Why would a tax refund not be given where there is a tax credit?

[Brendan Burgess]

Section 1003 of the Taxes Consolidation Act , 1997 deals with tax reliefs on Heritage Gifts.

In summary, a person who donates an item worth in excess of €150k to a cultural institution, gets a tax credit for 80% of the value of the item and can set that credit off against their liability for Income Tax, Capital Gains Tax or Capital Acquisitions Tax.

But there is what strikes me as a very odd clause in the Act:

(9) A person shall not be entitled to any refund of tax in respect of any payment on account of tax made in accordance with this section.

Is there any precedent for this in other areas of the tax code?
Is there any rationale for it?

If a self-employed consultant earns €400k and makes a donation of €150k, he does his tax return for the year and say he has a liability of €160k , he can set off €120k against this and pay over €40k.

But if the same consultant is in the HSE and paid via PAYE, he can't get a refund of the tax deducted.

It makes no sense to me, but there must have been some discussion which led to it being included in the Act.

 

[Peanuts20]

A person shall not be entitled to any refund of tax in respect of any payment on account of tax made in accordance with this section

My interpretation would be if I had 2 antiques, sold one and owed CGT on it and donated the other one and got a credit, I could not use that credit to offset the CGT tax.

But I could use it against Income Tax

 

[Brendan Burgess]

Hi Peanuts

I don't see how you could read it like that at all?

If you sell an antique and have a CGT liability of €160k and donate another one and get a Heritage Tax Credit of €120k, you would simply pay €40k CGT.

 

[Dr Strangelove]

I always assumed that this scheme was aimed at either wealthy individuals who had amassed private collections, or artists themselves willing to donate their work or archives to the state.

These two groups of people tend not to have much if any PAYE income.

Although the one person I know who has availed of this scheme would have something like €100k PAYE income and €50k income from artistic sources.

 

[TomEdison]

The idea here is that you can use this credit to reduce your tax bill. But if you don't have a tax bill big enought to absorb the credit, e.g. because you have very little income, you can't use the rest of the credit to get a payment from Revenue.

 

[ClubMan]

The idea here is that you can use this credit to reduce your tax bill. But if you don't have a tax bill big enought to absorb the credit, e.g. because you have very little income, you can't use the rest of the credit to get a payment from Revenue.

That's not the issue here as far as I understand it - i.e. the non-refundable nature of this and most or all other tax credits. It's the fact that this tax credit is prospective rather than retrospective so that it doesn't allow for a refund of tax already paid - e.g. via payroll on salary or pension payments. This is unlike other common tax credits. Some other tax credits are similarly mainly or fully prospective - e.g. R&D tax credits etc.

But also unlike many other tax credits any unused portions of the Heritage Gift one can be carried forward to be used in future years if necessary. @Brendan Burgess is asking about the rationale for such an approach with this tax credit. I couldn't find anything to explain this.

 

[Brendan Burgess]

@ClubMan explains the issue more succinctly than I did.

 

[Dr Strangelove]

But also unlike many other tax credits any unused portions of the Heritage Gift one can be carried forward to be used in future years if necessary.

I think the idea is that a successful creative person will donate while living and see their tax bill reduced for the rest of their life.

See this story here.

 

[Peanuts20]

Hi Peanuts

I don't see how you could read it like that at all?

If you sell an antique and have a CGT liability of €160k and donate another one and get a Heritage Tax Credit of €120k, you would simply pay €40k CGT.

I don't see how you could read it any other way then the way I described it. . But rereading it, perhaps the key word is "refund"

In effect, to me if you sell an antique and have a CGT of €160k and have paid that already and if you then subsequently have a Heritage Tax Credit of €120k, you cannot use that credit to get €120k back from Revenue

 

[Brendan Burgess]

I think the idea is that a successful creative person will donate while living and see their tax bill reduced for the rest of their life.

While a few creatives have used it, the vast majority of such donations have been heritage works owned by other people. You can see the full list here.

https://assets.gov.ie/static/documents/section-1003-donations-1995-to-2023-6b4f29ae-4538-43d2-b519-6d6e8757ef8f.pdf

 

[Brendan Burgess]

In effect, to me if you sell an antique and have a CGT of €160k and have paid that already and if you then subsequently have a Heritage Tax Credit of €120k, you cannot use that credit to get €120k back from Revenue

If I sell an antique in 2020 and have a CGT Bill I can't set off a Heritage Tax Credit granted in 2025 retrospectively.
But if I have a CGT , CAT , or non-PAYE Income Tax in 2025, I can set off a Heritage Tax Credit granted in 2025 against it because I will not have paid the CGT, CAT or other Income Tax. But if the PAYE has been deducted already, I can't get it back.

