Income tax/PRSI
One of the key aspects of the Budget was the absence of changes to the income tax rates, bands or credits. However, there will be certain tax impacts on earned income.
USC exemption raised
The exemption threshold for liability to the USC has increased from €4,004 to €10,036 for 2012. No further changes have been made to the USC. The USC will be moving to a cumulative basis in 2012. This should minimise the occurrence of under and overpayments.
Extension of PRSI for PAYE Workers
It had been anticipated in the media that the Minister would apply employee PRSI to rental income, dividends and other investment income in 2012. A charge to PRSI will apply to such income from 2013.
Employer PRSI relief on employee pensions removed
As a measure to broaden the PRSI base, the remaining 50% employer PRSI relief on employee pensions is being removed from 2012. Last year’s Budget restricted the relief to 50%.
DIRT
The DIRT rate on deposit interest and exit taxes on life assurance policies and investment funds has increased by 3%. This means that a rate of 30% will apply to payments made annually such as deposit interest, and 33% to those made less frequently.
Tax on non-residents
The “citizenship” condition for payment of the levy is being removed and the levy is being kept under review. A set of proposals in relation to non-residents will be published in early 2012 for consultation. Further changes are expected in 2013.
Pensions
No change to marginal relief for pensions
The Minister stated that he did not intend to move to a standard rate of relief or make changes to the existing marginal rate relief for pensions at this time. The standard fund threshold also remains unchanged.
ARFs
Two changes are proposed in relation to Approved Retirement Funds (ARFs):
Where ARF asset values exceed €2 million, the annual imputed distribution which applies will be 6% (rather than 5%). The asset value test will apply on 31 December 2012 and thereafter
The transfer of ARF assets on a death to a child over 21 will be subject to a final liability tax rate of 30%. Currently the standard rate of 20% applies to such transfers.
Vested PRSA
The increase in the annual imputed distribution that will apply to ARFs will also apply to “vested” PRSAs. Further details will be provided in the Finance Bill.
Property Sector
A number of changes were announced which are relevant for those with property investments.
Property Reliefs
In the Budget the Minister confirmed that he will not be proceeding with the previous proposals, given the impact they would have. In his speech he noted that the proposals by the previous Government to curtail reliefs were “unworkable and would have done significant and lasting damage to an already distressed property market, creating real difficulties for many ordinary people”. Instead he has announced alternative measures as follows:
Section 23 Relief
Section 23 type relief investments will not be terminated or otherwise restricted for investors with an annual gross income under €100,000 “as these are at the greatest risk of insolvency.”
For individuals with gross incomes over €100,000 a “property relief surcharge” of 5% is to apply on the amount of income which the Section 23 relief shelters. This surcharge will not apply to those with gross income below €100,000.
Accelerated Allowances
Investors with accelerated allowances, who have gross income in excess of €100,000 will also be subject to the surcharge of 5%. In addition it appears that the guillotine set out in the legislation remains in place but has been deferred. Where:
The tax life of a property extends beyond 1 January 2015, or
The tax life ends before 1 January 2015 and allowances are carried forward beyond this date, the remaining allowances will no longer be available for use.
Mortgage Interest Relief Increases
The rates of mortgage interest relief have been increased for first time buyers and for those who purchase property in 2012.
For first time buyers who purchased property between 2004 and 2008, a rate of 30% mortgage interest relief will apply.
Where a property qualifying for relief is purchased in 2012
The first time buyer can avail of relief at 25% on mortgage interest.
Relief for other purchasers will be at 15%.
House purchases made from 2013 onwards will not qualify for relief. As noted in last year’s Budget, relief will be abolished for all from 2018.
Stamp duty flat rate of 2% on commercial property
A single flat rate of stamp duty of 2% will apply to instruments executed in relation to non-residential property (e.g. commercial and industrial property) from midnight 6 December 2012.
Consanguinity relief on non-residential property is to be abolished after 1 January 2015.
They all add up!
CGT relief for properties bought before 2014
The Minister proposed a new relief to incentivize the purchases of property from now until the end of 2013. Where property is bought during this period and retained for more than 7 years, any gain arising on its subsequent disposal will be exempt from CGT.
Encouraging Investments and Export
A number of welcome measures have been announced to stimulate inward investment and export growth.
A new SARP regime
The Minister announced the introduction of a Special Assignee Relief Programme to encourage skilled mobile capital locate in Ireland.
