Our latest newsletter from B M Boland & Co deals with the Budget 2011 that was unveiled yesterday by the minister for Finance, Brian Lenihan.
We have set out below the more relevant items that were outlined yesterday and hope that you find the information contained herein to be useful and informative.
We welcome any comments you may have in relation to this newsletter.
The Minister for Finance indicated an overhaul of the income tax system, stating that the current regime was no longer fit for purpose. The following are some of the more relevant items mentioned:
UNIVERSAL SOCIAL CHARGE
The income levy and health levy will be consolidated into a single Universal Social Charge (“USC”) which will be effective from 1st January 2011. This charge will apply as follows:
- 0% on earnings less than €4,004
- 2% on earnings up to €10,036
- 4% on earnings between €10,037 – €16,016
- 7% on earnings over €16,016.
The introduction of the USC is likely to give rise to higher tax payments for all taxpayers as it will largely apply at 7% on all earnings over €16,016. It will apply to all income sources (before reliefs) and is a tax rather than a social security contribution.
The employee PRSI contribution ceiling which is currently €75,036 will be removed from 1st January 2011 which will increase the PRSI cost for high earning employees.
The PRSI rate for the self employed will also be increased from 3% to 4% as well as PRSI increases for office holders and public servants.
TAX BANDS & CREDITS
The tax bands and tax credits are to be reduced by 10%.
From 1 January 2011, the 20% tax rate band will be cut from €36,400 to €32,800 for a single person and from €45,400 to €41,800 for a married couple where one spouse is earning. The main tax credits will also be cut by approximately 10%, from €1,830 to €1,650 for a single person’s personal credit as well the employee tax credit. The married tax credit has been reduced from €3,660 to €3,300.
The home carer tax credit, blind persons credit and dependent relative tax credit have also been curtailed.
There will be an increase of 2% on retention taxes on deposits and exit taxes on life assurance policies and investment funds to apply from 1st January 2011. Exiting tax rates will increase from 25% to 27% as will DIRT on deposit interest. DIRT on longer term deposits will be increased from 28% to 30%.
PRSI & PENSION CONTRIBUTIONS
With effect from 1st January 2011, employee pension contributions will be subject to employee PRSI & the USC. Previously there was relief of PRSI and health levy for employee pension contributions.
Employer PRSI relief on pension contributions made by employees is also to be reduced by 50%. Therefore 50% of employee pension contributions will be subject to employer PRSI at 10.75%. This places a further cost on employers in providing funding for occupational pension schemes.
CONTRIBUTION LIMITS FOR PENSION RELIEF
High earners will take a further tax hit on the earnings cap for pension relief which is to be reduced from €150,000 to €115,000. This reduced limit apply for payments made in 2011 whether the contribution is against 2011 or 2010 earnings. Therefore, if you wish to maximise the current threshold of €150,000, you may want to making additional pension contributions before the end of this tax year.
STANDARD FUND THRESHOLD REDUCED
The maximum pension funds that can be created for an individual is to be reduced from €5.4m to €2.3m.
TAX FREE LUMP SUM RESTRICTION
From 1st January 2011, the maximum amount that can be extracted tax free from a pension fund is to be capped at €200,000. This amount was €1.35m previously. Amounts between €200,001 and €575,000 will be subject to 20% tax and amounts above €575,000 will be liable to the marginal rate of tax.
APPROVED RETIREMENT FUNDS (ARFS)
The annual deemed taxable income in an ARF is to be increased from 3% of the fund value to 5% of the fund value.
The corporation tax rate of 12.5% is to remain unchanged.
The exemption for start up companies from corporation tax and CGT is to be extended to companies which commence to trade in 2011. The amount of relief available is now to be linked to the amount of employer’s PRSI paid by the company in an accounting period subject to the maximum of €5,000 per employee.
The exemption both for dividend and income earned from patent royalties is abolished from 24th November 2010.
A new Employment and Investment Incentive (“EII”) is being introduced to replace the BES scheme. This will come into operation after approval is received from the European Commission. The existing BES incentive will continue in the meantime.
STAMPY DUTY & PROPERTY:
STAMP DUTY CHANGES
From 8th December 2010, the rate of stamp duty on residential property will be reduced to 1% on all properties valued up to €1 million. A rate of 2% will apply to property valued over €1 million. Stamp duty on land remains unchanged.
All stamp duty reliefs and exemptions for residential proeprty are to be abolished.
PROPERTY BASED TAX INCENTIVES
It was announced that a number of measures would be introduced to restrict and abolish the utilisation of property based tax incentives. These restrictions include the following:
- s.23 relief may only be used against rental income from that specific s.23 property. This measure applies to individuals from 1st January 2011 and companies for accounting periods beginning after 7th December 2010. At the end of the 10 year holding period for s.23 property, any unused relief will be lost. If property is sold within this period, the new owner will not get s.23 relief while the seller will continue to be subject to a clawback of relief already given.
- From 1st January 2011, an individual who carries on a trade and who is claiming building capital allowances from a building used in that trade may only offset those allowances against that trade income.
- From 2014 all unclaimed capital allowances arising after 2014 and any unused capital allowances carried forward will be terminated.
- Capital allowances claimed by people/companies on rental properties may only be offset against rental income from that specific property. Schemes with a period over 10 years which has not ended will be truncated to 7 years from when allowances are first made.
OTHER BUDGET MEASURES:
- The only CAT change is a 20% reduction in the thresholds for gifts and inheritances.
- An introduction of a second rate of RCT at 20% for tax compliant subcontractors.
- Petrol duty is up 4c per litre
- Diesel duty is up 2c per litre
- Travel tax reduced from €10 to €3 from March 2011
- Car scrappage to be extended for further 6 months.
- VRT relief extentions – for further details please contact us.