Budget Summary 2011
Main Points of Budget 2011
Pensions
The annual earnings limit for pension contributions has been reduced from 150,000 to 115,000 for payments made in 2011. The maximum allowable pension fund on retirement has also been reduced to 2.3 million. A higher threshold may apply if the value of the individual's pension fund on 7 December 2010 is greater than 2.3 million. The annual imputed distribution which applies to the value of assets in an ARF at 31 December each year has been increased from 3% to 5%. The overall lifetime limit on the amount of tax free retirement lump sums that an individual can draw down is reduced to 200,000. The amount between 200,000 and 575,000 will be taxed at the standard rate of income tax. Any amount in excess of �575,000 will be taxed at the taxpayer's marginal rate of income tax. Tax free retirement lump sums taken on or after 7 December 2005 will count towards "using up" the new tax free amount. This change takes effect from 1 January 2011 so anybody considering retirement should do so before 31 December 2010 if their tax free lump sum is likely to exceed 200,000. All members of defined contribution pension arrangements should have access to flexible options on retirement in respect of the main benefits arising from those schemes, subject to certain conditions. The flexible options will be provided for in the Finance Bill and it is likely that the ARF and PRSA options will be available to all employees in defined contribution schemes. The National Recovery Plan provides for a phased reduction in income tax relief on pension contributions from 41% in 2011 to 20% in 2014. In addition, from 1 January 2011, employee contributions to pension funds will be subject to employee PRSI and the Universal Social Charge. 10.75% employer PRSI will also be payable on 50% of employee contributions made to pension funds.
Phased Abolition of Tax Based Property "Legacy" Incentives
Budget 2011 has significantly curtailed the existing capital allowances regime for industrial buildings and Section 23 type reliefs. Typical examples of the type of industrial buildings affected include (but are not limited to) hotels, private hospitals and creches etc. Area based capital allowances schemes targeted include buildings within the urban and rural renewal schemes. For full details of the new measures and tax based property incentives affected by this new legislation, please contact KDA. The most significant change is the ring-fencing of capital allowances against the surplus income arising from the property giving rise to the capital allowances whether it be in a trading or investor capacity. The only exception to this rule is where the building is used for trading purposes and the taxpayer is regarded as an active trader or partner. Similar restrictions apply to Section 23 type reliefs with the result that these rental losses can only be utilised to shelter the rental income arising from these properties. Residential owner occupier relief is not affected by these changes. Any unused capital allowances which are carried forward beyond the tax life of the relevant property will be lost unless the taxpayer claiming the capital allowances is an active trader and the property is used for the purposes of that trade. The new measures will apply to individuals with effect from the 2011 tax year and companies with an accounting period beginning on or after 7 December 2010. Finally there will be a termination of all unclaimed and unused capital allowances arising after or carried forward from 2014 as well as unused Section 23 type relief carried forward from 2014.
Universal Social Charge
The Health Levy and the Income Levy have been abolished and will be replaced with a Universal Social Charge. The Universal Social Charge will apply to income before deductions for capital allowances, double rent relief, Section 23 type relief, pensions, donations to sport bodies and charities. Income in respect of approved profit sharing schemes, approved save-as-you-earn schemes, unapproved share option schemes and share awards will be liable to the Universal Social Charge. Previously this income was not liable to the Health Levy. The charge will not apply to deposit interest, credit union dividends, offshore funds, social welfare and similar payments. Income which has been tax exempt in the past is liable to the Universal Social Charge such as stallion fees, patent royalties and dividends and the artists exemption. The rates are as follows Individuals aged Under 70 Over 70 The first 10,036 2% 2% The next 5,980 4% 4% Balance 7% 4% No liability arises if an individual's income is less than 4,004. Employers are obliged to withhold the tax from employees in the same manner in which they operate PAYE.
Patent royalty and patent dividends exemption
The patent royalty income tax exemption has been abolished retrospectively for any patent royalties paid on or after 24 November 2010 which was the date the National Recovery Plan was published. Similarly the tax exemption for patent dividends has ceased to apply to any patent dividends paid on or after 24 November 2010.
Ex-Gratia / Termination Payments
As outlined in the National Recovery Plan with effect from 1 January 2011, where tax free ex- gratia payments are in excess of 200,000, the excess will be liable to income tax at the individual's marginal rate of tax.
PRSI Changes
The 75,036 employee PRSI ceiling has been abolished. The Class S (Self-employed) rate has been increased from 3% to 4%. This is in line with the Class A (employee) rate.
Other
Tax on Savings
From 1 January 2011, the rate of DIRT on deposit interest payments is to be increased from 25% to 27% where payments are made annually or more frequently. Where deposit interest payments are received less frequently, the rate increases to 30%. The rates of exit tax that apply to certain life policies and investment funds are also being increased by 2% to 27%. The exit tax rate will increase to 30% where the payments are made less frequently than annually.
Removal of Exemptions
The exemptions from BIK for childcare facilities provided by the employer and professional subscriptions paid by the employer have been removed. No tax relief will be available in respect of trade union subscriptions.
Approved Share Option Schemes
As announced in the National Recovery Plan, the income tax exemption for Approved Share Option Schemes has been abolished for share awards received on or after 24 November 2010. The income tax deduction for employee share subscriptions up to a maximum of 6,350 has been abolished in respect of share subscriptions on or after 8 December 2010. The Budget also provides for the operation of PAYE on benefits received by employees in the form of shares which were previously exempted from the PAYE regime.
