Insight from Joanne Whelan, partner, Deloitte on Budget 2013
Income Tax
It was largely expected that there would be no changes to the 20% and 41% tax rates and tax credits in Budget 2013. The areas that received most press commentary recently were potential increases to the highest rate of USC for those over 70, the extension of PRSI to non-earned income, changes in tax relief for pension contributions and the introduction of a property tax. The speculation was well-founded with the Budget addressing each of these areas.
Universal Social Charge (USC)
Until now, those over the age of 70 have paid a reduced rate of 4% USC on their employment and pension income. From 2013, this reduced rate will be discontinued, and such individuals will now be subject to the USC at standard rates i.e. 7% on employment/pension income in excess of €16,000 where their income exceeds €60,000.
It is disappointing that the Budget did not address the inequity between the self-employed and the employed in the context of income over €100,000 which is subject to 7% for those in employment, and 10% for self-employed. This is despite the assertions of the Minister that the Budget is a fair one.
PRSI
The Minister announced a number of significant reforms of the PRSI system. These include:
- Increasing the minimum PRSI liability for self-employed individuals earning more than €5,000 from €253 to €500,
- Abolishing the weekly €127 PRSI exemptions for all PRSI contributors,
- Extending PRSI to non-employment income for certain civil servants who pay PRSI at reduced rates from 1 January 2013, and
- Extending PRSI to unearned income for all other employees from 1 January 2014.
Tax relief on pension contributions
Obviously it is the Government’s intention to encourage contributions to pension to allow individuals to support themselves during retirement. It is welcomed that tax relief on pension contributions will continue at the marginal tax rate.
However, a number of key changes were announced in today’s Budget. From 2014, tax relief on pension contributions will only be available to support pension schemes that provide an income of up to €60,000 per annum. The effect will likely mean that an individual’s standard fund threshold (maximum pension fund at retirement) will be set at €1.2 million based on current annuity rates, to achieve the income level of €60,000. However, we look forward to the detail as to how the changes will be implemented. For example for those with fund thresholds currently in excess of €1.2 million will measures be introduced to accommodate them? Finally, the pension levy will be abolished with effect from 2014.
Local Property Tax
As was anticipated, a local property tax is to be introduced with effect from 1 July 2013 and will apply to owners of residential properties (which includes rental properties). In 2013, only a half year charge will apply.
The tax, which will be based on the market value of the property as determined by the homeowner, is to be collected by Revenue, and in broad terms tax is calculated at a rate of 0.18% up to €1 million and 0.25% over €1 million.
It was also announced in the Budget that the household charge of €100 and the NPPR charge of €200 will be abolished with effect from 1 January 2013 and 1 January 2014 onwards.
Other measures
As a direct outcome of an Economic Impact Assessment, film relief is to be extended to 2020, and the scheme will now operate on a tax credit basis from 2016 onwards which will reduce the tax benefit to individuals at the higher rate of tax. Although the extension of the relief is welcomed, by moving to a credit system it will be interesting to see how it will interact with the high earners restriction, if at all, and the impact it will have on the level of investment.
In addition, the recently introduced EII scheme (which replaced the BES scheme) is to be extended until 2020.
In a measure that was eluded to some time ago, tax relief for making donations to charity will be simplified by the introduction of a harmonised rate of 31% which will apply to all donations.
Finally, the rate of DIRT and exit taxes on certain life policies has increased from 30% to 33%.
