Therewere no changes to the following:
Income Tax Rates
Therate bands and tax credits have been reduced by 10% .
TheIncome Levy and the Health Levy are to be abolished and replaced with a Universal Social Charge (USC) at the following rates and thresholds:
2% €0 to €10,036
4% €10,037 to €16,016
Abolition of Reliefs (from 1 January2011 unless otherwise stated)
Phased abolition of property-based‘legacy’ reliefs
Thismeasure will restrict the various property-based tax relief schemes in the following manner:
From1 January 2011, this will be restricted to income from the Section 23 property itself (currently such income can be set against all rental income).
Atend of 10 year holding period, any unused relief will be lost. If property is sold within this period, the new owner will not get Section 23 relief and the seller continues to be subject to a clawback of relief already given.
For Section 23 properties yet to be sold, for which the relief has yet to be claimed, the 10-year qualifying period will start on 30 June 2011 regardless of the date of the first qualifying lease. Therefore, in such cases no Section 23 relief will be available after 30 June 2021.
Residentialowner-occupier relief is unaffected by these changes.
(Theserestrictions apply solely to passive participants)
Witheffect from Budget day, any unused capital allowances carried forward beyond the 7 year period within which the allowances are made will be lost as follows: 7-year period – 7-year schemes; 10-year period – 10 year schemes.
From2011 onwards, capital allowances will be restricted to offset against income from the property which gave rise to them, whether rental or trading income, with no setting sideways against any other form of income.
Schemeswith a period over 10 years which has not ended will be truncated to 7 years from when allowances are first made.
Capitalallowances limited by truncation will be reduced by 20% and may be made evenly in the year of assessment 2011 and all subsequent years of assessment up to and including the 7th year after the allowance was first made.
Terminationof all unclaimed and unused capital allowances, arising after or carried forward from 2014 as well as unused Section 23 relief carried forward from 2014.
Animpact assessment will be undertaken into the effects of the phased abolition of the property-base measures and the ‘guillotine’ provision
(IncomeTax/USC/PRSI) (from 1 January 2011 unless otherwise stated)
From1 January 2011, employee contributions to occupational pension schemes and other pension arrangements will be subject to employee PRSI and the Universal Social Charge. The PRSI change will be legislated for in the Social Welfare Bill.
EmployerPRSI on pension contributions
Thecurrent employer PRSI exemption for employee contributions to occupational pension schemes and other pension arrangements will be reduced by 50% from 1 January 2011.
Theannual earnings limit is being reduced from €150,000 (2010) to €115,000 for 2011.
The overall life-time limit on the amount oftax-free retirement lump sums that an individual can draw down from pension arrangements is being reduced to €200,000. The excess of this amount will be taxed at the standard income tax rate (currently 20%) up to an amount equal to 25% of the new Standard Fund Threshold (up to €575,000). The excess of retirement lump sum payments over that amount will be taxed at the taxpayer’s marginal rate of income tax.
Tax-free retirement lump sums taken on orafter 7 December 2005 will count towards “using up” the new tax free amount so that if an individual has already taken tax free retirement lump sums of €200,000 or more since 7 December 2005, any further retirement lump sums paid to the individual on or after 1 January 2011 will be taxable. These earlier lump sums will also count towards determining how much of a lump sum paid on or after Budget day is to be charged at the standard or marginal tax rate.
These changes take effect from 1 January2011.
Extensionof flexible options on retirement
Allmembers of Defined Contribution pension arrangements will 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. Pending the passing of the Finance Bill, the option introduced in December 2008 to allow the deferral of annuity purchase on retirement for defined contribution scheme members is to be extended by the Revenue Commissioners.
Abolitionof the PRSI ceiling of €75,036
ClassS (self-employed) PRSI rate increased from 3% to 4%
Three year exemption for start-upcompanies
Thisscheme is being extended to include start-up companies which commence a new trade in 2011.
Thescheme 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, relief will be based on the lower.
Energy Efficient Equipment
The scheme of accelerated capital allowances for expenditure on certain energy-efficient equipment is being extended for a further 3 years to end of 2014.
Transfers ofresidential property
Reduction in rate for transfers ofresidential property to 1% on properties valued up to €1 million, with 2% applying to amounts over €1 million, in respect of instruments executed on or after 8 December 2010;
Abolition of various reliefs and exemptions, inrespect of instrument executed on or after 8 December 2010, as follows:
Capital Acquisition Tax
Thecurrent group tax free thresholds are being reduced by 20%. This reduction applies in respect of gifts or inheritances taken from midnight on 7 December 2010
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Summaryof Other Changes:
Tax on savings
DepositInterest Retention Tax and Exit Taxes on Life Assurance Policies and Investment Funds
Therate of retention tax that applies to deposit interest, together with the rates of exit tax that apply to life assurance policies and investment funds, are being increased by 2 percentage points in each case and will now be 27% for payments made annually or more frequently and 30% for payments made less frequently than annually. The increased rates will apply to payments, including deemed payments, made on or after 1 January 2011.
Asingle revised rate of Air Travel Tax of €3 will come into effect on 1 March 2011, on a temporary basis.
Reform of RCT (Relevant Contracts Tax)
Replacementof the current RCT rate of 35% with a two-rate withholding system
20%rate for subcontractors registered for tax with an established compliance record;
Employmentand Investment Incentive
Reformof the existing Business Expansion Scheme with an increase in the amount that companies can raise under the Scheme.
Relieffor Energy Efficiency Measures
Introductionof new scheme to encourage individuals to make their homes more energy efficient.
VehicleRegistration Tax (VRT)
Thefollowing package of measures will be introduced:
Carscrappage scheme is being extended for the period 1 January to 30 June 2011. VRT relief of up to €1,250 will be provided where a car of 10 years or older is scrapped in accordance with certain criteria and a new car of emissions bands A or B (i.e. with CO2 emissions of 140g/kg or less) is purchased
TheVRT relief for series production hybrid and flexible fuel vehicles, due to expire on 31 December 2010, is being extended for two years until 31 December 2012, with the rate of relief provided being up to €1,500.
For further information, please contact Niall Dempsey, OSK Tax
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