We are pleased to provide our summary of the main taxation measures announced yesterday by Minister Noonan in Budget 2014, as well as a comment on its economic backdrop.
Whilst the measures announced in this budget are important, the implementation of these measures will be of more significance and we note that it is the Minister’s intention to introduce the Finance Bill on 24 October 2013, which will legally impose most of the changes announced yesterday. We will also be commenting in detail on the Finance Bill when published. Should you have queries on any aspect of the Budget, please contact a member of our team, who will be happy to assist you.
Summary of measures
Personal Tax
- No increases in rates of income tax, USC or PRSI
- Tax relief for medical insurance restricted
- Tax relief for investment in partnerships removed
- Home renovation incentive introduced
- DIRT and similar taxes increased to 41%
- Top slicing relief abolished
- One Parent Family tax credit to be replaced with Single Person Child Carer tax credit
Pensions
- Pension fund levy to increase in 2014
- Standard fund threshold reduced
Business Tax
- New Start Your Own Business incentive announced
- EII removed from high earner’s restriction
- New film relief changes announced
- Scope of Living City Initiative extended
- R&D tax credit improvements announced
VAT
- 9% rate on tourism related services retained
- Cash accounting threshold increased to €2m
- Farmer’s flat-rate addition increased to 5%
- Anti-fraud measures announced
Capital Gains Tax
- Property purchase incentive extended
- New entrepreneurial relief introduced
- Retirement relief for farmers improved
Capital Acquisitions Tax
- No changes announced
Other Taxes
- Increase of 10 cents on packet of 20 cigarettes
- Increase of 10 cents on pint of beer/cider
- Increase of 50 cents on bottle of wine
- Air Travel Tax reduced to zero
- Stamp duty on ESM traded shares removed
Personal Tax
41% higher tax rate remains.
PRSI
The 4% PRSI rate will apply to all taxpayers.
As previously announced, from 1 January 2014, unearned income such as rental income, investment income, dividends and deposit interest will be subject to PRSI for all taxpayers.
Universal Social Charge (USC)
The standard rates of USC apply to those aged 70 years of age and over and medical card holders earning €60,000 and above.
A 10% rate continues to apply to self-employed income over €100,000.
Tax relief for medical insurance
From 16 October 2013, the tax relief on medical insurance premiums will be restricted to the first €1,000 per adult insured and €500 per child.
One Parent Family tax credit
From 1 January 2014, the one parent family tax credit will be replaced with a single person child carer tax credit. The new credit will be equal in value to the one parent family tax credit but can only be claimed by the primary carer of the child.
DIRT & exit taxes
41% on interest payments whether payments are made annually or more frequently.
Home Renovation Incentive (HRI)
This incentive will apply to expenditure by an individual on the renovation or improvement of their principal private residence. Individuals who avail of the scheme will be able to write off 13.5% of the cost of the renovation work. The relief will be granted by way of a tax credit split over two years commencing in the year following the year of the expenditure. There is a minimum threshold spend of €5,000 and a maximum threshold of €30,000 over two years. The contractor carrying out the work must be tax compliant.
Tax reliefs on loans to acquire an interest in a partnership
From 15 October 2013, tax relief for acquiring an interest in a partnership will be abolished. The relief will be phased out over 4 years for existing claimants until 1 January 2017.
High earner restriction
Capital allowances and losses on plant and machinery used in manufacturing trades which are claimed by passive investors will be included as a specified relief for the purpose of the high earner restriction.
Top slicing relief
From 1 January 2014, top slicing relief will no longer be available in respect of all ex-gratia termination payments.
Maternity benefit
From the 1 January 2014 the rate of maternity benefit will be standardised at €230 per week for all new claimants.
Pensions
Pension fund levy
The 0.6% stamp duty levy on pension fund assets is to increase to 0.75% for 2014. The levy will then be reduced to 0.15% for 2015.
Changes to the standard fund threshold regime
With effect from January 2014, tax relief will only be available on pension contributions up to the level that provides an annual income of up to €60,000. As such with effect from 1 January 2014 there will be a further reduction in the Standard Fund Threshold from €2.3 million to €2 million.
The current single valuation factor of 20 used to value Defined Benefit pension entitlements will be replaced by a range of higher factors which will vary with the age at which the pension is drawn down. The aim of this measure is to improve the equity of the Standard Fund Threshold regime as between the Defined Benefit and the Defined Contributions pension arrangements and between those who retire at an early age and those who retire at a later age.
Where an individual’s pension rights exceed the new lower SFT on 1 January 2014, they can protect those rights by formally applying for a Personal Fund Threshold (PFT) of up to €2.3m (unless the individual already has an existing PFT).
Business Taxation
Corporation tax rate
No change to the 12.5% corporation tax rate.
