Budget 2013

In his Budget 2013 speech, Minister Noonan reaffirmed the Government’s commitment to the 12.5% rate of corporation tax. Measures were also announced for the assistance of the SME sector in Ireland. These included a reform of the three year corporation tax relief for start-up companies to allow unused credits to be carried forward beyond the first three years of trading, increasing the cash receipts accounting basis threshold for VAT from €1m to €1.25m, an increase in the expenditure eligible for the R&D tax credit and an extension to the Foreign Earnings deduction.

USC

Up to now individuals aged 70 years and older have paid USC at a reduced rate of 4% on their employment and pension income.  From 2013, such individuals earning income of €60,000 or more will now pay USC at the standard rate of 7% on income over €16,016.

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% USC for employees and 10% for self-employed.

PRSI

The weekly PRSI allowance for full rate (€127) and modified rate (€26) PRSI contributors will be removed from 1 January 2013.  For employees paying PRSI at class A1 this will result in additional PRSI payable of approximately €22 per month.

Certain civil service employees paying PRSI at a modified rate on employment income are currently exempt from PRSI on trading or professional income.  From 1 January 2013 this exemption will be removed and income from a trade or profession will be subject to PRSI.

From 1 January 2014 unearned income for all other employees will be subject to PRSI at 4%.  This will result in PRSI being payable on non-employment income such as dividends, deposit interest and rental income where previously this would have been exempt.

Pensions

It is the Government’s intention to encourage pension contributions to allow individuals to support themselves during retirement.  Tax relief at marginal rates will continue to apply to pension contributions but from 1 January 2014 tax relief will only be available in respect of pension contributions that will be used to fund an annual pension of up to €60,000 per annum.  We await further detail in the Finance Bill on how these changes will be implemented.

The Pension Levy announced as part of the Jobs Initiative will not be renewed after 2014.

Charitable donations

Changes have been made to tax relief for charitable donations so that from 1 January 2013 the relief will be granted to the charity in all cases at a blended rate of 31% (previously self-assessed tax payers were entitled to claim the relief on their tax return).  Charitable donations will also be removed from the list of “specified reliefs” for the purposes of the high earners income restriction.  An annual donation limit of €1m per individual will apply in relation to the tax relief claimable by the charity.

Local property tax

Budget 2013 introduced the widely publicised Local Property Tax in compliance with the Government’s commitments to the EU, IMF and ECB troika. It will apply to residential properties from 1 July 2013. The tax will be based on the market value of the property under a self-assessment system. Taxpayers will have the option to value the property themselves using valuation guidance provided by the Revenue. Alternatively, they can opt to have the property valued by a professional valuer. The tax will be charged at a rate of 0.18% on properties valued at less than €1M with the rate increasing to 0.25% on the value of a property which exceeds €1M. The tax will be administered by the Revenue Commissioners with owners to receive correspondence from the Revenue Commissioners in March 2013 outlining their obligations and options for assessment/payment.  

The new tax will replace the existing household charge which will cease with effect from 1 January 2013 and Non-Principal Private Residence charge which will cease with effect from 1 January 2014. The Minister has committed not to vary the rates during the lifetime of the Government subject to the ability of the local authority from 2015 to vary rates by 15% above or below the central national rates.

Although the rates are lower than initial suggestions of 0.5%, the new tax will have a significant impact on property owners, in particular those in negative equity and the lower paid. There are limited exemptions available, largely in line with those which apply to the household charge, save for the introduction of an exemption, up to the end of 2016, for properties purchased by first time buyers in 2013 and those who purchase a new or previously unoccupied property between 2013 and 2016.  

Other capital taxes

Budget 2013 has increased the rate of Capital Acquisitions Tax and Capital Gains Tax from 30% to 33% in respect of gifts/inheritances received or disposals made after 5 December 2012.  This represents the fourth rate increase in four years, from an initial rate of 20% pre April 2009.  

In addition, tax free group thresholds, for Capital Acquisitions Tax, have also been adjusted downwards by 10%, in respect of gifts/inheritance taken after 5 December 2012.  The revised tax free group thresholds are as follows:

The increase in the rate, together with the reduction in the thresholds will mean that relatively modest gifts/inheritances will now be subject to CAT at the higher rates.

Important Capital Acquisitions Tax reliefs on the transfer of a business or farm remain unchanged despite speculation that restrictions in line with the recommendations of the Commission on Taxation may have been introduced.  

A new relief from Capital Gains Tax has also been introduced where farm land is sold and the proceeds are reinvested for farming purposes. The relief is subject to obtaining EU State-Aid approval and is designed to create additional jobs in the farming sector.

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