Charges are sums which are paid by a taxpayer by way of legal obligation. In many cases, the person paying the charge has to withhold tax at the standard rate and pay it to the Revenue. Where this occurs, the recipients obtains a credit for the sum paid to Revenue.

Covenants of Income

A Deed of covenant (in this context) is a legally binding obligation to pay part of one’s income to a third party. Covenant of this nature were formerly a useful way of reducing tax liability, by transferring income to persons with available tax credits and allowances.   Because of these tax advantages, the tax effectiveness of deeds of covenants has been severely limited

Covenants in favour of one’s own minor children are ineffective. Unrestricted Tax Relief is available in relation to covenants in favour of permanently incapacitated minors other than from one’s  own parents. Unrestricted tax relief is allowed in favour of a permanently incapacitated adults.

Relief to individuals over 65 years, is restricted to 5% of total income, The covenant must be capable of lasting for at least seven years.

Patent Royalties are sums paid for  the use and licensing of patent rights. They are generally paid, after deduction of tax at the standard rate .


Where Interest is a business expense, it is deductible in calculating trading incomes. There are special rules in relation to the calculation of Income tax in the context of  residential and commercial property.

Interest on loans to acquire shares in companies and partnerships is a deductible charge. This is a very useful and generous reliefs for individuals on interest paid on loans to buy shares or lend money to certain private companies. The company must not be quoted on a stock exchange. The company must be wholly or mainly for the purpose of carrying out a trading or be the holding company of a trading or a rental company .

The purpose of the loan must lend to or to finance  the acquisition of an interest of  5%  in the Share Capital of the Company The individual must be an employee or director and work full-time for the Company.  There are certain conditions for the relief .

Where the money is used to lend to the company, the money must be used wholly exclusively for the purpose of the trade . Relief is withdrawn if the any part of the loan advance is paid back, other than in the ordinary course of a business Including moneylending .

Restrictions & Limits

The relief no longer applies to companies whose income arises wholly or mainly from rents and income from property.  There are restrictions on the relief in the case of non-private company . Under certain circumstances employees or directors who did not work full-time or part-time, or do not have a material interest can qualify for relief subject to conditions

If the person recovers any capital from the company, the loan or a portion of the loan is no longer eligible for relief.  Value can be received directly or indirectly. Similarly in relation to partnerships, the individual must act in the conduct of the  partnership and must not recover capital.

Permanent Health  Benefits

Relief at the marginal rate is allowed on  contributions to policies providing permanent health benefits. The maximum is allowed is  ten per cent of total income. The policy must make income payments in the event of permanent ill-health.

The deduction is also available against social insurance and charges.  A net pay arrangement may be permitted.

Benefits payable under the scheme are themselves subject to PAYE in much the same way as pension. It may be taxed as trading income where the Revenue agree, and the individual concerned had been so taxed.

In this context, permanent health benefit schemes are those approved by the Revenue Commissioners., which are designed to provide a replacement income in the event of certain very serious ill health.

The policies are geared to provide income in the event of the insured’s employment capacity being permanently or significantly diminished, due to an insured event (typically a catastrophic event illness or condition).


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