Start Your Own Business (SYOB)
Individuals who have been unemployed for a period of at least 15 months prior to starting their own unincorporated business will be exempt from income tax for two years. The maximum exemption from income tax is €40,000 per annum.
Employment and Investment Incentive
The Employment and Investment Incentive will not be included as a specified relief for the purpose of the high earner restriction for three years.
Film relief
Last year the Minister announced a change in the operation of the Film Relief scheme by changing from a tax deduction for individual investors to a tax credit for film companies. This change is being accelerated from 1 January 2016 to 1 January 2015.
To make Ireland more attractive for major film productions expenditure on non-EU talent will now qualify. The Minister also announced the introduction of a withholding tax. EU approval and a commencement order will be required to implement these changes.
Changes to R&D tax credit
A review of the R&D tax credit scheme was completed and this has resulted in some positive changes.
In 2013 the first €300,000 of qualifying R&D expenditure will qualify for the 25% R&D tax credit on a volume basis. Credit will continue to apply to incremental expenditure in excess of €300,000 compared to such expenditure in the base year 2003.
The limit on the amount of expenditure outsourced to third parties that qualifies for relief is increased from 10% to 15% of total spend.
Changes to the key employee relief whereby some of the credit can be used to reduce the key employee’s tax bill will be introduced to make the relief more attractive.
Living City Initiative
This is being extended to cover residential properties built before 1915 and will apply to properties in Dublin, Cork, Limerick, Galway, Waterford and Kilkenny.
Irish registered non-tax resident companies
The Minister announced that he intends to implement changes in the Finance Bill to ensure that an Irish registered company will have to be tax resident in Ireland or another country and can no longer be “stateless”.
VAT
The cash receipts basis threshold will increase from €1.25M to €2M with effect from 1 May 2014.
The reduced VAT rate of 9% for goods & services mainly related to the tourism and hospitality industry will remain for 2014.
The unregistered farmer’s flat rate addition will be increased from 4.8% to 5% with effect from 1 January 2014.
The budget contains a number of Revenue measures to combat VAT fraud including a proposal that businesses which have not paid for supplies, in full or part, within a six month period will be required to repay the VAT claimed on those supplies. In addition, the Budget proposes to allow Revenue to apply an emergency reverse-charge measure to address sudden VAT fraud.
Capital Gains Tax
Entrepreneurial relief
A new CGT incentive is being introduced, subject to EU State Aid approval. It will apply where an individual makes an investment in the period 1 January 2014 to 31 December 2018 in assets to be used in a new productive trading activity and disposes of this investment three years after the date of investment. The relief will be granted by way of a tax credit which will be equal to the lower of the CGT paid by the individual on a prior disposal in the period from 1 January 2010 and 50% of the CGT due in relation to the gain arising on the disposal of the new investment.
Property purchase incentive
The CGT property purchase incentive that was introduced in Finance Act 2012 is being extended to 31 December 2014. Properties purchased in this extended period that are held for a minimum of 7 years will not be subject to CGT on any gains if disposed of at that point. Where disposals are made after 7 years proportionate relief will apply.
CGT retirement relief
CGT retirement relief for farmers is being extended to disposals of long-term leased farmland. Conditions for the relief to apply include a minimum lease period of 5 years and that the subsequent disposal of the farmland is not to a child.
Property Tax
In 2014 property tax for the full year is due on 1 January 2014 for payments by cheque and 21 March 2014 for online payments.
Stamp Duty
Subject to a commencement order the transfer of Enterprise Security Market shares (i.e. shares specifically designed to fund Irish companies in their early stages) which are traded on the Irish Stock Exchange will be exempt from a charge to Stamp Duty.
Other Taxes
Excise duty & air travel tax
From midnight 15 October 2013 the rates of excise duty on tobacco, beer and spirits and wine will increase.
From 1 April 2014 the rate of Air Travel Tax will be abolished.
Economic Overview
Today’s Budget will increase tax take from €37.8bn in 2013 to €40.04bn in 2014.
Government spending (current and capital) will reduce by €1.52bn. The Government is anticipating a further reduction in spending of €440m in 2015.
In the context of forecasted low GDP growth in the Euro Area and the UK for the next few years, the Government is expecting economic growth (GDP) of 2% in 2014, 2.3% in 2015 and 2.8% in 2016, with a small reduction in unemployment in each of those years.
The budgeted deficit as a percentage of GDP is continuing to move in a positive direction. After targeting for a 7.5% figure for 2013, an out-turn of 7.3% is now expected and is budgeted to further reduce to 4.8% in 2014. However, the General Government Debt as a percentage of GDP is projected to reduce from 124.1% in 2013 to 120% in 2014.
The difficulty for the Government in framing Budget 2014 is that income tax for self-assessed individuals is due to be paid in October and November 2013. 14% of the 2012 total income tax yield was collected in November 2012. Any shortfall will have an impact on Government targets.