Budget 2016 was flagged as a Budget that would have lots of sensible tax reform in the areas of CGT, CAT and the tax penalties imposed on self-employed people.
Disappointingly, very little happened in those areas and in the areas in which our society is really under pressure, such as the housing crisis, homelessness, mortgage arrears and mortgage rates of interest, the struggle for people will continue.
On a positive note the trend of increasing taxation of the last four years has been reversed.
On housing NAMA is to build 20,000 homes before 2020 which seems a long way from their remit when established.
The main beneficiaries will be young families who will benefit from tax cuts and additional child benefits.
TAX RAISING STEPS
The only direct tax raising steps taken were:
- 50c put on a packet of 20 cigarettes and corresponding increases on other tobacco products. This is effective form midnight on the 13th October
- the Bank Levy of €150m pa was extended from 2016 to 2021
SOCIAL SECURITY AND TAX CHANGES
Social Security Benefits
- The State Pension (Old Age Pension in non PC language)was increased by €3 per week for 2016
- The Christmas Bonus for those in receipt of payments from Social Security was restored to 75% of one weeks benefit
- Child Benefit is to be increased by €5 per month for 2016
- Free childcare under the Early Education Scheme from the age of 3 up to age 5 ½ or when school commences for each child will be introduced
- Free GP visits has been extended to the under 12’s
- Respite Care grant of €1,700 restored for 2016
Universal Social Charge
The hated Universal Social Charge is to be reduced from 1st January so that
- Those earning less than €13,000 pa will be exempt from USC – previously €12,012
- The 1.5% rate will drop to 1% and apply on the first €12,012 of income
- The 3.5% rate will drop to 3% and apply to income from €12,012 to €18,668
- The 7% rate will drop to 5.5% on income from €18,668 to €70,044
- For income over €70,044 the rate continues at 8% unless you are self-employed and earn more than €100,000 when the rate increases to 11%
- The top rate of USC will be 3% for medical card holders and persons over 70 who earn less than €60,000
- The 10.75% rate of Employers PRSI will apply for 2016 on weekly pay in excess of €376pw an increase from the current level of €356pw
- A tapered PRSI credit of €12pw is to be introduced for low income earners to compensate them for when they obtain pay increases which would incur a greater PRSI liability
- The Home Carer tax credit for 2016 payable where one spouse is at home with dependent children or caring for a dependent relative increases from €810 to €1,000
- The self-employed are to be given a new tax credit for 2016 of € 550 for 2016 where they do not already have the PAYE credit of €1,650. Other non self-employed taxpayers get a comparative tax credit of €1,650
- Capital Taxes which were flagged for major changes were tinkered with by increasing the Gift/Inheritance Tax exemption threshold from €225,000 to €280,000 for transfers from parents to children with no change in the rate of 33%
- Capital Gains Tax saw only one change with assistance for entrepreneurs where a reduced rate of 20% of CGT will apply from 01/01/2016 on an overall lifetime limit of €1m of chargeable gains on the sale of the whole or part of a business. Full details will be in the Finance Bill but it is expected that if the gains exceed €1m the relief will taper off. By comparison the UK applies a 10% rate of CGT on Stg£10m of gain. The CGT Retirement Relief of up to €750,000 still continues
- The scheme to encourage investment in Irish businesses, the Enterprise Investment Incentive scheme, which gives a tax relief to the individual investor, was anticipated to be improved. The hope was to try and unlock the huge amounts on deposit earning derisory interest and have it invested instead in Irish businesses. Again more disappointment as no changes were announced other than allowing companies to raise a maximum of €15m in total and a maximum of €10m in any one year. However, to hope to achieve those levels of investor equity investment in Irish businesses, a lot more needs to be done around the EII. The scheme has been broadened to include businesses of extending, managing or operating existing nursing homes as qualifying businesses under the scheme.
- The three year tax Corporation Tax holiday for new companies will continue until 2018
- A new Knowledge Development Box (“KDB”) tax incentive will be introduced. The intention is that income from IP generated by companies through R&D carried out in Ireland will be taxed for Corporation Tax at 6.25%. The Finance Bill will set out the details with the scheme expected to be “best in class” and the first OECD compliant scheme of its type in the world
- Film Relief, similar to the EII scheme, is tinkered with to allow qualifying film companies to increase their qualifying film budgets to €70m
- Country by Country Reporting to be introduced from 1st January 2016 whereby Irish parent companies will have to supply specific details of their businesses globally for transmission to other relevant countries tax authorities
- For farmers, the stock relief will continue as will the exemption from stamp duty for young trained farmers
- In order to encourage transfers of farms to the next generation a new tax credit of €5,000 pa is to be available where family members enter into a farming partnership. The credit will be available for 5 years and would be divided between the partners and will apply where the farm is to pass to the younger farmer within a maximum period of 10 years. Hopefully this credit will also be applied to non-farm businesses soon
- No changes to VAT with the hospitality industry rate kept at 9%
- No change to the Standard Pension Fund Threshold despite increased investment returns in the past few years. The good news is that the pension levy ceases at the end of 2015
- No change to Income Tax rates or bands so taxpayers continue to hit the top rate at low income levels
- Home Renovation Incentive Scheme extended to December 2016
- LPT valuations to be frozen until 2019
- Minimum wage increased to €9.15 from 01 January 2016
- Legislation for statutory paternity leave of two weeks to be introduced (too late for Euro 2016!!!)
- Reviews to be undertaken on Trust taxation, VAT on Charities, Professional Body subscriptions and Artist Exemption
- Revenue to get an extra €75m for audits and investigations and new software so expect more visits from the Revenue
- Finally the rate of road tax on commercial vehicles is to be restructured with rates dropping per heavy goods lorry from a maximum of €5,195 to €900. This is an interim measure pending the replacement with a system based on the Gross Design Vehicle Weight of the goods vehicles.
Should you have any queries regarding Budget 2016 or require any assistance please contact us and our team will advise you accordingly!