Ver. 11.12
RPC001569_EN_WB_L_2
IT 7
Covenants to
Individuals
What is a Deed of Covenant?
A Deed of Covenant is a legally binding written agreement made
by an individual to pay an agreed amount to another individual,
without receiving any benefit in return. To be legally effective,
it must be properly drawn up, signed, witnessed, sealed and
delivered to the individual receiving the payments. Any amount
can be paid under a Deed but only covenants in favour of certain
individuals qualify for tax relief.
The person who makes the payment is called a covenantor.
The person who receives the payment is called a covenantee or
beneficiary.
What should the duration of the Covenant be to
qualify for tax relief?
A deed must be capable of exceeding a period of 6 years to
qualify for tax relief. It is therefore recommended that the period
provided be for a minimum of 7 years.
To whom can a Deed of Covenant be paid?
The following covenants in favour of certain individuals, qualify
for tax relief:
Covenants to Minors
lUnrestricted
tax relief can be claimed on covenants in
favour of permanently incapacitated minors except on
covenants from parents to their own minor incapacitated
children. A minor is an individual under 18 years of age and
unmarried.
Covenants to Adults
l
Unrestricted tax relief can be claimed on covenants in
favour of permanently incapacitated adults.
l
Tax relief can be claimed on covenants in favour of adults
aged 65 or over but is subject to a 5% restriction.
1
i.e. The amount of tax relief available on one or more covenants
cannot exceed 5% of the covenantor’s total income (Total Income
= Gross Income less certain deductions such as expenses,
capital allowances etc.)
How can I make a Deed of Covenant?
Simply complete the Deed of Covenant form. Alternatively,
you can consult your professional adviser.
Remember:
l
You should enter into the Deed before you make any
payments. Make sure all payments are capable of being
made before the Deed ends.
l
Payments made before the Deed is taken out or after it
ends cannot be treated as payments under the terms of the
Deed.
l
A Deed can only be effective from a current date - so you
cannot backdate a Deed.
l
A Deed to an individual must be capable of lasting more
than 6 years.
l
Payments under the Deed must be paid on the date(s)
stated and for the amount(s) specified. Payments cannot be
altered during the period of the Deed.
Payments under a Deed must be made without any benefit
being received from the covenantee in return, either directly
or indirectly.
l
l
The covenantee must have a PPS number. If they do not
hold one, one can be obtained by contacting their local
Department of Social Protection Office.
2
What must a Covenantor do when making a
payment under a Deed of Covenant?
The covenantor must deduct tax at the standard rate from the
gross payment and account for it to Revenue. Information Leaflet
IT 1 ‘Tax Credits, Reliefs and Rates’ will give the current rates of
tax.
Individuals paying tax under PAYE can account for the tax
deducted by having their tax credit certificate and standard rate
band amended.
Individuals taxed under Self Assessment should account for it in
their annual assessment.
The covenantor must also give details of the payment and
tax deducted on a Form R185 to the covenantee each time a
payment is made.
What tax savings arise under a Deed of
Covenant?
The exact tax saving depends on the amount of tax paid by the
covenantor and on the amount of the covenantee’s income, if any.
l If the Covenantor is liable to tax at the higher rate he or she
will receive tax relief at the difference between the standard
rate and the higher rate
l There is no tax benefit to a covenantor who pays tax at the
standard rate only
l
A covenantee whose total income (including the income
received under the deed of covenant) is less than the
exemption limit qualifies for a refund of the standard rate of
tax deducted by the covenantor.
3
How is tax relief claimed?
Covenantee
The covenantee should send the claim to his or her own Revenue
Office. It is important that covenantees quote their PPS number.
Covenantor
The covenantor should send the claim to his or her own Revenue
office and likewise quote his or her PPS number.
What documents should be sent with the claim?
Covenantee
First Claim
l
Completed claim form
l
Original Deed of Covenant
l
Form 54 Claims
l
Form R185 completed by covenantor
l
Evidence of payment
Subsequent years claims
l
Form R185 completed by covenantor
l
Form 54 Claims
Covenantor
First Claim
l
The covenantor should send with their Return of Income, a
copy Deed of Covenant and a copy of Form R185
Subsequent years claims
l
The covenantor should complete a Form R185 on or after
the designated date of payment and forward a copy of it
to their Revenue office. The necessary adjustment to the
liability will be made and any repayment due will be dealt
with. A Covenantor who pays tax under PAYE can have his
or her tax credit certificate and standard rate band adjusted,
as soon as payment has been made.
4
Further information
This leaflet is for general information only. For further information
you can visit www.revenue.ie or contact your Regional LoCall
Service whose number is listed below (within the Republic of
Ireland only).
l
Border Midlands West Region
1890 777 425
Cavan, Monaghan, Donegal, Mayo,
Galway, Leitrim, Longford, Louth, Offaly,
Roscommon, Sligo, Westmeath
l Dublin Region
Dublin (City and County)
l
1890 333 425
East & South East Region
Carlow, Kildare, Kilkenny, Laois,
Meath, Tipperary, Waterford,
Wexford, Wicklow
l South West Region
Clare, Cork, Kerry, Limerick
1890 444 425
1890 222 425
Please note that the rates charged for the use of 1890 (LoCall)
numbers may vary among different service providers. If you are
calling from outside the Republic of Ireland, please phone
+ 353 1 7023011
Information Leaflet IT 1 ‘Tax Credits, Reliefs and Rates’, Form
R185 and Form 54 Claims are available from the Revenue
Forms and Leaflets Service at LoCall 1890 306 706 (within the
Republic of Ireland only) or from Revenue’s website at
www.revenue.ie
5
Revenue Office Address
If you are a PAYE employee, your tax affairs are dealt with in the
region where you live. However, if you are self-employed, your
place of business dictates the region where your tax affairs are
dealt with. Any Revenue correspondence that you have received
will show the contact details and address of your local Revenue
office, or visit www.revenue.ie and enter your PPS number into
our Contact Locator, the name, address and contact details of
your local Revenue office will be displayed.
4-year time limit: A claim for tax relief must be made within 4
years after the end of the tax year to
which the claim relates.
Accessibility: If you are a person with a disability and require
this leaflet in an alternate format the Revenue Access Officer can
be contacted at accessofficer@revenue.ie
This leaflet is intended to describe the subject in general terms.
As such, it does not attempt to cover every issue which may
arise in relation to the subject. It does not purport to be a legal
interpretation of the statutory provisions and consequently
responsibility cannot be accepted for any liability incurred or loss
suffered as a result of relying on any matter published herein.
Revenue Commissioners
March 2015
6