DIRT (Deposit Interest Retention Tax)

Introduction

What is DIRT?

Deposit Interest Retention Tax (DIRT) is a tax that Irish financial institutions deduct from the interest earned on savings and deposit accounts. Introduced as a way to ensure that individuals pay taxes on their deposit interest, DIRT applies to both personal and business accounts in Ireland, and financial institutions are responsible for deducting the tax at source. This tax is applied at a rate of 33% on all interest earned by Irish residents, with some exceptions.

Why is DIRT applied to deposit interest in Ireland?

Deposit Interest Retention Tax exists to ensure that individuals pay their due taxes on passive income earned through interest on savings. Since interest is a form of income, it is taxed, just like earnings from employment or other sources. However, DIRT simplifies the tax collection process by making the financial institutions deduct it before paying out the interest to the account holder.

How Deposit Interest Retention Tax is Deducted

Financial institutions that deduct DIRT

DIRT is deducted by licensed financial institutions, including:

• Banks and building societies in Ireland and across the EU.
• Trustee savings banks.
• Credit unions.
• The Post Office Savings Bank.

The tax is automatically deducted before any interest is credited to the account. If requested, institutions must provide account holders with a statement detailing the amount of DIRT deducted from their interest.

How DIRT is calculated and applied

The rate of Deposit Interest Retention Tax is currently 33%, which means that for every €100 in interest earned, €33 will be deducted as tax before the remaining interest is credited to your account. For example, if your savings earned €1,000 in interest, your bank will deduct €330 in DIRT, leaving you with €670 in net interest.

Final liability tax

Deposit Interest Retention Tax is considered a “final liability tax.” This means that once DIRT is deducted, no further income tax or Universal Social Charge (USC) is due on the interest income. However, individuals must still declare their interest earnings on their tax returns. In some cases, Pay Related Social Insurance (PRSI) may also apply to the interest, but USC does not.

Declaring Deposit Interest Retention Tax

How to declare deposit interest in income tax returns

All individuals must declare the total interest earned, before Deposit Interest Retention Tax deductions, in their annual income tax returns. This ensures transparency and allows Revenue to track income from all sources.

Forms for self-assessed vs. PAYE workers

• Self-Assessed Individuals: If you are self-employed or have other income sources, you must complete Form 11 and submit it through the Revenue Online Service (ROS). This form includes a section called “Irish Other Income,” where you should declare your deposit interest.
• PAYE Workers: If you are a PAYE worker and your non-PAYE income, including interest income, is under €5,000, you can declare your interest using Form 12, accessible through myAccount. If your non-PAYE income exceeds €5,000, you must register for self-assessment and file a Form 11.

Additional taxes: PRSI vs. USC

While USC does not apply to deposit interest, in some cases, PRSI might be applicable. Be sure to check your obligations, especially if you are liable for PRSI as a self-employed person.

Current DIRT Rates

Standard rate of 33% for Irish-resident individuals

As of 2024, Deposit Interest Retention Tax is applied at a flat rate of 33% on all deposit interest for Irish-resident individuals. This rate has gradually decreased from previous years (in 2019, the rate was 35%).

Higher rates for late returns and foreign-sourced interest

For interest earned from foreign accounts, particularly from non-EU countries, additional taxes may apply. If the interest is not declared on time in your annual tax return, a higher tax rate of 40% can be applied as a penalty.

Exemptions from Deposit Interest Retention Tax

Age-based exemptions for those over 65

Individuals aged 65 or older are exempt from Deposit Interest Retention Tax if their total annual income, including interest, is below a certain threshold. This ensures that those on low incomes in retirement are not burdened with additional taxes on their savings. Joint accounts can also qualify for the exemption if both account holders are spouses or civil partners.

Exemptions for permanently incapacitated individuals

If you are permanently incapacitated, you may also qualify for a DIRT exemption. This applies if your total income, including interest, does not exceed the value of your tax credits for the year. Trustees of special trusts set up for incapacitated individuals can apply for a DIRT exemption on behalf of the beneficiary.

Eligibility for those under the Mother and Baby Institutions Payment Scheme (MBIPS)

Those receiving payments under the MBIPS may also qualify for a DIRT exemption, provided they meet certain conditions.

Refunds of DIRT

Situations where a refund is possible

Refunds of Deposit Interest Retention Tax are available in several scenarios, including:

• Over 65: If you turn 65 during the year and your income is below the exemption limit, you can claim a refund.
• Temporary income fluctuation: If your income temporarily exceeds the exemption limit for one year but then falls back below, you may be eligible for a DIRT refund for that year.
• Becoming incapacitated: If you or your spouse become permanently incapacitated, you can apply for a refund of DIRT for any interest earned that year.
• First-time buyers: Under the Help to Buy scheme, first-time buyers who purchase or build a home may be entitled to claim a refund of DIRT paid in the previous four years.

How to apply for a DIRT refund

To apply for a refund, complete Form 54 Claims and submit it to your local Revenue office. The form should include details about your circumstances (e.g., age, disability status) and the amount of DIRT deducted. Once approved, Revenue will issue the refund.

DIRT for Non-Resident Accounts

DIRT exemption and refunds for non-residents

Non-residents may be eligible for a refund of Deposit Interest Retention Tax if Ireland has a double with their country of residence. This agreement ensures that individuals are not taxed twice on the same income.

Non-resident declaration forms and process

To apply for an exemption or refund as a non-resident, you must complete a Form IC5 and submit it to Revenue. Alternatively, if Ireland does not have a Double Taxation Agreement DTA with your country, you may still qualify for a DIRT exemption by completing a Non-Residence Declaration through your financial institution.

Foreign-Sourced Deposit Interest

Taxation of EU and non-EU sourced deposit interest

Interest earned from savings held in accounts outside Ireland is subject to Irish tax. For EU accounts, interest is generally taxed at the same rate as Irish DIRT (33%). However, for non-EU interest, the rate can vary depending on your income tax bracket.

• Standard rate taxpayers pay 33% on non-EU interest.
• Higher rate taxpayers pay 40% on non-EU interest.

Example scenario: Non-EU deposit income

For example, if John, an Irish resident and higher-rate taxpayer, earns €30,000 in interest from a US bank, he will pay 40% tax on that income, amounting to €12,000.

Forms to Complete for DIRT Exemption or Refund

Overview of key forms:

• Form DE1: For individuals over 65, submitted to financial institutions.
• Form DE2: For permanently incapacitated individuals, submitted to Revenue.
• Form DE3: For those under the MBIPS, submitted to Revenue.
• Form IC5: For non-residents applying for a refund of DIRT.
• Form 54 Claims: For individuals claiming a refund at the end of the tax year.

Changes in DIRT Exemption Status

Factors that could affect your DIRT-free status

Your exemption from Deposit Interest Retention Tax may change due to life events, including:

• Your income exceeding the relevant exemption limit.
• The death of your spouse or civil partner if you are under 65.
• Divorce or dissolution of a civil partnership.
• Changes in ownership of the deposit account.

If any of these apply, you must notify your financial institution or Revenue.