Budget 2012

Introduction

The measures announced in this budget had been signalled well in advance with the most significant measure being the introduction of a 2% increase in the standard rate VAT.  Individuals will be glad that income rates, bands and credits have remained unchanged.  Unfortunately it is disappointing to see that not much was given to stimulate new employment and business start-ups in the Budget.

Universal Social Charge (USC)

The Universal Social Charge (USC), which came into effect on 1 January 2011, will be deducted on a cumulative basis with effect from 1 January 2012.

The USC is exempt where an individual’s total income for the year does not exceed €10,035, all Department of Social Protection payments and income already subjected to DIRT.

The surcharge of 3% on individuals who have income from self-employment that exceeds €100,000 in a year, regardless of age, remains unchanged.

The USC rates for individuals less than 70 years

 

 

The USC rates for individuals aged 70 years or over and persons who hold a full medical card (regardless of age)

 

Income Tax Bands and Credits

There are no changes to the tax credits and bands for 2012.

The measures announced in Budget 2011 relating to the service (bin) charges relief are unchanged.  The relief is being abolished for 2012 tax year and subsequent years.  In 2011, a maximum of €400 tax relief was granted (at 20% tax rate) for service charges paid in the 2010 year.

The tax relief given for rent paid is unchanged as announced in Budget 2011.  This relief will be withdrawn on a phased basis over 7 years by reducing the amount of rent that can be relieved at the standard rate of income tax as indicated below.  Also note that claimants who were not renting at 7 December 2010 and who after this date enter into a rental agreement will not be able to claim the rent tax credit.  

 

The amount of rent that can be relieved at the standard rate of income tax for the Tax Year	Single Aged Under 55 years	Single Aged Over 55 years	Widowed/Surviving Civil Partner/Married or in a Civil Partnership under 55	Widowed/Surviving Civil Partner/Married or in a Civil Partnership over 55
2010	2,000	4,000	4,000	8,000
2011	1,600	3,200	3,200	6,400
2012	1,200	2,400	2,400	4,800
2013	1,000	2,000	2,000	3,600
2014	800	1,600	1,600	3,200
2015	600	1,200	1,200	2,400
2016	400	800	800	1,600
2017	200	400	400	800
2018	0	0	0	0

 

Tax Relief at Source – Mortgage Interest Relief

Interest paid on qualifying home loans taken out on or after 1 January 2004 and on or before 31 December 2012 will (subject to the exception below) qualify for tax relief up to the end of 2017 at the following general rates and thresholds –

 

First time buyers - The tax relief on interest paid on qualifying home loans for individuals who purchased their first principal private residence on or after 1 January 2004 and on or before 31 December 2008, the rate of tax relief on the interest paid on the loan to purchase that property will, for the tax years 2012 to 2017, be 30%. The upper thresholds in respect of the amount of interest paid qualifying for tax relief are €20,000 for individuals who are married, in a civil partnership or widowed and €10,000 for individuals who are unmarried and not in a civil partnership. After years 7, the thresholds for relief are as for non-first time buyers.

 

Non-first time buyers - The tax relief on interest paid on qualifying home loans is 15%. The upper thresholds in respect of the amount of interest paid qualifying for tax relief are €6,000 for individuals who are married, in a civil partnership or widowed and €3,000 for individuals who are unmarried and not in a civil partnership.

 

Taxation of Illness Benefit

The tax exemption currently applicable to Illness Benefit is abolished with effect from 1 January 2012.

 

Pensions

Approved Retirement Funds

Where an ARF fund has asset values in excess of €2 million (or, where an individual owns more than one ARF, where the aggregate value of the assets in those ARFs exceeds €2 million), the annual imputed distribution will increase from 5% to 6%.  The increase will apply in respect of asset values in affected ARFs at 31 December 2012 and future years

 

Also the transfer of ARF assets on the death of an ARF owner to a child aged over 21 of the owner is liable to a tax liability equal to the standard rate of income tax in force at the time of such a distribution.  It is proposed to apply a higher final liability tax rate of 30% to such transfers and the details of this will be published in the Finance Bill.

 

Personal Retirement Savings Accounts (PRSAs)

“Vested” PRSAs which are PRSAs from which retirement benefits have commenced to be taken will have the annual imputed distribution provisions which apply to ARFs will also apply on the same basis to “vested” PRSAs, where the assets are retained in the PRSA rather than being transferred to an ARF.