Business Tax
Corporation Tax
The Minister reaffirmed that the 12.5% corporation tax rate will not change and is here to stay.
3 Year Tax Exemption for Start-up Companies
In Budget 2009, the Minister introduced a measure whereby any new start-up company that commenced trading in 2009 would be exempt from tax, including capital gains in each of the first three years provided that its tax liability in the relevant corporation tax year did not exceed 40,000. This was extended last year to new start-up companies in 2010. The Minister indicated today that the exemption would also apply to new start-up companies in 2011. The scheme is being modified so that the value of the relief will be linked to the amount of employers' PRSI paid by a company in an accounting period subject to a maximum of 5,000 per employee. If the amount of qualifying employers' PRSI is lower than the reduction in corporation tax liability otherwise applicable, the relief will be based on the lower amount.
Capital Gains Tax ("CGT")
The rate of CGT which is currently 25% remains unchanged. The National Recovery Plan indicated that in 2012 the current single CGT rate of 25% will be changed to a system of differing rates for different levels of gains. The National Recovery Plan also indicated that the level of reliefs and exemptions for CGT will be reduced in the future.
Capital Acquisitions Tax ("CAT")
The CAT tax free thresholds in respect of gifts or inheritances taken from midnight 7 December 2010 have reduced as follows: Class A from 414,799 to 331,839 Class B from 41,481 to 33,184 Class C from 20,740 to 16,592 There was no amendment to the CAT rate which remains at 25%.
Value Added Tax ("VAT")
There is no change to the standard rate of VAT (currently 21%). The National Recovery Plan stated that the standard rate of VAT is to be increased by 1% in 2013 and by a further 1% in 2014. There is no change to the lower 13.5% rate or to the zero rate.
Stamp duty on Residential Property
The changes are in respect of instruments executed on or after 8 December 2010. The rate of stamp duty for the transfer of residential property has been reduced to 1% of consideration up to 1,000,000 and 2% of the balance of the consideration.The change also applies to leases of residential property exceeding 35 years. The following stamp duty reliefs and exemptions have been abolished First time buyer relief Exemption for new houses under 125 sq m in size Relief on new houses over 125 sq m in size Consanguinity relief for residential property transfers Exemption for residential property transfers valued under 127,000 Transfer of site to child relief Where a binding contract was entered into before 8 December 2010 and the instrument is executed before 1 July 2011 and the duty is lower under the old rules the changes do not apply. The abolition of the reliefs dramatically simplifies stamp duty on residential property. However, with the change in rates it is important to note that first time buyers who previously were exempt will now pay stamp duty. The changes will also increase the price of new properties.
Other Measures
Relevant Contracts Tax ("RCT")
The current rate of RCT of 35% is being replaced with a two-rate withholding tax system on a revenue neutral basis as follows: 20% rate for subcontractors registered for tax with an established compliance record; 35% rate for subcontractors not registered for tax; In addition the monthly repayment system will be abolished and replaced with an offset system. There will be more detailed reporting for RCT Principal Contractors in order to enhance compliance and reduce the opportunities for fraud.
Business Expansion Scheme
Under the new incentive, companies can raise up to 10 million (currently 2 million) and the maximum amount that can be raised in any 12 month period will be 2.5 million (currently 1.5 million). There is to be a reform of the existing Business Expansion Scheme with an increase in the amount that companies can raise under the Scheme. Details on this measure will be included in the Finance Bill. European Commission approval will be required prior to this incentive coming into operation.
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Tax Bands / Exemption Limits / Tax Credits / PRSI |
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Details of the changes to the main tax bands, exemption limits and credits are listed below.
Existing Proposed Decrease Standard Rate Tax Bands(1) � � �
Single/Widowed Persons 36,400 32,800 3,600 Married Couples One Income 45,400 41,800 3,600 Married Couples Two Income 72,800 65,600 7,200 One Parent/Widowed Parent 40,400 36,800 3,600 (1) The tax band of �65,600 available to married couples with two incomes in 2011 is transferable between spouses up to a maximum of �41,800 per spouse Existing Proposed Decrease
Exemption Limits � � � 65 years and over Single/Widowed 20,000 18,000 2,000 Married 40,000 36,000 4,000
Age Credit: Single 325 245 80 Married 650 490 160 Home Carer's Tax Credit 900 810 90 Dependent Relative Tax Credit 80 70 10</p> |
| Tax Credits / PRSI |
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Existing Proposed Decrease Tax Credits � � � Single Persons 1,830 1,650 180 Married Persons 3,660 3,300 360 Additional One-Parent Family Credit 1,830 1,650 180 Employee Credit 1,830 1,650 180
Existing Proposed Decrease Other credits � � � Incapacitated child tax credit 3,660 3,300 360 |
| Blind person's tax credit:
Single 1,830 1,650 180 Married(both blind) 3,660 3,300 360 Widowed parent tax credit: Year 1 4,000 3,600 400 Year 2 3,500 3,150 350 Year 3 3,000 2,700 300 Year 4 2,500 2,250 250 Year 5 2,000 1,800 200
Age Credit: Single 325 245 80 Married 650 490 160
Home Carer's Tax Credit 900 810 90 Dependent Relative Tax Credit 80 70 10
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