Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy will be aware, the age exemption applies for any year of assessment where an individual is aged 65 years or over and his or her total income does not exceed €18,000 per annum. Where an individual is a married person or civil partner and is jointly assessed to tax, the age exemption will apply where either individual is aged 65 or over and where the couple’s total income does not exceed €36,000 per annum. The relevant income thresholds may be increased further if the individual has a qualifying child. The thresholds are increased by €575 in respect of both the first and second child, and €830 in respect of each subsequent child.

It is important to note that marginal relief may be available where the individual’s or couple’s income exceeds the relevant exemption limit but is less than twice that amount. Where marginal relief applies the individual or couple is taxed at 40 per cent on all income above the exemption limit to a ceiling of twice the exemption limit. The system of marginal relief ensures that in cases where an individual's or couple’s income rises above the exemption threshold that their net income will not decline, as the 40 per cent income tax rate only applies to the proportion of income above the threshold. Once the income exceeds twice the exemption limit marginal relief is no longer available and the individual pays tax under the normal tax system.

It should be noted, however, that where the individual’s income is greater than the exemption limit but below twice that limit, the taxpayer is entitled to the benefit of the more favourable treatment as between the use of marginal relief or the normal tax system of credits and bands.

I have no plans to increase the age exemption limits. However, it should be noted that in circumstances where the individual or couple no longer benefits from the age exemption or marginal relief, they will benefit from the increases to the main personal tax credits in recent Budgets.

For example, the increases to the main personal tax credits in Budget 2024 (€100 increase to the single, employee and earned income credits and a €200 increase to the credit for married couples / civil partnerships) means that the effective entry point to income tax has increased for all taxpayers, including those aged over 65. From 2024, the effective entry point to income tax for an individual in receipt of the single person credit, employee / earned income credit and the age credit has increased by €1,000 per annum from €18,975 to €19,975 per annum.

In addition, it is important to take into account that the current tax arrangements for persons aged 65 or older compare favourably with the tax treatment of the generality of taxpayers. For example, persons aged 65 or over may also avail of the age tax credit, which currently amounts to €245 per year for single persons or €490 per year for married couples or civil partners. Reduced rates of USC also apply for persons aged 70 or older where their total income is €60,000 or less. In addition, it is important to point out that social welfare income such as the State Contributory Pension and State Non-Contributory Pension are excluded from the calculation when determining if an individual’s income has exceeded the €60,000 income threshold. Furthermore, the State Contributory Pension and the State Non-Contributory Pension are not chargeable to USC or Pay Related Social Insurance.

Finally, it should be noted that the Commission on Taxation and Welfare recommended that age should be removed as a factor for determining the charge to income tax and USC. The report stated that the determination of an individual’s tax treatment based on age narrows the base and breaches the concept of horizontal equity, whereby those with similar income should pay the same proportion of that income in taxes. It also breaches the concept of intergenerational equity. Further details are set out in the Report of the Commission, located at the following link - www.gov.ie/en/publication/7fbeb-report-of-the-commission/.

As part of the Personal Tax Review published on Budget Day, my Department set out further analysis of the recommendations of the Commission on Taxation and Welfare, including in respect of the age exemption limits. The Report is available at the following link - www.gov.ie/pdf/?file=https://assets.gov.ie/273335/96f70eb1-64e1-4f02-9096-e36f306a048b.pdf#page=null.