21 December 2011

This year’s Budget parted from the traditional one day announcement to a two day announcement split between Public Expenditure cuts and Taxation measures.

This summary will focus primarily on the day two announcements and the Taxation measures presented by Minister Noonan with a brief outline of the day one announcements by Minister Howlin.

The main features of Budget 2012 as they will affect you in business and in your personal life are as follows;

• No changes in income tax rates, bands or credits
• USC exemption level to increase from €4,004 to €10,036
• PRSI net to be broadened to include rental, investment and other income
• Standard rate of VAT to be increased to 23% (+2%) from 01 January 2012
• CGT rate to be increased to 30% (+5%) from 07 December 2011
• 7 year CGT relief on commercial property gains
• CAT rate to be increased to 30% (+5%) from 07 December 2011
• Group A tax free threshold to be reduced from €332,084 to €250,000
• No change to Corporation tax rate
• Stamp duty on commercial property to be reduced to 2% (-4%) from 07 December 2011
• Petrol and diesel to increase by approx 1.5c per litre plus VAT increase from 07 December 2011
• DIRT increased by 3% to 30% / 33%
• Third level registration fees increased by €250 to €2,250
• Household charge of €100 from 2012
• Changes to mortgage interest relief (see below)
• Cigarettes to increase by 25c per packet of 20 from 07 December 2011
• Child benefit cut for 3^rd and subsequent child
• Employer redundancy rebate reduced to 15% (from 60%)

Income Tax

There were no changes to the income tax rates, standard rate cut-off points or tax credits in this year’s budget. Therefore there will be no changes in the payroll for PAYE workers.

The Universal Social Charge (USC) has been slightly amended meaning the exemption level has been increased from €4,004 to €10,036. This will not affect the vast majority of people as if you earn over €10,036 per annum the USC will be levied on the total salary. This will benefit mainly seasonal and part time workers.

The USC system will also move to a cumulative system rather than the week 1 / month 1 that currently prevails. This is in line with the actual income tax system and again will benefit the low paid, part-time and seasonal workers.

The PRSI net has been broadened with rental, investment and other income now liable for PRSI from 2013.

A property relief surcharge of 5% will be imposed on investors with an annual gross income over €100k.

VAT

The standard rate of VAT will increase from 21% to 23% from 01 January 2012. It must be pointed out that under the previous Government’s 4 year plan passed 1 year ago, the VAT rate was to increase to 22% on 01 January 2012 and to 23% on 01 January 2013. This budget has simply applied the increase in one go.

Capital Gains Tax (CGT)

The current rate of 25% is being increased to 30% on disposals made after 06 December 2011.

On property purchased between 07 December 2011 and 2013, any gain realised on the subsequent disposal will be relieved from CGT for the first seven years held (the property must be held for 7 years).

Capital Acquisitions Tax (CAT)

The current rate of 25% is being increased to 30% on gifts or inheritances received after 06 December 2011.

The tax free thresholds for Group A will also be decreased from €332,084 to €250,000.

Corporation Tax

The 3 year tax exemption from Corporation Tax on the trading income and certain gains of new start-up companies in the first 3 years of trading is being extended to include start-up companies which commence a new trade in 2012, 2013 or 2014.

The Government has stated its commitment to maintaining the 12.5% Corporation Tax rate.

Stamp Duty

The rate on commercial property and farmland will be reduced from 6% to 2% from 07 December 2011.

Deposit Interest Retention Tax (DIRT)

The rate of DIRT has been increased by 3% to 30% (33% for long term deposits)

Mortgage Interest Relief

Mortgage interest relief for first-time buyers between 2004 – 2008 will increase to 30%. The first-time buyer rate will be 25% in 2012, non first-time buyers will benefit from mortgage interest rate relief at 15%.

Customs & Excise

Excise duty on a packet of 20 cigarettes is being increased by 25c (including VAT increase of 2%) with effect from 07 December 2011. Excise duty on alcohol remains unchanged; however the increase in VAT of 2% will apply to alcohol.

A carbon tax increase on home heating oil etc will come into effect from 01 May 2012.

VRT & Motor Tax

A review of the current CO2 bands and rates in relation to VRT will commence. Motor tax rates will increase from 01 January 2012.

Households

A household charge of €100 will apply on all residential homes from 2012. There will be a waiver for those on mortgage interest supplement, certain housing estates and social housing.

Brief outline on the Public Expenditure cuts

• Child benefit – Phase out of entitlements to higher rates for the 3^rd and subsequent child over 2 years. All child benefit rates will then be €140 per child.
• Jobseekers benefit – The payment entitlement will be based on a 5 day week rather than a 6 day week where a person is working for part of a week.
• Redundancy – The employer rebate on statutory redundancy payments will be reduced from 60% to 15%.

There was a detailed public expenditure cut programme announced and the above is the top issues that will face the majority of people.

09 December 2010

Universal Social Charge explained

The Universal Social Charge (USC), which comes into effect on 01 January 2011, is a tax payable on gross income, including notional pay, after any relief for certain capital allowances, but before pension contributions.

All individuals who earn in excess of €4,004 per annum are liable to this new charge.

Exemptions

The following is exempt from the USC;

• Where an individual’s total income for a year does not exceed €4,004.

