Over recent weeks, there has been much speculation on the provisions to be announced in Budget 2012. The anticipation was heightened by the “State of the Nation” address by An Taoiseach Enda Kenny on Sunday night. In an unprecedented move, Minister Howlin and Minister Noonan shared the burden and spread their respective speeches over two days. Some of the main features introduced in the 2012 Budget are set out below:
Personal Matters
Income Tax
In line with the Programme for Government, Minister Noonan announced that there will not be any increases in income tax for 2012 ie no changes to income tax rates, bands or personal tax credits.
Universal Social Charge (USC )
From January 1 2012, USC will only be paid by individuals earning in excess of €10,036 (previously €4,004 ). The Government expects that this will benefit almost 330,000 people and will assist individuals in moving into the labour market.
PRSI
In his speech Minister Noonan indicated that the PRSI base would be broadened in relation to rental and investment income from 2013. It is expected that this will bring PAYE workers within the scope of PRSI on such income at a rate of four per cent.
Pensions
Last year’s budget restricted the relief available for employer PRSI on employee pension contributions to 50 per cent. Budget 2012 has now removed the remaining relief with effect from 1 January 2012.
While there has been no change to the income tax rate at which relief is available for personal pension contributions, Minister Noonan indicated that a review of the current regime will be carried out in the coming year.
Mortgage Interest Relief
In a bid to assist those who bought homes at the height of the property boom, Minister Noonan announced an increase in the rate of mortgage interest relief to 30 per cent for first time buyers who took out their mortgage in the period 2004-2008. For new mortgages taken out in 2012, relief will be available for first time buyers at a rate of 25 per cent and a rate of 15 per cent for others. It was also confirmed that the relief will no longer be available on new mortgages taken out from 2013.
Social Welfare
As widely expected, changes to child benefit entitlements were announced by Minister Howlin on Monday. Over the next two years, the higher rates for third and subsequent children will be phased out and the one-off grants payable on multiple births will be discontinued. However, there are no changes to the standard rate of child benefit of €140 which will now apply for each child.
The Government confirmed that there will not be any reduction in the standard weekly rate of social welfare payments. However, there will be a number of changes to the basis of entitlement for various payments. These include:
• Jobseekers’ Benefit will be based on a five-day rather than six-day week where a person is working for part of a week.
• From 2013, Sunday employment will be considered for the purpose of the level of entitlement to Jobseekers’ Benefit.
• Changes to the entitlement to Disability Entitlements for those under 24 years of age.
• A number of changes to the entitlement to and level of One Parent Family payment.
• Increased minimum contribution for both Rent and Mortgage Interest Supplement.
With the aim of reducing absenteeism in both the public and private sectors, the tax exemption for the first 36 days of Illness Benefit and Occupational Injury Benefit has been removed. It was announced that the Minister for Social Protection, Joan Burton, will undertake a consultation process with a view to further addressing this issue.
Deposit Interest Retention Tax (DIRT )
All rates of DIRT will increase by three per cent with effect from 1 January 2012.
Business Matters
In his speech, Minister Noonan reaffirmed the Government’s long-term commitment to the 12.5 per cent Corporation Tax rate. Budget 2012 also emphasised the Government’s focus on job creation and the importance of the role of the SME sector in achieving this goal. To that end, the Minister confirmed the extension of the three year Corporate Tax exemption for start-up companies which commence to trade in 2012, 2013 and 2014.
In addition, a number of changes are being made to the Research and Development (R&D ) Tax Credit which are aimed at encouraging further investment by SMEs in innovation and development. These include:
• The first €100,000 of qualifying expenditure will now automatically qualify for a credit of 25 per cent. The credit will continue to apply in the normal way to remaining qualifying incremental R&D expenditure.
• Restrictions in relation to eligible subcontracted R&D costs have been relaxed. From 1 January 2012 the outsourcing limits for such costs will be increased to the greater of €100,000 or five per cent in relation to payments to third level institutions and 10 per cent to others.
• Companies will have the option of using a portion of the R&D tax credit to reward key employees involved in the R&D process.
Other measures announced include:
• The introduction of a Special Assignee Relief Programme. The aim of this relief is to enable multinational and indigenous companies to attract skilled employees into Ireland from abroad. Further details will be provided in the Finance Bill.
• The re-introduction of a Foreign Earnings Deduction to support efforts by companies to expand into emerging markets. The Foreign Earnings Deduction will apply to employees assigned to Brazil, Russia, India, China or South Africa (the BRICS countries ) for a minimum period of 60 days to develop those markets for Ireland. Again, we await the publication of the Finance Bill for further details on this measure.
• The reduction of the employer rebate under the Redundancy and Insolvency Payments Scheme from 60 per cent to 15 per cent.
Property Matters
As a result of an Economic Impact Assessment undertaken during 2011, the Government has decided not to proceed with the property tax relief restrictions proposed in last year’s Budget by their predecessors. The results of this assessment indicated that the proposals could further damage the Irish property market. As an alternative, Minister Noonan outlined the introduction of a property relief surcharge of five per cent on investors with an annual gross income in excess of €100,000. This surcharge will apply only to income which is sheltered by property reliefs in any given year. In addition, restrictions will be placed on Accelerated Capital Allowance schemes in relation to the timeframe in which the allowances must be used.
Separately, a number of measures were introduced with the aim of encouraging activity in the property sector. Stamp Duty for commercial properties will be reduced from a top rate of six per cent to a flat rate of two per cent with immediate effect. There is no change to Stamp Duty rates applying to residential property. In an unforeseen move, Minister Noonan also announced a Capital Gains Tax incentive for property purchased by the end of 2013. A portion of the gain on the disposal of such properties, where held for at least seven years, will be relieved from Capital Gains Tax.
As anticipated, Budget 2012 introduced a household charge of €100. This is an interim measure until the Government designs and implements a full property tax which is expected in 2014. It appears that this charge will be payable in addition to the Non Principal Private Residence charge of €200. The household charge will not apply for individuals receiving mortgage interest supplements or in the case of properties in certain unfinished housing estates.
Capital Taxes
Both the rates of Capital Gains Tax and Capital Acquisitions Tax (gift/inheritance ) have been increased from 25 per cent to 30 per cent. In addition, the Capital Acquisitions Tax threshold for tax-free transfers from parents to children has been reduced from €332,084 to €250,000. These changes are effective after 6 December 2011.
Minister Noonan outlined a number of changes to Capital Gains Tax retirement relief with the aim of incentivising earlier transfer of business and farming assets. Existing reliefs will continue to apply to transfers of such assets by individuals between the ages of 55 and 66. After the age of 66, these reliefs will be restricted. Transitional measures will apply until December 31 2013.
Farmers
In good news for farmers, enhanced stock relief for farm partnerships is being introduced and will run until the end of 2015. In addition, VAT refunds will be available for wind turbines purchased from 1 January 2012.
Indirect Taxes
As expected, the standard rate of VAT will be increased from 21 per cent to 23 per cent with effect from 1 January 2012. The reduced rates of VAT will remain unchanged. A detailed commentary on the implications of this change and other topical VAT matters will be covered by KPMG in next week’s edition of the Galway Advertiser.
This article was compiled by the KPMG Galway Tax Team, Odeon House, Eyre Square, Galway. Tel: 091-534600.
