1. Pensions
The pension changes outlined in the Budget are as follows:
Abolition of Employee PRSI and Health Relief
With effect from the 1st January 2011 employee pension contributions will no longer qualify for any PRSI or Health Levy relief.
Reduction of Employer PRSI relief
At present employers can normally claim 10.75% PRSI relief on employee contributions (to either a Company Pension Scheme or PRSA). With effect from 1st January 2011 this relief for employers is going to be reduced by 50%.
Standard Fund Threshold
The standard fund threshold (SFT) of €5.4M is being reduced to €2.3M with immediate effect. However an individual can potentially benefit from a higher SFT if on the 7th December 2010 the capital value of any pension rights drawn down on or after 7 December 2005 (crystallised pension rights) when added to any uncrystalllised pension rights (valued on the 7th December 2010) does not exceed €5.4M. It is important to note that anyone wishing to avail of this higher SFT must notify the Revenue within 6 months from the 7th December 2010.
Retirement Lump Sum
As expected the tax-free lump sum is to be capped at €200,000 with any balance up to €575,000 (i.e. 25% of €2.3M) subject to tax at the standard rate (currently 20%). Any amount paid out in excess of this figure will be taxed at the individual’s marginal rate. This change is to take effect from 1st January 2011. Any tax-free retirement lump sums taken on or after 7th December 2005 will count towards this €200,000 cap.
Earnings Cap
The earnings limit of €150,000 has been reduced to €115,000 with effect from 1st January 2011. The reduced limit will also apply to pension contributions paid in 2011 and backdated to 2010. Note also the age -related percentage limits which will continue to apply.
ARFs
The deemed annual distribution of 3% of the value of the fund has been increased to 5% with effect from 31st December 2010.
Extension of ARF option
There are a number of significant changes to the ARF option, in particular the ARF option will now be available to all DC scheme members. At the same time it is proposed that the AMRF threshold will be increased to approximately €120,000 while the new income requirement will be increased to €18,000 p.a. There are transitional arrangements proposed whereby individuals who have already retired will have a 3 year window from the date of the Finance Act to satisfy the €12,700 income requirement. If they do so they can convert their AMRF to an ARF.
Deferral of Annuity Purchase Arrangement
The deferral of Annuity Purchase Arrangement for members of Defined Contribution schemes which was introduced in 2008 and which was due to expire on the 31st December will be extended.
2. Exit Tax
At present exit tax on life assurance policies effected on or after 1st January 2001 (which are also called gross roll-up policies) amounts to 28% and applies to any gains on the policy This rate is being increased by 2 per cent and will now be charged at a rate of 30%. The increased rates will apply to payments, including deemed payments, made on or after 1 January 2011.
3. DIRT
Deposit Interest retention tax (DIRT) on bank and building society accounts will increase by 2% to 27% where interest is credited at least annually and increase from 28% to 30% where interest is not credited at least annually. These changes are to take effect from 1 January 2011.
4. Reforming Income Tax and PRSI
PRSI
The Minister has announced the abolition of the PRSI ceiling of €75,036. In addition, the PRSI rate for
Class S (Self-Employed) is to increase from 3% to 4%. Modified PRSI rates (for certain public servants) are to increase to 4% on incomes in excess of €75,036. A 4% PRSI charge is proposed for certain Office Holders.
Universal Social Charge (USC)
As expected, the existing Health Levy and Income Levy will be abolished and replaced with a new
Universal Social Charge in 2011. The following are the applicable rates and thresholds:
Rate Threshold
0% < €4,004
2% €0 to €10,036
4% €10,037 to €16,016
7% > €16,016
Tax Credits
Tax credits will be reduced by 10% in 2011:
Age credits and exemptions are being abolished over 4 years.
Tax Rates and Bands
The higher rate of income tax will remain at 41% and the standard rate of tax at 20%. However, the standard rate tax bands for 2011 will be reduced by 10% as set out below:
| Personal Circumstances |
2010 | 2011 | |
| € | € | ||
| Single/Widowed (no dependants) | 36,400 @ 20% | 32,800 @ 20% | |
| Balance @ 41% | Balance @ 41 | ||
| One Parent/Widowed Parent |
40,400@ 20% |
36,400@ 20% |
|
| Balance @ 41% | Balance @ 41% | ||
| Married Couple – one spouse with Income | 45,400 @ 20% | 41,800 @ 20% | |
| Balance @ 41% | Balance @ 41% | ||
| Married Couple – both spouses with Income | 72,800* @ 20% | 65,600* @ 20% | |
| Balance @ 41% | Balance @ 41% |
*With a maximum transferability between spouses of €45,400 in 2010 and €41,800 in 2011.