• All Dept. of Social Protection payments.

• Income already subject to DIRT.

• Certain other income sources

Rates & Thresholds

The following rates apply to persons under 70 years;

The following rates apply to persons over 70 years;

Medical Card

Persons entitled to a full Medical Card are not excluded from the USC. The exemption that existed for people who hold a full Medical Card in relation to the Income Levy is not a feature of the USC.

Self employed

Capital allowances

Capital allowances claimed as normal trading expenses in respect of items of plant & machinery and certain buildings are allowed as a deduction before the USC is calculated. There is no deduction allowed for capital allowances claimed by passive investors or lessor.

Tax exempt income sources

An individual whose income consists of exempt source income from occupation of certain woodlands, profits from stallion fees, stud greyhound services fees and farmland leasing, along with the artists exemption, will be subject to the USC subject to the relevant thresholds.

Preliminary tax for 2011

An individual can calculate their preliminary tax for 2011 on the basis of 90% of the current year liability, and incorporate the USC using the rates of 2%, 4% and 7%.

However where the individual wishes to pay preliminary tax on the basis of the 100% of the previous year liability then their payment should be on the basis of the final liability for the year 2010 as if USC at the appropriate rates had been paid for that year.

Please note that the deadline for paying the preliminary tax for 2011 will be 31 October 2011. The preliminary tax deadline just passed was for 2010.

08 December 2010

The table below outlines the income tax position with regard to the main tax credits for 2011.

The table below sets out the tax rates and bands for 2011.

• Relief for trade union subscriptions paid is being abolished for 2011 and subsequent years.
• Relief on service charges remains unchanged @ 20% of amount paid (up to €400) for 2011. This is being abolished in 2012.
• Rent tax relief is being withdrawn on a phased basis and will be abolished in 2018.
• The income exemption limits for persons aged 65 and over have being reduced from €20k to €18k for single / widowed persons and from €40k to €36k for a married couple over 65.
• Patent Royalty income exemption has been abolished from 24 November 2010.

The Universal Social Charge (USC) comes into effect on 01 January 2011 and replaces the Income Levy & Health Levy. It is a tax payable on gross income, including notional pay, after any relief for capital allowances, but before pension contributions.

The rates and thresholds of the USC are indicated below.

For individuals aged 70 and over, the 7% rate does not apply.

Pensions

• Ex-gratia payments made on or after 01 January 2011 will be subject to a maximum exemption limit of €200k taking into consideration any prior tax free payments (including SCSB deductions) which have been received. The excess will be taxed at 20%.
• From 01 January 2011, employee contributions to pension schemes will no longer be exempt from employee PRSI. These contributions will also be subject to the USC.
• Employer contributions to occupational pension schemes and other pension arrangements are exempt from employer PRSI which would otherwise apply at the rate of 10.75%. The extent of this relief will be reduced by 50% from 01 January 2011.
• The annual earnings limit for 2010 going forward will be €115,000 for the purpose of determining how much of a pension contribution may be paid, together with the age related percentage limits).
• The Standard Fund Treshold (SFT) is to be set at €2.3 million as on from 07 December 2010.

Capital Acquisitions Tax (CAT)

The new thresholds for CAT are set out below. The CAT rate is unchanged at 25%.

VRT

The scrappage scheme is being extended to 30 June 2011. The maximum relief will be reduced from €1,500 to €1,250.

Stamp Duty

The rate of Stamp Duty on residential property has been reduced to 1% on proerties under €1m and 2% over that limit. This applies from transactions executed on or after 08 December 2010 with transitional arrangements in place.

The following Stamp Duty reliefs have been abolished;

• Transfer of site from parent to child
• New dwelling houses / apartments with floor area exceeding 125 sq.m
• Residential property first time purchaser relief
• Consanguinity relief in relation to residential properties only

PRSI

• The employee PRSI ceiling of €75,036 is abolished
• Class S PRSI is increased from 3% to 4%
• The modified PRSI rate for civil servants increases to 4% on incomes in excess of €75,036

07 December 2010

Finance Minister Brian Lenihan today announced the Budget 2011 aimed at cutting the gap in the public finances by €6 billion through a mixture spending cuts and increased tax revenue.

Please contact this office if you require clarification or advice on any of the budget measures.

The main features of the budget are as follows;

• Child benefit to be reduced by €10 per month (further €10 reduction after 3rd child)

• 4% reduction in Social Welfare payments (€8 per week)

• Tax credits and Standard Rate Cut Off Point to be decreased by 10%

• PRSI for Self employed to be increased by 1%

• Income Levy and Health Levy to be replaced by Universal Social Charge

• No change in Corporation Tax rate

• Tax free allowances for CAT to be reduced by 20%

• Stamp Duty on residential properties under €1m to be reduced to 1% (2% above €1m)

• RCT withholding tax for registered contractors to be reduced to 20%

• Petrol to increase by 4c per litre

• Diesel to increase by 2c per litre

• Government scrappage scheme to be extended to 30 June 2011

• Airport Travel tax reduced to €3

• DIRT increased by 2% to 27% / 30%

• Third level registration fees increased by €500 to €2,000 (more than one child will pay €1,500)