Minister for Finance, Brian Lenihan, T.D. delivered Budget 2011 today. As expected this was a budget about expenditure cuts but there were also significant changes announced by the Minister relating to the Tax Code. We now await publication of the Finance Bill, which similar to previous years may introduce further amendments to the current legislation. Set out below are the tax changes announced by the Minister:
- There is to be a reduction in the value of income bands and tax credits by 10%.
- Rent relief for individuals is to be phased out over a period of 8 years.
- The Health Levy and Income Levy are replaced by a new Universal Social Charge in 2011.
- The age exemption limits and age credits are to be abolished over 4 years.
- Deposit Interest Retention Tax (DIRT) is to increase by 2% to 27% on ordinary accounts, and to 30% on longer-term deposit accounts.
- The tax exemption for Patent Royalty Income is abolished with effect from 24 November 2010.
- Tax relief for trade Union Subscriptions is to be abolished.
- A €40,000 ceiling to be introduced in respect of the tax exempt earnings of artists.
- A ceiling of €200,000 will apply to the tax-free element of ex-gratia termination payments with effect from 1 January 2011. Payments made above this amount will be subject to tax at the marginal rate.
- The 12.5% rate of corporation tax on trading income will remain unchanged. • The 3 Year Tax Exemption Scheme for Start-up Companies is being extended to
- include start-up companies which commence a new trade in 2011.
- The Business Expansion Scheme is to be changed to increase the amount that Companies can raise under the Scheme from €2m to €10m, with greater emphasis on employment creation.
- Tax Relief for certain subscriptions to professional bodies is to be abolished.
- There will be an abolition, over a number of years, of the tax relief previously obtained by individuals in respect of loans to acquire shares in certain companies.
- Significant restrictions are to be introduced in relation to capital allowances in respect of property based incentives (Covered in further detail below).
- The scheme for accelerated capital allowances for energy efficient equipment is being extended for a further 3 years until 2014.
- The rate of VAT remains unchanged at 21% per the budget speech. However, the Government’s 4 Year Plan provides for an increase in the Standard rate of VAT from 21% to 22% in 2013 with a further increase to 23% in 2014. The 4 Year Plan also provides that the lower rate on labour intensive services (13.5%) will be left unchanged.
- Capital Taxes
- No change was announced in the Budget to the current capital gains tax rate of 25%.
- No change was announced in the Budget to the current Capital Acquisition Tax rate of 25%.
- -The current group tax-free thresholds are being reduced by 20% in respect of gifts or inheritance taken from midnight 7 December 2010.
- Stamp Duty will be 1% on transfers of residential property valued up to €1m with a rate of 2% applying to higher value transfers. This applies to transfers executed on or after 8th December 2010.
- The Minister has announced the abolition of all stamp duty reliefs relating to residential property.
- The Employee PRSI Ceiling of €75,036 is abolished.
- Modified PRSI rates for Certain Public Servants is increased to 4% on incomes in excess of €75,036 and there is an introduction of a PRSI charge of 4% on certain office holders.
- With effect from 1 January 2011, employee contributions to pension schemes will no longer be exempt from PRSI and the Universal Social Charge.
- Employer PRSI relief on pension contributions made on behalf of employees will be reduced by 50% with effect from 1 January 2011.
- The annual earnings limit, which determines the maximum tax relieved pension contribution, is reduced from €150,000 to €115,000.
- The maximum allowable pension fund on retirement for tax purposes is to be capped at €2.3m (down from €5.4m).
- The lifetime tax-free lump sums to be drawn down from pension funds is capped at €200,000. The next €575,000 will be taxed at the standard rate of tax with the marginal rate applying thereafter.
- A reform to the operation to Relevant Contracts Tax (RCT) has been announced. The current RCT system is to be replaced with two rates of withholding whereby a 20% rate applies for subcontractors registered for Tax with an established compliance record. 35% is to apply for subcontractors not registered for tax.
- It is proposed that there will be an abolition of the monthly repayment system which may be replaced by on offset system. The burden on the principal contract is likely to increase and we await further detail on the reforms.
Vehicle Registration Tax (VRT)
- The car scrappage scheme is being extended to 30 June 2011.
- An extension has been announced for VRT relief for Hybrid and Flexible Fuel Vehicles.
- The current rate of VRT for Commercial Vehicles is being increased from €50 to €200 with effect from 1 May 2011.
- Mineral Oil Tax will increase by 2 cent per litre on auto-diesel any by 4 cent per litre on petrol from Midnight 7 December 2010.