Taxes Consolidation Act 1997 section 485E

Recalculation of taxable income for purposes of limiting reliefs (high earner restriction)

Section 485E sets out the formula used to recalculate an individual's taxable income where the high-income individuals' restriction applies.

• The recalculated taxable income is determined by the formula T + (S − Y), where T is the individual's taxable income before the restriction, S is the aggregate of specified reliefs used in the tax year, and Y is the greater of €80,000 (the relief threshold amount) or 20 per cent of the individual's adjusted income.
• Adjusted income is itself calculated using the formula (T + S) − R, where R is the individual's ring-fenced income for the year; the income threshold amount is generally €125,000 but is reduced where ring-fenced income exists and adjusted income is below €400,000.
• For individuals with adjusted income above €400,000, the effect is that specified reliefs are capped at 20 per cent of adjusted income, producing a minimum effective tax rate of approximately 30 per cent; where adjusted income is below €400,000 and 20 per cent of adjusted income is less than €80,000, up to €80,000 of specified reliefs may still be used.
• Any increase in taxable income resulting from the restriction is carried forward as "excess relief" to the following year under section 485F and counts as a specified relief only to the extent it is actually used in that or later years.

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