA 1967 and presumably do not require further elaboration.

“Relevant Earnings” consist, essentially, of income which is .earned. by an individual in the course of a trade, profession, vocation, non-pensionable office / employment and includes certain income from patent rights (Section 2(2)(c), ITA 1967) and balancing charges.

The following are not relevant earnings: Profits from a trade etc. in which the individual is not actively engaged (e.g. sleeping partner), income from a pensionable office /employment (including pensions), deposit interest, dividends, rents or other investment income and income received under a deed of covenant.

“Net Relevant Earnings” are relevant earnings less deductions which would be made in computing total income for tax purposes. These deductions include, losses and capital allowances as in Section 33, Finance Act 1975 (i.e. the standard meaning of capital allowances, where that term is used in the Income Tax Acts.).

It should be remembered that if an individual has relevant earnings and other income, the deductions mentioned above as being deductible in arriving at net relevant earnings (other than capital allowances and losses arising from the trade, profession etc.) are first set against the other income and only any balance set against relevant earnings. Losses and capital allowances from the trade, profession, etc. are set primarily against relevant earnings. Apart from capital allowances and losses, other deductions would include such items as mortgage interest, payments made under a deed of covenant, annuities, royalties etc.

Deductions for items such as B E S Investments, Medial Insurance, Life Assurance, etc. in respect of which specific relief is available under the Tax Acts are made, not in computing total income but, in arriving at taxable income. These items accordingly are not deducted in arriving at net relevant earnings.