I suppose, in theory, I could sell an antique in January 2025 and make an immediate CGT return and pay it, then I probably wouldn't get it back. But as the CGT does not have to be returned and paid until mid December, this is theoretical.

 

[Ciru75]

I can set off a Heritage Tax Credit granted in 2025 against it because I will not have paid the CGT, CAT or other Income Tax. But if the PAYE has been deducted already, I can't get it back.

That's not what the Tax and Duty Manual says. Look at section 5.

 

[TomEdison]

I think the idea is that a successful creative person will donate while living and see their tax bill reduced for the rest of their life.

I don't think this is primarily aimed at successful creative; more at the relics of aul' dacency who inherit paintings, furniture etc of heritage value assembled by their forebears, but who don't have the income required to insure them, maintain them, etc and/or have no particular interest in owning them. The idea is to make donating the stuff to a cultural institution that wants to acquire them a viable alternative to auctioning them.

 

[ClubMan]

In effect, to me if you sell an antique and have a CGT of €160k and have paid that already and if you then subsequently have a Heritage Tax Credit of €120k, you cannot use that credit to get €120k back from Revenue

Yes, that's how it works but @Brendan Burgess is asking why this is the case and why, unlike many other credits, you can't get a refund of tax already paid with the Heritage Gift credit.

It's probably not a major issue given that the donor can carry unused portions of the credit forward and use it in subsequent years so as long as they live long enough and have enough ongoing tax liabilities they'll get to use the whole credit eventually.

 

[Brendan Burgess]

That's not what the Tax and Duty Manual says. Look at section 5.

Yes, the Manual seems to conflict with the Act.

5. PAYE cases

5.1 General
Section 1003 relief can be granted against the Schedule E liability of a donor in certain circumstances. It is expected that section 1003 relief will be claimed against tax deducted under PAYE only in a small number of cases. Any such claims should be sent by the Collector-General’s Office to the Branch in Revenue which normally deals with the taxpayer’s affairs.

5.2 End of year review
It is impractical to allow the relief in PAYE cases as a tax credit ingredient. In PAYE cases, section 1003 relief is to be given by end of year review. Notwithstanding the prohibition on repayment of tax on account of a donation, the relief, up to the amount paid under PAYE, should be set off as a payment on account of tax for the tax year in which the heritage item was donated and a repayment of tax paid under PAYE for that year may be made. In view of the amounts which are likely to be involved, a check should be made that the tax deducted under PAYE which is being repaid has been remitted.

But can the taxpayer insist on this? What does "certain circumstances" mean?

And why is the prohibition there in the first place?

 

[Brendan Burgess]

Folks

I have had to delete a lot of posts which are completely off topic.

If you make an on topic post, resist the urge to make an aside.

Others will respond to the aside and then the thread is completely derailed.

So we are deleting all posts with off topic content even if 90% of the post is relevant.

 

[Sophrosyne]

Look at it this way.

The purpose of s 1003 is to offset the value of the donation only to the extent of the tax liability, including arrears and penalties.

If the tax liabilities were €20,000 and the value of the item were €22000, then only €20,000 is required to reduce the liability to nil.

Since the liabilities have already been discharged there is no tax available for refund.

Instead, the €2,000 offset can be carried forward against future liability.

 

[ClubMan]

If the tax liabilities were €20,000 and the value of the item were €22000, then only €20,000 is required to reduce the liability to nil.

Since the liabilities have already been discharged there is no tax available for refund.

Again, this is missing @Brendan Burgess's key point. Which is that the donor may have, say, PAYE income tax deducted at source and also self assessed income tax, CGT etc. and they can use the credit to reduce the latter when filing their return/paying their taxes but not get a refund of the former which has already been deducted at source.

 

[Brendan Burgess]

tax liability, including arrears and penalties.

ClubMan has dealt with your comment.

From the manual:

The credit may be set against income tax, corporation tax, capital gains tax or gift and inheritance tax. The tax credit is set first against arrears, if any, of those taxes. When such arrears are cleared, unused relief may be set against current liabilities. Additional relief may be carried forward for set off against future liabilities. Donors are not entitled to a refund of tax as a result of a donation.

So if I did not pay my CAT or CGT for 2024 and made a Heritage Gift in 2025, it seems that I could set the tax credit against the arrears!

It's interesting that the credit can be used against arrears which presumably arose in previous years but not in respect of PAYE (without a concession) or DWT from the current year.

 

[Sophrosyne]

The Tax and Duty manual is confusing.

What it really means that in PAYE cases, because the tax has already been paid through the PAYE system an exception is made so that tax can be refunded.

The same rules apply in that the offset is limited to the amount of tax payable.