BUDGET 2012 HIGHLIGHTS:
Budget 2012 was presented over 2 days this year on 5th & 6th December 2011. On 5th December, Minister Howlin announced details of the planned cuts in public expenditure. Yesterday, Minister Noonan outlined the tax measures for 2012. Some of the measures announced will come into effect immediately. Others take effect from January 2012. Below you will find a brief summary of some of the main tax points arising from Minister Noonan’s budget speech yesterday:
The Minister confirmed that there would be no change to income tax rates, bands or personal credits for 2012. However, illness benefit will now be taxed from the first day of payment while previously the first 6 weeks were exempt from tax.
The exemption threshold for the USC has been increased from €4,004 to €10,036 from 1st January 2012. The USC will be moving to a cumulative basis in 2012 meaning that this should minimise the occurrence of under or overpayment.
The citizenship condition for payment of the levy is being removed which means that non-residents will not be able to avoid the levy by changing their citizenship status.
It was anticipated that employee PRSI would apply to rental income, dividends and other investment income in 2012 but the Minister indicated that this change would apply to such income from 2013 onwards instead.
Also as a measure to broaden the PRSI base, the remaining 50% employer PRSI relief on employee pensions will be removed from 2012.
The DIRT rate on deposit interest and exit tax on life assurance policies and investment funds will be increased by 3% from 27% to 30% for payment made annually or more frequently. DIRT will be increased from 30% to 33% for payments made less frequently than annually.
A number of changes were announced which are relevant for people with property investments
S. 23 type relief investments will not be terminated for investors with an annual gross income under €100,000. However, for individuals with a gross income over €100,000, a property relief surcharge of 5% is to apply on the amount of income which the S. 23 relief shelters.
In addition, investors with accelerated allowances (e.g. hotels) who have gross income in excess of €100,000 will also be subject to the surcharge of 5%. They will also no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1st January 2015. Where the tax life of a scheme ends before January 2015, then no carry forward of allowances into 2015 will be allowed.
A single flat rate of stamp duty of 2% will apply to transfers of commercial property which includes, commercial buildings and land, farmland, transfer of business assets such as goodwill, debtors, etc. This new rate will apply from 7th December 2011.
From 2015, the special rate of 50% reduction in stamp duty which applies for transfers within families is to be totally abolished.
MORTGAGE INTEREST RELIEF (“MIR”):
The rates of MIR have been increased for first time buyers and for those who purchase in 2012.
For those first time buyers who bought between 2004 and 2008, a rate of 30% MIR will apply.
Where a property is bought in 2012, a first time buyer can avail of relief at 25% while relief for other purchasers will be at 15%.
House purchases made from 2013 onwards will not qualify for the relief. MIR will be abolished for all from 2018.
A household charge of €100 per household will take effect from 1stJanuary 2012.
A new relief was introduced by the Minister yesterday to incentivise the purchase of property from now until the end of 2013. If a property is bought during this period and held for 7 years, the capital gain relating to the 7 year holding period will be fully relieved from CGT.
There was no change to the marginal relief for pensions but a number of other changes were made in this budget:
APPROVED RETIREMENT FUNDS (“ARFs”):
The annual imputed distribution for ARF’s has been increased from 5% to 6% for ARFs or multiple ARFs exceeding €2m. The asset value test will apply on 31st December 2012 and thereafter.
Where there is a transfer of ARF assets on a death to a child over 21, this will be subject to a liability of 30% in line with the changes to other capital taxes.
Vested PRSA’s (PRSA’s from which retirement benefits have commenced to be taken) will now be treated the same as ARF’s for the purpose of the annual imputed distribution.
Subject to clearance by the European Commission under State Aid rules, enhanced stock relief of 50% (100% for certain young trained farmers) will apply until 31st December 2015.
The existing VAT refund order for unregistered farmers will be extended to allow farmers to claim a VAT refund on wind turbines purchased from 1 January 2012.
Entry to open farms will be subject to VAT at 9%.
A number of changes have been made to CGT and CAT as follows:
The rate of CGT has been increased from 25% to 30% in respect of disposals made after 6th December 2011.
Modifications have been made to CGT retirement relief in relation to agri-businesses (which includes farms) so that it now incentivises a timely transfer of farms and businesses before the owner reaches 66. Full details of same will be in the Finance Bill where it could also be extended to other businesses and not just farming and agri-businesses.
CGT retirement relief also applies to business transfers to non-family members but it is subject to a cap of €750,000. It was indicated yesterday that this cap will be reduced to €500,000 for individuals over 66.
The rate of CAT has been increased from 25% to 30% with effect 6thDecember 2011.
The Group A CAT threshold is also being reduced from €332,084 to €250,000 and similar reductions to other thresholds may also be introduced in the Finance Bill.
There are many welcome changes to business taxation which were mentioned in the budget yesterday which I will outline below:
The Minister reinforced the commitment to the 12.5% corporation tax rate.
The scheme of corporation tax relief for start-up companies has been extended to include start-up companies which commence in 2012, 2013 & 2014.
A number of amendments to the R&D tax credit regime were proposed yesterday which particularly focus on the indigenous SME sector:
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.
At present, 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 of €100,000.
Use of the 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 R&D process. The credit will be a tax free payment in the hands of the employee.
NEW SARP SCHEME:
The Minister announced the introduction of a Special Assignee Relief Programme to encourage skilled mobile capital to locate in Ireland.
FOREIGN EARNINGS DEDUCTION:
A new foreign earnings deduction will be introduced to aid companies seeking to expand into emerging markets. It will apply to individuals who spend 60 days or more a year developing markets for Ireland in economies such as Brazil, Russia, India, China & South Africa. Further details will follow in the Finance Bill.
The Minister announced that the Redundancy and Insolvency Scheme will be amended to reduce the employer rebate on statutory redundancy payments from 60% to 15%.
INDIRECT TAXES & EXCISE DUTIES:
The increase in the standard rate of VAT to 23% is to apply from 1st January 2012.
Carbon tax on fossil fuels will increase from €15 per tonne to €20 per tonne. The increase will apply to petrol and diesel with effect from 7thDecember 2011. The change will apply to other fuels from May 2012 but will not apply to solid fuels such as briquettes and coal.
VRT & MOTOR TAX:
A review of the current CO2 bands and rates for VRT is planned to be reformed from 1st January 2013.
Motor tax is increasing across the board from 1st January 2012. The increases will depend on the current motor tax bands and classifications of vehicle types.
A Bill is in preparation to extend betting duty at 1% to on-line betting and introduce a betting intermediaries duty.
Excise duty on 20 cigarettes is being increased by 25 cents from 7thDecember 2011.