There has been a lot of publicity regarding the various announcements made in the Budget last month, but as we start 2012, are you aware of all changes which may impact upon you? Below is our summary guide to the main taxation changes announced:
There have been no changes to income tax rates or bands.
Universal Social Charge (USC)
In 2011 only persons with income lower than €4,004 were exempt from the USC. This was highly criticised and for 2012 the threshold has been increased. In 2012, persons with income of less than €10,036 are exempt from the USC. All Department of Social Protection payments and income already subject to DIRT continue to be exempt from USC.
USC is also now operated on a cumulative basis rather than a Week 1 basis. This does not affect the total USC which is payable, merely improves the timing over which it is paid. Many people will find that they received or are due a refund of USC in their final December 2011 salary payments, due the fact that USC was operated in 2011 on a Week 1 basis. This should not occur again in 2012 as USC will be operated on a cumulative basis throughout the year, adjusting itself as it goes along for an individual’s total earnings to date at that point in the year.
The greatly publicised and unpopular Household Charge comes into effect for 2012. This is a charge of €100 per household. The government have called this an interim measure until a full property tax is introduced in c. 2014. The onus is on each individual household to ensure that they pay this charge. Bills/letters will not be posted to homes. Instead you must pay online at www.householdcharge.ie before 31st March 2012. Late payment fines and also interest will be charged on any payments received after this deadline. Household charges plus accrued fines and interest that remain unpaid will be registered as a charge against the property and will have to be discharged before the sale of a property.
It is important to note that the charge applies to residential property owners. Therefore landlords are liable to pay this tax, not tenants. The household charge is payable on top of the €200 NPPR charge which landlords are also required to pay in respect of their residential rental properties.
An exemption to the household charge exists for houses in certain unfinished housing developments.
Tax on savings
Deposit interest retention tax (DIRT) rates have increased to 30% for payments made annually or more frequently. A rate of 33% will apply to payments made less frequently than annually.
The 36 day tax exemption for illness benefit has been removed.
Another highly publicised measure is the increase in the standard rate of VAT from 21% to 23% with effect from 1 January 2012.
Mortgage interest relief
Mortgage interest relief is increased to 30% for First Time Buyers who purchased between 2004 and 2008. There have been some stories in the media that some banks are being slow to update their systems for this increase so it is advisable to check correspondence received from your mortgage provider or contact them to ensure the increase has been added to your account.
With effect from 6 December 2011 multiple stamp duty rates for non-residential properties were abolished and replaced with a single rate of 2%.
Capital Gains Tax (CGT)
The rate of GCT has increased from 25% to 30% with effect from 6th December 2011.
A new incentive relief from CGT is being introduced for the first seven years of ownership for properties bought between 6 December 2011 and the end of 2013, where the property is held for more than 7 years. Where the property is held for 7 years, any gains accrued during these 7 years will be liable to CGT.
Capital Acquisitions Tax (CAT)
The rate of CAT has increased from 25% o 30% with effect from 6th December 2011.
The current Group A tax-free threshold is being reduced from €332,084 to €250,000 in respect of gifts or inheritances taken after 6 December 2011. The Group A threshold refers to gifts/inheritances from a parent to a child.
Relevant Contracts Tax (RCT)
A number of changes to the RCT regime were announced during 2011 and these have come into effect from 1 January 2012. The current paper based system has been replaced by an online system and there are now 3 rates of RCT (0%, 20% and 35%) to replace the two rates (0% and 35%) previously in operation.
The carbon tax has increased from €5 to €20 per tonne on fossil fuels. This applies to petrol and auto-diesel from 6th December 2011 and other products such as kerosene, liquid petroleum gas and natural gas from 1st May 2012.
Vehicle Registration Tax (VRT) and Motor Tax
No changes were made in this Budget to VRT but the subject is under review and consultation with plans to adjust the bands with effect from 1 January 2013.
Motor tax rates increased across all categories.
• Employer PRSI relief on pension contributions
The current relief of 50% of employers PRSI for employee contributions to occupational pension schemes and other pension arrangements is removed.
The imputed annual distribution applicable to the value of assets held in an Approved Retirement Fund (ARF) is being increased from 5% to 6% in respect of ARFs with asset values in excess of €2 million.
Currently the standard rate of income tax (20%) is payable for the transfer of ARF assets on the death of an ARD owner to a child of the owner aged over 21. It is proposed that the applicable tax rate should be increased to 30%.
• Vested PRSAs
The annual imputed distribution provisions applicable to ARF’s will also now apply on the same basis to vested PRSAs, where the assets are retained in the PRSA rather than being transferred to an ARF.
The 3 year corporation tax exemption for certain start-up companies will include companies commencing to trade in 2012, 2013 and 2014. However the exemption continues to be linked to the total Employers PRSI paid by these companies. Only certain companies commencing to trade in 2009 and 2010 are exempt from corporation tax without being required to meet criteria on Employers PRSI liabilities paid.
A number of changes were made to the R&D tax credit regime with the aim of encouraging a greater take up particularly amongst SMEs.
In an attempt to improve the in-take of funds from the domicile levy, the “citizenship” condition for payment of the levy is being removed. The Domicile Levy is a €200,000 charge on Irish domiciled individuals whose worldwide income exceeds €1 million, whose Irish property is greater in value than €5 million and whose liability to Irish income tax in a relevant tax year was less than €200,000.
Please note the above list is not an exhaustive list of proposed changes. In addition, the above notes are based on the budget speech and not on draft legislation, which will not be available until the Finance Bill is published. Fenero accepts no responsibility for any action which any individual or business may take or not take based on their reading of this article. Professional advice should be taken before any action is taken.