The new measures, announced as part of the 2007 budget, are being introduced with effect from 1 January 2007 and will limit the use of these tax breaks by those with high incomes.

The measures are based on restricting the amount of specified reliefs which a person can use to reduce their tax bill in any one year to 50% of the person’s income.

Under the new system, taxpayers will add up the total amount of specified reliefs being claimed, which will be added back to the taxpayer’s taxable income to give a “recomputed gross income” figure. Where the recomputed gross income is greater than a high income threshold of EUR250,000, then the aggregate deduction for specified reliefs in the year will be restricted to 50% of recomputed gross income, Cowen said.

The new taxable income figure will be taxed at the ordinary income tax rates; since the top rate of 42% will generally apply, an effective rate of close to 20% will be achieved.

The system will contain a taper to avoid a sudden jump in tax at the threshold, and any relief denied in a particular year will be carried forward to the following year.

The specified reliefs will be listed in the Finance Bill and will include the property based incentive reliefs in general and various other reliefs, including exemption of artistic income, but will exclude the normal items claimed by taxpayers such as medical expenses, trade union subscriptions, exemptions such as that for child benefit, as well as the normal business expenses and deductions for capital allowances on plant and machinery.

It is estimated that the measure will yield EUR5 million in 2007 and EUR50 million in a full year.

Cowen also announced that a number of property-based tax incentive schemes for businesses are to be discontinued, including: the Urban Renewal Scheme, Rural Renewal Scheme, Town Renewal Scheme, and the special reliefs for hotels, holiday cottages, student accommodation, multi-storey car parks, third-level educational buildings, sports injury clinics, developments associated with park-and-ride facilities, and the general rental refurbishment scheme.

Under transitional arrangements, full relief will be available for qualifying expenditure up to end-December 2006; 75% of the normal relief will apply for qualifying expenditure in the period January to end-December 2007; 50% of the normal relief will apply for qualifying expenditure in the period January to end-July 2008; and no relief under the schemes will apply for expenditure after that date.

Cowen estimated that the closure of these tax relief schemes would save something in the order of several hundred million euros annually, although these savings will not be felt until 2012 when the bulk of existing capital allowances have been fully claimed in tax returns.

The Finance Minister also said that he intends to introduce measures to restrict interest relief on loans granted between companies in the same group to crack down on the creation of artificial loans made with the sole intention of qualifying for tax relief, known as Section 247 Relief.

The proposed restriction will apply to structures whereby indebtedness is created, effectively between companies in a group, in connection with the transfer of share ownership from one company to another company in that group. Cowen said that such measures would be "carefully targeted" so as to minimise the possible impact on legitimate commercial use of Section 247, or any other area of the tax code.

The Section 247 restrictions will be brought forward in the 2006 Finance Bill and will affect transactions made on or after 7 December 2005.