The Minister for Finance Michael Noonan T.D. presented his 2016 Budget yesterday which outlined a wide range of changes to the tax system with particular emphasis on personal taxation, initiatives to begin equalising the tax treatment of the self-employed and employees as well as steps to support businesses in Ireland.
The key features of today’s Budget are outlined below.
Universal Social Charge
Comprehensive changes were introduced to the Universal Social Charge for 2016 which are aimed at reducing the tax burden on low and middle income earners.
The entry threshold for Universal Social Charge (“USC”) will be increased from €12,012 to €13,000.
Otherwise, rates of USC will be reduced as follows:
• Income up to €12,012 – Rates reduced from 1.5% to 1%.
• Income from €12,013 to €18,668 – Rates reduced from 3.5% rate to 3%.
• Income between €18,669 – 70,044 – Rates reduced from 7% to 5.5%
• Income between €70,045 – €100,000 – 8% (no change)
• PAYE Income in excess of €100,000 – 8% (no change)
• Self-employed income in excess of €100,000 – 11% (no change)
The top rate USC exemption will be retained for all medical card holders and individuals aged seventy years and older providing their total income does not exceed €60,000.
There have been no changes to the income tax rates and bands.
PRSI (Pay Related Social Insurance)
Budget 2016 introduced a tapered PRSI tax credit for employees up to €624 per annum.
The entry point to the higher rate of employers’ PRSI of 10.75% will be increased to €376 per week which will be a welcome introduction by all employers.
The reason for this tapered PRSI credit being introduced is to ensure low income earners benefit from the increase to the minimum wage which will take effect in January 2016.
The credit applies to individuals earning between €18,304 and €22,048 per annum and is be subject to a maximum of €12 per week.
Earned Income Tax Credit
In an attempt to equalise the tax treatment of the self employed with employees paid through the PAYE system, the government will be introducing an Earned Income Tax Credit of €550 per annum in 2016.
This new tax credit will be available to individuals who are not eligible for the PAYE Tax Credit including those earning self employed trading or professional income (subject to Income Tax under Cases I and II Schedule D), those in receipt of Case III Schedule D income as well as to business owners who, up to now, didn’t qualify for a PAYE credit on their salary.
There was no reference made to tax relief on pensions in this Budget.
The “additional” pension levy of 0.15% will expire at the end of 2015.
The original 0.6% pension levy ended in 2014.
Home Carer’s Tax Credit
The Home Carer’s Tax credit increased by €190 to €1,000 per annum.
The income threshold for the home carer claiming this allowance has been increased from €5,080 to €7,200. This Tax Credit can be claimed by a jointly assessed couple in a marriage or civil partnership where one spouse or civil partner cares for one or more dependent persons which include children, the elderly, incapacitated etc.
Other Points of Interest
1. An income tax credit worth up to €5,000 per annum for five years was introduced for family farming partnerships to facilitate the transfer of family farms to the next generation.
2. There was an extension of general and young farmers’ stock relief for a further three years.
3. Profits or gains from the occupation of woodlands are being removed from the High Earners’ Restriction.
BUSINESS TAX MATTERS
Apart from the Earned Income Tax Credit, Budget 2016 announced a number of new tax measures aimed at encouraging and supporting entrepreneurs and small business owners including:
• The introduction of a Knowledge Development Box to provide for a 6.25% corporation tax rate on profits arising to certain IP assets which are the result of qualifying R&D activity that is carried out in Ireland. The Minister stated today that the KDB would add “a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5% headline rate; the R&D tax credit; and the intangible asset regime.”
• The Start-up Relief from corporation tax is being extended for new start-ups commencing to trade over the next three years. This relief applies where the total corporation tax payable for a period does not exceed €40,000 and the amount of relief available is linked to employer’s PRSI.
• The amendments to the Enterprise and Investment Incentive Scheme (EII) announced in Budget 2015 took effect from midnight. They have been pending EU State Aid approval for the past year. These included an increase in the annual limit companies can raise to €5 million and an increase in the lifetime cap to €15 million. Investments in the extension, management and operation of nursing homes will also qualify for the EII.
• The cap on eligible expenditure for Film Relief is being increased from €50 million to €70 million subject to State Aid approval.
• The entry point to the top rate of employer’s PRSI increases by €20 per week to €376 per month.
• Commercial Road Tax is to be simplified and reduced. The current 20 rates are being replaced with 5 rates, which will range from €92 to €900. The new rates will take effect from 1st January 2016.
• The Bank Levy has been extended to 2021 and is expected to yield circa €750 million over the period of extension.
• The scheme of capital allowances for the construction of facilities used in the maintenance, repair, and overhaul and dismantling of aircraft is being amended to comply with State Aid rules. The scheme is also being commenced with effect from Budget night.
• A 20% Capital Gains Tax rate will to apply to the disposal in whole or in part of a business up to an overall limit of €1million in chargeable gains.
• Other than the reduced rate of CGT which applies to the disposal of a business, there has been no change to the Capital Gains Tax rate of 33%.
• The Group A threshold for capital acquisition tax will be increased from €225,000 to €280,000 with effect from 14th October 2015. The Group A threshold typically applies to transfers between parents and their children. The current Class B and Class C thresholds remain unchanged and there has been no change to the CAT rate of 33%.
Local Property Tax (LPT)
The Local Property Tax revaluation date for the Local Property Tax has been extended from 2016 to 2019. This follows recommendations in the “Review of the Local Property Tax” report which has also recommended exemptions for properties significantly affected by pyrite.
NAMA is to deliver 20,000 houses between now and 2020. 90% of these in the Dublin area and 75% of the overall total will be starter homes.
1. The Home Renovation Incentive is being extended until 31 December 2016.
2. The existing €5 Stamp Duty on Debit/ATM cards is to be replaced with a 12 cent charge for ATM transactions. This is subject to a cap of €2.50 or €5 depending on the card type.
3. The reduced 9% rate for the tourism and hospitality sector will be retained.
4. There will be no changes to the reduced VAT rate of 13.5% or the standard VAT rate of 23% in 2016.
This is the first time since the Budget in April 2009 that the marginal rate for middle income earners has fallen below the 50% rate.
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