Budget 2015 has been described as marking “the end of budgetary austerity” by Brendan Howlin, Minister for Public Expenditure and Reform. Whilst there have certainly been some tax reductions and there will in some cases be monies coming back to people, these are still very modest, particularly when the cost of the new water charges are taken into account. Minister Howlin may feel this marks the end of austerity but there are plenty who would disagree with him.
Some of the main announcements in today’s Budget are summarised below:
Income Tax
TAX RATES
The higher rate of 41% to reduce to 40%
STANDARD RATE BAND
The 20% standard rate band is to increase from €32,800 to €33,800 for single individuals and from €41,800 to €42,800 for married one income couples. This allows people to earn a greater amount before moving into the higher 40% rate of tax.
However this is being criticised by some as a married couple will get the same €1,000 increase as a single person, rather than a larger increase.
This is understood to be the first of a three year plan to increase bands gradually each year for three years as the economy improves.
RENT A ROOM RELIEF
The threshold for exempt income earned under the Rent A Room Relief scheme is to increase from €10,000 to €12,000. This allows individuals to earn up to €12,000 by renting out a room in their home without being subjected to income tax.
WATER CHARGES TAX RELIEF
Tax relief for people paying tax! In introducing a new tax and also relief on that tax at the same time, is this a sign of a partial climb down by a government with one worried eye on a general election in 18 months?
Tax relief at 20% will be provided on water charges, up to a maximum of €500 per year, payable in arrears. The maximum tax relief available is therefore €100.
This is a similar relief to that which used to exist for bin charges but which has now been abolished. Can we expect this limited relief for water charges to go the same way in future? This relief is being widely criticised for being far too small but given the mass opposition to water charges, anything other than their complete abolition was always going to be strongly criticised by many.
HOME RENOVATION INCENTIVE
The Home Renovation Incentive is being extended to include rental properties owned by landlords who are subject to income tax.
FILM RELIEF
The new Irish film tax credit scheme is to commence from 2015.
ARTISTS’ EXEMPTION
The threshold for the Artists’ Exemption will be increased by €10,000 to €50,000 and will also be extended to non-resident artists.
SEED CAPITAL SCHEME
The Seed Capital Scheme scheme is being renamed as “Start-Up Relief for Entrepreneurs” (SURE) and being extended to individuals who have been unemployed up to 2 years.
USC
A number of changes to the USC regime have been announced which will be good news for many, although higher income earners will be paying more. The changes are as follows:
- 2% rate to be reduced to 1.5%
- 4% rate to be reduced to 3%
- New 8% rate to apply to incomes earning more than €70,000
- New 11% rate to apply to self-employed earning more than €100,000
- Entry point to USC to be raised from €10,036 to €12,000 which according to Noonan will remove 80,000 low income workers from paying USC
In summary:
Incomes of €12,012 or less are exempt. Otherwise:
- €0 to €12,012 @ 1.5%
- €12,013 to €17,576 @ 3.5%
- €17,577 to €70,044 @ 7%
- €70,044 to €100,000 @8%
- PAYE income in excess of €100,000 @ 8%
- Self-employed income in excess of €100,000 @ 11%
The exemption from the 7% rate of USC for medical card holders and over 70s with income of below €60,000 is to be retained.
Capital Gains Tax
The 7 Year Exemption from capital gains tax for properties purchased between 7 December 2011 and 31 December 2014 is not being extended. This exemption provides for an exemption to CGT for properties purchased and held for a period of at least 7 years. The gains accrued over the initial 7 year period will not be subject to CGT.
DIRT
A tax refund on DIRT on savings which are used to purchase a home is to be made available to first time buyers. This will take affect from tonight (14th October 2014) and will be available up to the end of 2017. This certainly won’t set the property market alight but with the changes announced by the Central Bank last week regarding mortgage lending rules, deposits will need to be much higher from the start of 2015 – therefore the tax refund on 41% DIRT paid while saving up these deposits might provide a nice small bonus when first time buyers when they finally get their home.
Excise Duties
CIGARETTES
Excise duty on a packet of 20 cigarettes to increase by 40 cents with effect from midnight on 14th October 2014.
TOBACCO
Excise duty on roll your on tobacco will increase by 20 cents with effect from midnight on 14th October 2014
MOTORING
There are no changes to motor tax, diesel or VRT.
Corporation Tax
TAX RATE
The 12.5% rate still being strongly defended and will remain in place.
3 YEAR RELIEF FOR START UP COMPANIES
This relief is being extended to new limited company start-ups in 2015. This scheme provides for relief from corporation tax on trading income for the first 3 years. However this relief is linked to the amount of Employers PRSI that the company pays on employee salaries and therefore does not benefit one-man owner managed companies who do not have employees.
DOUBLE IRISH
The Double Irish tax loophole is to be abolished for new companies from 1 January 2015. This will be achieved by changing tax residency rules for companies. All companies incorporated in Ireland will be automatically treated as tax resident in Ireland. For existing companies, such as Apple and Google, this will be phased out over a few years to 2020.
KNOWLEDGE DEVELOPMENT BOX
A Knowledge Development Box will be introduced for companies, based on similar Patent Boxes that are seen in other economies, such as the UK. This allows companies to benefit from corporate tax exemptions on innovations. It seems the government hope this may soften the blow somewhat for companies who can no longer avail of the Double Irish.
Child Benefit
Child Benefit payments to increase by €5 per month from 1 January 2015. The government hopes to be able to increase this by a further €5 per month again in 1 January 2016.
Pension Levy
The extremely controversial pension levy is set to stay with us for another year. The 0.6% Pension Levy will expire at the end of 2014. However the 0.15% Pension Levy will remain in place until the end of 2015.
About The Author: Sinéad Doherty is the Managing Partner and founder of Fenero. Sinéad is a Fellow of the Association of Chartered Certified Accountants and a QFA (qualified financial advisor).