 

Employer PRSI on Pension Contributions

The current relief of 50% of employer PRSI for employee contributions to occupational pension schemes and other pension arrangements is being removed from 1 January 2012.  This change is to be legislated for in the Social Welfare Bill.

Deposit Interest Retention Tax (DIRT)
From 1st January 2012, DIRT tax and Exit tax will increase by 3%. Deposit accounts interest will increase from 27% to 30% and Life assurance policies and investment funds will now become liable to tax at 33%.

Section 23-type Relief’s and Accelerated Capital Allowances

From 1 January 2012 a surcharge will be introduced on individuals with gross incomes over €100,000.  The surcharge will apply at a rate of 5% on the amount of income sheltered by property reliefs in a given year.  This surcharge (essentially a higher rate of USC) will apply to all investors regardless of whether they invested in Section 23 or accelerated capital allowance schemes with this level of gross income.  Residential owner-occupier relief is unaffected by these changes.

 

Accelerated Capital Allowances

Investors in accelerated capital allowance schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015.  Where the tax life of a scheme has ended before 1 January 2015 no carry forward of allowances into 2015 will be allowed.
 

Corporation Tax

 

Relief for Investment in Renewable Energy

The qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects is being extended from 31 December 2011 to 31 December 2014.  The scheme is to encourage investment in renewable energy projects and to qualify for the relief the energy project must be approved by the Minister for Communications, Energy and Natural Resources and be in one of the following categories of technology:

-            Solar

-            Wind

-            Hydro (including ocean, wave or tidal energy)

-            Biomass

 

Start-up Corporation Tax Exemption
The scheme which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading is being extended to include start-up companies which commence a new trade in 2012, 2013 or 2014.

 

R&D Tax Credit

A number of changes are being made to the R&D tax credit scheme as follows:

            

Volume basis

The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis.  The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000 as compared with such expenditure in the base year 2003.

 

Outsourcing Limits

At present sub-contracted R&D costs eligible where they do not exceed 10% of total costs or 5% in the case of sub-contracting to third level institutions. This limit can disproportionately affect smaller companies who may have greater need to outsource R&D work than larger multinationals with greater internal resources.  The outsourcing limits for sub-contracted R&D costs are being increased to the greater of 5 or 10% as appropriate of €100,000

 

Use of the credit to reward R&D employees

Companies in receipt of the R&D credit will have the option to use a portion of the credit to reward key employees who have been involved in the development of the R&D.  This change will be monitored closely.

 

Capital Gains Tax (CGT)

For disposals made after 6 December 2011 the current rate of 25% is being increased to 30%.

 

Also from 6 December 2011 where properties are bought between Budget night and end of 2013 and held for more than seven years then any gains accrued in that period will not attract CGT.

 

Retirement Relief

In the Finance Bill, an upper limit of €3 million on retirement relief for business and farming assets disposed of within the family will be introduced where the individual transferring the assets is aged over 66 years.  Full retirement relief from CGT for intra-family transfers will be maintained for individuals aged 55 to 66.

 

The current upper limit of €750,000 for assets transferred outside the family for individuals aged between 55 and 66 years will be maintained.  The upper limit for retirement relief for business and farming assets transferred outside the family is reduced from €750,000 to €500,000 for individuals aged over 66 years.

 

There will be a transitional period of two years for individuals currently aged 66 or who reach that age before 31 December 2013 where the current limits will apply.

 

Capital Acquisitions Tax (CAT)

 

For any gifts and inheritances taken on or after 7 December 2011 the rate of tax had been increased from 25% to 30%.

 

The tax-free threshold for Group A has been reduced to €250,000 for gifts and inheritances taken on or after 7 December 2011.  Group B and Group C tax-free thresholds both remain unaltered.

 

  

Stamp Duty

 

A new lower rate of 2% has been introduced for non-residential property for instruments executed on or after 7 December 2011.  This single rate will apply to the entire amount of the consideration and the current exempt threshold of €10,000 has been abolished.

 

Consanguinity relief (which reduces the stamp duty liability by 50% for family members) will cease to apply to non-residential property for instruments executed after 31 December 2014.

 

Transitional arrangements will apply where, as a result of the new rate, a taxpayer is disadvantaged compared to the stamp duty treatment applicable prior to 7 December 2011.  The transitional arrangements will apply where an instruments is executed on or after 7 December 2011 and before 1 July 2012 in pursuance of a binding contract which had been entered into prior to 7 December 2011.