FED special deduction for overseas assignees
A foreign earnings deduction relief (FED) is to apply to individuals who spend at least 60 days a year developing markets for Ireland in target economies such as Brazil, Russia, India, China and South Africa.
Further details on both these measures will be contained in the Finance Bill.
Proposals to enhance IFSC sector
A package of measures will also be set out in the Finance Bill focused on supporting the international funds industry, the corporate treasury sector, the international insurance industry and the aircraft leasing industry.
Corporate Taxes
Commitment to 12.5% corporation tax rate restated
Minister Noonan reaffirmed the Government’s commitment to maintaining the 12.5% corporation tax rate. He said “we made a commitment in the Programme for Government to maintain the 12.5 per cent rate and we will do so”.
Start-up relief extended
The scheme of corporation tax relief for start-up companies has been extended to include start-up companies which commence a trade in 2012, 2013 or 2014.
Enhancements to R&D regime
A number of amendments to the R&D tax credit regime are proposed:
(a) Volume basis
The volume basis will apply to the first €100,000 of qualifying R&D expenditure. The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000, as compared with expenditure in the 2003 base year.
(b) Outsourcing limit
Currently, outsourced R&D costs are eligible for relief where they do not exceed 10% of total costs or 5% where work is outsourced to third level institutions. These limits will be increased to allow the greater of the existing percentage arrangement or €100,000.
(c) Use of credit to reward employees
Companies availing of the R&D tax credit will have the option of using a portion of the credit to reward key employees who have been involved in the research and development process.
Renewable energy relief extended to 2014
The qualifying period for tax relief for investment in certain renewable energy projects is being extended to 31 December 2014.
Capital Taxes
A number of significant changes have been made to CGT and CAT.
Increase in CAT and CGT rate
Both the CGT and CAT rate have been increased from 25% to 30%. The new rate will apply for disposals/gifts or inheritances taken after today, 6 December 2011.
Reduction in CAT thresholds
The Group A CAT threshold is being reduced to €250,000 from €332,084.
Farming Taxation
Stock relief for registered farm partnerships
Enhanced stock relief of 50% (100% for certain young trained farmers) will apply until 31 December 2015. This is subject to clearance by the European Commission under State Aid rules.
Farm transfers
Full capital gains tax retirement relief for intra-family transfers will be maintained for individuals aged 55 to 66 years. Where the transferor is aged over 66 years, an upper limit of €3m on business and farming assets disposed of within the family will apply.
The upper limit of €750,000 for transfers outside the family will be maintained where the transferor is aged between 55 and 66 years. The limit is reduced to €500,000 for transferors aged over 66 years.
Further details on these measures will be provided in the Finance Bill.
VAT refund on purchase of wind turbines
The existing VAT refund order for unregistered farmers will be extended to allow these farmers to claim a VAT refund on wind turbines purchased from 1 January 2012.
9% VAT rate on open farms admissions
Entry to open farms will be subject to VAT at 9%.
Indirect Taxes
Carbon tax increase by €5 per tonne
An increase has been made to tax on fossil fuel – increasing it from €15 up to €20 per tonne. The increase will apply to:
Petrol and diesel – from midnight 6 December 2011
Kerosene, Marked Gas Oil, LPG, Fuel Oil and Natural Gas – from 1 May 2012;
The change will not apply to solid fuels such as briquettes and coal.
Review of VRT rates planned
A review of the current CO2 bands and rates structures for VRT is planned, with a view to reforming the bands from 1 January 2013. The review will include a public consultation.
Betting duty to apply to remote betting
A Bill is in preparation to extend betting duty at 1% to on-line betting and introduce a betting intermediaries’ duty.
Motor tax to increase
Motor tax is increasing across the board. Appendix C of the Budget document provides more details.
Increase in duty on cigarettes
Excise duty on 20 cigarettes is being increased by 25 cents from midnight 6 December 2011.
Measures Already Announced
The Minister provided clarification on a number of measures which had been announced in advance of the Budget.
VAT Rate Increase to Apply from 1 January
The increase in the standard rate of VAT to 23% is to apply from 1 January 2012.
Household Charge of €100 for 2012
A flat household charge of €100 was proposed by Minister Hogan in late July. This has been confirmed today. A waiver is available in certain circumstances, for example, for those in receipt of mortgage supplement and for those living in certain unfinished estates. This charge is a precursor to a full property tax which, it appears will be introduced in 2014.