Income Tax: EIIS, Share Option Schemes, Married Couples (Marriage, Death & Separation)

Question 1

What is the Employment & Investment Incentive Scheme (EIIS)?

Answer 1

EIIS is an incentive scheme to assist SME and micro companies to raise finance to expand, create jobs, or invest in R&D.

Question 2

What benefit does Employment & Investment Incentive Scheme (EIIS) provide to individuals who invest in SMEs?

Answer 2

EII allows individuals that invest in SMEs to claim an income tax deduction for the amount invested.

The investor can receive up to 40% tax relief.

Question 3

How does the tax relief under Employment & Investment Incentive Scheme (EIIS) work with a qualifying investment?

Answer 3

A qualifying investment of €100k could receive tax relief at 40%, resulting in a net cost of €60k.

Question 4

How does the relief work for EIIS investments made after 8 October 2019?

Answer 4

The investor takes an income tax deduction for the full amount invested against their total income in the year of investment.

A qualifying investor making a qualifying investment of €100k in 2023 may take an income tax deduction of €100k in their 2023 tax return.

Question 5

How does the relief work for EIIS investments made before 8 October 2019?

Answer 5

The investor takes an income tax deduction from their total income in 2 tranches:

1. 30/40 of the investment in the year of investment (Year 1).
2. 10/40 of the investment following the 4-year holding period (Year 5).

This second tranche can only be claimed if the company has:

1.More full-time employees than in the year before the investment, or
2. Spends more on R&D+I than in the year before the investment.

Question 6

What is the maximum qualifying investment for EIIS relief per annum?

Answer 6

Max qualifying investment an investor may claim relief on is €250k per annum.

Max qualifying investment per annum is increased to €500k where the investor elects to retain shares for 7 years.

Question 7

What are the holding period requirements and rules for married couples under EIIS?

Answer 7

The shares must be held for 4 years (“the relevant period”).

Married couples can EACH claim relief on investments up to the max qualifying amount.

Question 8

What happens to any unrelieved amount and what does the EIIS relief cover?

Answer 8

Any unrelieved amount can be carried forward and claimed as a deduction in future years.

Relief is from income tax only - USC and PRSI will continue to apply.

Question 9

What are the criteria for the Employment & Investment Incentive Scheme (EIIS)?

Answer 9

1. Qualifying Investor
2. Eligible Shares
3. Qualifying Company and its trade
4. Qualifying Investment

Question 10

What defines a qualifying investor under EIIS? (4 characteristics)

Answer 10

1. Subscribes on their own behalf or via a designated fund.
2. For “eligible shares”.
3. In a “qualifying company”.
4. Not connected to the company 2 years before and 4 years after.

Question 11

What are the criteria for eligible shares under EIIS? (6 criteria)

Answer 11

1. Newly issued shares.
2. All issued share capital must be fully paid-up.
3. Proceeds used for relevant trading or R&D+I activities.
4. Contribute to the creation or maintenance of employment.
5. Investment Limits (Min & Max)
6. Holding Periods

Question 12

What are the investment limits for eligible shares under EIIS?

Answer 12

Minimum investment in any one company is €250.
Maximum investment is €15m (€5m in any 12-month period).

Question 13

What are the holding periods for shares under EIIS based on the relief claimed?

Answer 13

For relief claimed up to €250,000: Shares must be held for 4 years.
For relief claimed up to €500,000: Shares must be held for 7 years.

Question 14

What defines a qualifying company under EIIS? (6 characteristics)

Answer 14

1. Incorporated in the EEA.
2. SME or micro-enterprise and not in difficulty.
3. Unlisted.
4. Holds a tax clearance certificate.
5. Does not control or is not controlled by another company throughout the ‘relevant period’.
6. Carries on “relevant trading activities”.

Question 15

What defines a qualifying investment under EIIS? (5 characteristics)

Answer 15

1. Based on a business plan.
2. Must comply with EU State Aid conditions.
3. A company can only raise EII funds if:
   - Trading < 7 years and first time it has raised EII funds.
   - Trading > 7 years but funds to expand/produce new product and funds being raised are more than 50% of the annual turnover for the last 5 years.
4. Previously raised EII and this fundraising is in the business plan.
5. The funds must be used to carry on relevant trading or R&D+I activities.

Question 16

What are share options for employees/directors?

Answer 16

Employees/directors are granted an option to acquire shares at a fixed price in the future.

There will be a gain if they acquire shares below market value.

The individual must file a tax return.

Question 17

How do employees/directors file and pay for share options?

Answer 17

File RTSO1 within 30 days of exercise.
Income tax: 40%
USC: 8%
PRSI: 0%/4%

Question 18

How do employers file and pay for share options awarded to directors/employees?

Answer 18

1. Must file RSS1 return.
   - For shares awarded to directors/employees.
   - Before 31st March of the following year.
2. No employers’ PRSI on share options.
3. No tax payable by the employer through payroll, as it is paid by the employee.

Question 19

What are the key points about short options?

Answer 19

Short options must be exercised within 7 years of being granted.
Short options are taxed in the year the option is exercised.

Question 20

How are long options taxed in the year the option is granted?

Answer 20

Taxed on the difference between:
- Market value (on date of grant)
- Option price (on date of grant)

Question 20

What are long options and how are they taxed?

Answer 20

Long options are capable of being exercised more than 7 years after being granted.

Long options are taxed twice:
1. In the year the option is granted.
2. In the year the option is exercised.

Question 21

How are long options taxed in the year the option is exercised?

Answer 21

Taxed on the difference between:
- Market value (on date of exercise)
- Option price (i.e., Price paid) [Credit for tax paid on grant]

Question 22

What are the key points of the Key Employee Engagement Programme (KEEP)?