5. Capital Acquisitions Tax
With effect from midnight on 7 December 2010, the current capital acquisitions tax free thresholds
which are available in respect of gifts or inheritances are being reduced by 20%.
| Group | Relationship to Disponer
|
Group threshold 2010
€
|
Group Threshold 2011
€ |
| A
|
Son/daughter
|
414,799
|
331,839
|
| B
|
Parent/Brother/Sister/Niece/ Nephew/Grandchild
|
41,481
|
33,185 |
| C
|
Relationship other than Group A or B | 20,740 | 16,592
|
6. Stamp duty on residential property
A fundamental reform in relation to stamp duty was announced in the Budget 2011. The rate of stamp duty payable on residential property has been reduced to 1% on residential properties valued up to €1 million, with 2% applying to properties over €1 million. The new rates of residential stamp duty will apply in respect of instruments executed on or after 8 December 2010;
The following reliefs and exemptions are abolished in respect of instruments executed on or after
8 December 2010.
a. First time buyer relief
b. Exemption for new houses under 125 sq m in size
c. Relief on new houses over 125 sq m in size
d. Consanguinity relief for residential property transfers
e. Exemption for residential property transfers valued under €127,000
f. Site to child relief
7. Public Sector Pension Reforms
Single Pension Scheme for New Entrants
The new single pension scheme for new entrants, which was announced in last year’s Budget, will come into effect in 2011. Pensions will be based on career average earnings rather than final salary;
the pension age will be increased; and post-retirement increases will be linked to retail price inflation rather than to pay.
All new entrants will start on a pay scale 10% lower than the existing scale and they must start at the
first point of that scale.
Reduction in Public Sector Pensions
Existing public sector pensions are to be reduced as follows:
| Annual Public Sector Pension | Reduction | Rate |
| First | €12,000 | Exempt |
| Between | €12,001 and €24,000 | 6% |
| Between | €24,001 and €60,000 | 9% |
| Balance over | €60,001 | 12% |
Public Sector Pension
8. Main changes in Social Welfare
The personal rate of the State Pension (Contributory) remains at €230.30 per week. However, the Minister has announced a 4% reduction in working age welfare payments.
Cut in Child Benefit
The child benefit has been cut by €10 for the first and second child and fourth and subsequent children. A cut of €20 will apply to benefit for the third child.
9. Business Taxes
No Change to the 12.5% Corporation Tax Rate
As previously indicated there is no change to the 12.5% rate of tax on trading profits. The Minister noted in his speech “We will defend our 12.5% corporation tax rate against all comers”.
Reform of BES
The current Business Expansion Scheme is being reviewed and reformed to ensure that the tax relief is fully targeted at job retention and creation. A new “Employment and Investment Incentive Scheme” (EIIS) is being introduced. Under the scheme the lifetime limit a company can raise under the scheme will be increased from €2 million to €10 million. The amount that can be raised in a 12 month period will be increased from €1.5million to €2.5 million. The certification process is also to be simplified. The new incentive will expire in 2013.
The new scheme is subject to EU approval and the current BES scheme will apply in the interim.
The proposals reflect a number of measures which the Institute has raised through our representations to the Department of Finance and Revenue.
Reform of RCT
The current RCT rate of 35% has been replaced with a two-rate system. A withholding rate of 20% will apply for subcontractors registered for tax who have an established compliance record. The 35% rate will apply for subcontractors not registered for tax.
The monthly repayment system is to be replaced with an offset system. The reporting regime for Principal contractors is to be strengthened.
Corporation Tax Exemption for Start-Up Companies Extended
Budget 2009 introduced an exemption from corporation tax for 3 years on the trading income and gains of new start-up companies. This exemption applied where a new company commenced to trade in 2009 and its corporation tax liability did not exceed €40,000 in an accounting period. Marginal relief also applied.
Budget 2010 extended the scheme to businesses commencing in 2010. This Budget further extends the exemption to companies commencing to trade in 2011. The relief is to be amended so that the value of the relief is linked to the amount of employer’s PRSI paid in the period subject to a maximum of €5,000 per employee. If the amount of employer’s PRSI is lower than the reduction in the corporation tax liability otherwise applicable relief will be based on the lower amount.
Accelerated Capital Allowance on Energy Efficient Equipment Extended
Finance Act 2008 introduced a new scheme of accelerated capital allowances for expenditure by companies on certain energy efficient equipment. The scheme was to terminate at the end of 2011. It is being extended for 3 more years to 2014.
10.Property-based Tax Reliefs to be Abolished
The Four Year Plan indicated Government plans to phase out the property-based legacy reliefs. The Budget has indicated how this will be done.
Section 23-type Relief
- From 1 January 2011 Section 23-type relief will only be available for offset against Section 23 income from the related Section 23 property itself.
- At the end of the 10 year holding period any unused relief will be lost. Where the property is sold before the 10 years expires the new owner will not be able to avail of any relief. The seller will be subject to a clawback of relief claimed.
- Where relief has not yet been claimed on a property and it is yet to be sold the 10 year period will commence on 30 June 2011, regardless of the date of the relevant qualifying lease. No Section 23 relief will be available after 30 June 2021.
- The above changes will not affect Residential owner-occupiers.
Capital Allowances (for passive participants)
Capital allowances available to passive participants have been restricted.
- From Budget Day, any unused capital allowances carried beyond the relevant 7 year or 10 year period will be lost.
- From 2011, capital allowances will only be available to relieve income arising from the property to which they relate
- Where a scheme has a period over 10 years which has not ended the period will be truncated to 7 years from when the allowances are first made.
- Capital allowances not made because of truncation will be reduced by 20%.
- All unused and unclaimed capital allowances arising after or carried forward from 2014 as well as unused Section 23 relief carried forward from 2014 will be guillotined.
An impact study of the phasing out of the reliefs is to be carried out.