The backdrop to Budget 2013 is that the Minister for Finance had to fund a significant portion of the €3.5bn budgetary consolidation from tax measures. As with previous budgets, a significant proportion of this tax burden will ultimately be borne by individual taxpayers.
In 2013 it is estimated that 42% of the overall tax revenue will be generated from income tax. In 2007, the corresponding sum was 29%. This demonstrates the increased reliance on individual taxpayers to bridge the budget deficit in the so-called “austerity years”.
Recent budgets have seen the introduction of a range of new taxes for individuals including the Universal Social Charge, second property charge, a domicile levy – all in an effort to broaden the tax base. This has been brought a step further in 2013 with the introduction of the Local Property Tax.
The progressive nature of the Local Property Tax, in tandem with the additional taxes arising from changes to PRSI, pension contributions, capital taxes, excises and DIRT will result in a significant increase in the tax burden on individuals.
The principal tax measures impacting on individuals include:
This tax is being introduced with effect from 1 July 2013 and will be calculated by reference to the market value of the residential property. The tax will be calculated at a rate of 0.18% of the market value up to €1m and 0.25% on values above that level.
The newly self-assessed tax will apply to all residential properties including rental properties and holiday homes. A key aspect of the proposal is that the individual will self-assess the value of his residential property. However, Revenue guidance will be available to assist with this valuation or alternatively, an independent valuation can be used.
The Minister flagged exemptions from the Local Property Tax including:
The Minister also announced a deferral scheme for those on low incomes.
The proposal would appear to have many of the same flaws as the old property tax which was abolished in 1997 as it is based on the market value of the property, and as such, is likely to have a greater impact on urban dwellers. Also, it may prove contentious as there does not appear to be any relief for those individuals in negative equity.
The Household Charge will cease with effect from 1 January 2013 and the NPPR charge will cease with effect from 1 January 2014.
As anticipated, PRSI has been extended to cover all income of employees from 1 January 2014 including, dividend income, rental income and deposit interest income. Currently, employees are not subject to PRSI on such income whereas self-employed persons are.
The weekly exemption of €127 per week for PRSI for employees has been abolished. Also, the minimum PRSI contribution for self-employed person has been increased from €253 to €500.
With effect from 1 January 2013, the standard rates of USC will apply to persons over 70 years of age if they have income in excess of €60,000.
Tax relief will continue to be available at marginal tax rates. However, relief will no longer be available on contributions to pension funds that deliver income of more than €60,000 per annum.
Somewhat surprisingly, the rates of Capital Gains Tax and Capital Acquisitions Tax have been increased from 30% to 33% with immediate effect. These rates have increased from 20% over the last three budgets.
Similarly, the rate of DIRT has also increased from 30% to 33%.
The exempt thresholds for Capital Acquisition Tax have also been reduced by 10%.
Whilst no changes have been made to VAT rates, the Minister has provided for increases in VRT and road tax and has substantially increased excise duty on alcohol and cigarettes.