Answer 22

1. Share option incentive scheme to recruit & retain key employees.
2. Exemption from Income Tax, USC, and PRSI on a gain on exercise.
3. Tax is deferred until the shares are disposed of.
4. CGT on difference between sales proceeds and price paid on exercise.

Question 23

What are the methods of assessment for married couples?

Answer 23

1. Joint Assessment
2. Single Assessment
3. Separate Assessment

Question 24

How does joint assessment apply and what if a married couple prefers single assessment?

Answer 24

Joint assessment will apply automatically.

Married couples may contact Revenue before the end of the year to indicate that they would prefer to be single assessed.

Question 25

How are tax credits and standard rate tax bands allocated under joint assessment?

Answer 25

Tax credits and standard rate tax band can be allocated between spouses in a way that suits their circumstances.

The income bands chargeable at the standard rate of tax are increased, depending on whether the married couple have one or two incomes.

Question 26

What are the income bands for joint assessment in 2023?

Answer 26

Max of €49,000 for any one spouse. The balance of €31,000 is available to the lower-earning spouse only.

Tax Year 2023 Tax Rates:
1 Income:
- 20%: €49,000
- 40%: Balance

2 Incomes:
- 20%: €80,000*
- 40%: Balance

Question 27

How does single assessment work for married couples?

Answer 27

Each spouse is treated as a single person.

Tax credits and reliefs are granted accordingly.

If either spouse has unutilised tax credits/reliefs, they cannot transfer to the other spouse.

Question 28

How do married couples elect for separate assessment?

Answer 28

May elect for separate assessment before 1st April in the year of assessment.

Question 29

How is income tax calculated under separate assessment?

Answer 29

Income tax payable by each spouse is calculated:
- By reference to their total income.
- The proportions of tax credits or reliefs to which they are entitled.

Question 30

What is the result of separate assessment on tax liability?

Answer 30

This will result in the same total tax liability as if jointly assessed.
Each spouse pays their portion of the total tax liability.

Question 31

How are married couples initially taxed in the year of marriage?

Answer 31

Initially taxed as single persons for the complete year.

Can elect for liability computed on joint assessment basis as if they were married for the whole year.

Question 32

How is the tax saving calculated for married couples in the year of marriage?

Answer 32

The tax saving, if any, is reduced pro-rata (in proportion to the whole/proportionate allocation) for the number of months they were married in the year.

Each receives tax saving in proportion to their liability over total liability.

Question 33

What different treatments apply in the year of death for married couples?

Answer 33

Different treatments apply in the year of death in each of the following:

1. Joint assessment: death of assessable spouse.
2. Joint assessment: death of non-assessable spouse.
3. Single assessment: death of a spouse.

Question 34

How is the couple’s income treated before the death of the assessable spouse?

Answer 34

Couple’s income prior to death is treated as income of deceased to date of death.

Question 35

How is the surviving spouse’s income treated after the death of the assessable spouse?

Answer 35

Surviving spouse is taxable from the date of death of the deceased.

Question 36

What tax credits and bands apply to the surviving spouse in the year of bereavement?

Answer 36

Widowed person tax credit in the year of bereavement (€3,550).
Widowed person’s (without dependent children) tax band (€40,000).

Question 37

What tax credits and bands apply to the surviving spouse after the death of the non-assessable spouse?

Answer 37

Surviving spouse receives:
1. Married tax credit (€3,550).
2. Married tax band for the remainder of the year.

Question 38

What income is taxable for the surviving spouse after the death of the non-assessable spouse?

Answer 38

Surviving spouse is taxable on:
1. Their own income for the full year.
2. Deceased spouse’s income to the date of death.

Question 39

How is the deceased spouse taxed under single assessment?

Answer 39

Deceased spouse is taxed as a single person up to the date of death.

Question 40

How is the surviving spouse taxed under single assessment?

Answer 40

Surviving spouse is taxed as a single person.
Widowed person in the year of bereavement tax credit (€3,550).

Question 41

What option does the surviving spouse have under single assessment in the year of death?

Answer 41

Surviving spouse could elect for joint assessment with deceased spouse as assessable spouse in the year of death before end of year to benefit from additional tax credits and bands.

Question 42

What are the tax credits and bands for the deceased spouse under joint assessment election?

Answer 42

Deceased spouse:
1. €3,550 married tax credit.
2. €80,000 married tax band.

Question 43

What are the tax credits and bands for the surviving spouse under joint assessment election?

Answer 43

Surviving spouse:
1. €3,550 widowed tax credit (year of bereavement).
2. €40,000 widowed tax band.

Question 44

How are individuals assessed in the year of divorce or separation?

Answer 44

Assessed as single persons.

Question 45

When can divorced or separated individuals elect for joint assessment?

Answer 45

May elect for joint assessment only if:
1. Both are tax resident.
2. Legally enforceable maintenance payments are made by one spouse to the other.
3. Neither has remarried.

Question 46

What are the tax implications if the election for joint assessment is made in the year of divorce or separation? (4 implications)

Answer 46

1. Payer cannot deduct maintenance payments.
2. Recipient not assessed on the maintenance payments.
3. Married tax credits and bands are granted.
4. Tax liability for each spouse is calculated using separate assessment.

Question 47

How does joint assessment work in the year of separation for assessable spouse?

Answer 47

Assessable Spouse:
Assessable on their income for the full year & spouse’s income up to the date of separation.

Married tax credit: €3,550.
Married tax band: €49,000.

Question 48

How is the non-assessable spouse taxed after the date of separation?

Answer 48

Assessable as a single person on their income after the date of separation.

Single person tax credit: €1,775.
Single person tax band: €40,000.

Question 49

What additional tax credits and bands apply to the non-assessable spouse with dependent children?

Answer 49

Additional single parent tax credit: €1,650.
Single parent tax band: €44,000.