 

VAT

 

VAT Rate Increase

From 1 January 2012, the standard rate of VAT will increase from 21% to 23%

 

Reduced VAT rate for district heating

From 1 March 2012, the rate of VAT that will apply to the supply of district heating will be reduced from the standard rate to 13.5%.  This measure will be included in the Finance Bill,

 

Reduced VAT rate for admissions to pet farms

From 1 January 2012, the rate of VAT that will apply to admissions to pet farms/open farms will be 9%.  This measure will be included in the Finance Bill.

 

Extension of the VAT Refund Order for flat-rate farmers to cover wind turbines

From 1 January 2012, the refund order for flat-rate farmers will be extended to cover micro-generation wind turbines.  This will apply to wind turbines supplied and installed after that date.

 

Relevant Contracts Tax
There was no changes announced in the Budget.

 

Other Amended Regulations

Excise Duty

From midnight on 6th December 2011, the excise duty on diesel increased by 1.5 cent per litre on petrol and 1.5 cent per litre on auto-diesel (both inclusive of VAT).

Also from midnight on 6 December 2011, a packet of 20 cigarettes increases to 25 cent, inclusive of VAT, with pro rate increases on other tobacco products.

VRT

There were no changes announced in the Budget

Motor Tax 

Tax rates across all categories will increase with effect from 1 January 2012 as shown in table below.  The tax rates for goods vehicles are also increasing from 1 January 2012.  If you require details for any commercial/goods vehicle please feel free to contact our office for these rates.

 

Private Vehicles
CO2 Bands	Current Rates	Proposed Rates	Increase in Rate
A	€104	€160	€56
B	€156	€225	€69
C	€302	€330	€28
D	€447	€481	€34
E	€630	€677	€47
F	€1,050	€1,129	€79
G	€2,100	€2,258	€158
cc Rates	Current Rates	Proposed Rates	Increase in Rate
not over 1,000	€172	€185	€13
1,001 to 1,100	€259	€278	€19
1,101 to 1,200	€296	€307	€11
1,201 to 1,300	€310	€333	€23
1,301 to 1,400	€333	€358	€25
1,401 to 1,500	€357	€384	€27
1,501 to 1,600	€445	€478	€33
1,601 to 1,700	€471	€506	€35
1,701 to 1,800	€551	€592	€41
1,801 to 1,900	€582	€626	€44
1,901 to 2,000	€614	€660	€46
2,001 to 2,100	€784	€843	€59
2,101 to 2,200	€823	€885	€62
2,201 to 2,300	€860	€925	€65
2,301 to 2,400	€895	€962	€67
2,401 to 2,500	€935	€1,005	€70
2,501 to 2,600	€1,120	€1,204	€84
2,601 to 2,700	€1,164	€1,251	€87
2,701 to 2,800	€1,204	€1,294	€90
2,801 to 2,900	€1,248	€1,342	€94
2,901 to 3,000	€1,293	€1,390	€97
3,001 or more	€1,566	€1,683	€117
Electrical	€146	€157	€11

 

Employer Rebate

 

The employer rebate of statutory redundancy payments will reduce from 60% to 15%

 

The change in rate will apply where the date of dismissal by reason of redundancy occurs on or after 1 January 2012.

 

Household charge

 

A household charge of €100 is being introduced in 2012.  This charge will fund local services, in line with the requirement in the EU/IMF Programme of Financial Support for Ireland.  The charge is an interim measure pending design and implementation of a full property tax in 2014.

 

Homeowners (not tenants) will be liable for the household charge.  The charge does not apply to social housing or housing provided by a charity.  There will be a waiver for those on Mortgage Interest Supplement and for those residing in certain categories of unfinished housing estates.  Provision will also be made to allow payment of the charge in instalments.

 

 

 

 

 

Summary

This is the first Budget introduced by the Fine Gael/Labour coalition of their four year plan.  It is expected that future Budgets will be similar to this year’s with the same amount of spending cuts and tax increases being introduced.  It will take time to see which sectors of society take and feel the biggest hit of these Budgets. 

 

If you have any queries in relation to any of the above please contact a member of our Taxation Department.

 

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Mulcahy Gorman Mulcahy and employees do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. MGM is an agent of MGM Accountants Limited.