The run up to Budget 2012 saw intense media speculation as to areas that savings would be made. All low-hanging fruit had been cut by past budgets and Budget 2012 was predicted to be another particularly painful one.
Enda Kenny gave a state of the nation address on Sunday night at 9.30pm on RTE1 to soften the blow of the budget and mentally prepare the nation for the tough two-days ahead.
Monday saw the changes for health, education and family assistance outlined, while changes to our tax regime were discussed on Tuesday.
Personal Tax
• USC exemption threshold increased
• Mortgage interest relief increased and extended
• New 5% property relief surcharge
• Claw-back of accelerated capital allowances from 2015
• DIRT rates increased
• Domicile levy amended
• PRSI on rental and investment income from 2013
Pensions
• Annual imputed distribution on ARFs increased
• Income tax on ARF transfers on death to children increased to 30%
• Employer PRSI relief on employee contributions removed
Business Tax
• No change in the 12.5% corporation tax rate
• Corporation tax exemption for “start-ups” extended
• R&D tax credit regime improved and amended
• Special Assignee Relief Programme announced
• New foreign earnings deduction for certain assignments
Capital Taxes/Stamp Duty
• CAT rate increased to 30%
• Parent to child CAT exempt threshold reduced
• CGT rate increased to 30%
• New seven year CGT exemption regime announced
• Stamp duty on non-residential property reduced to 2%
• Annual €100 household levy introduced
VAT
• Standard rate increased to 23%
Carbon Tax
• Increased by €5 to €20 per tonne – increase not applicable to solid fuels
VRT
• No changes proposed until 1 January 2013
Excise Duty
• Increase of 25 cent on pack of 20 cigarettes
Universal Social Charge (USC)
The exemption threshold for the USC has been increased from €4,004 to €10,036. The remaining
rates and thresholds are unchanged. It will now be collected on a cumulative basis.
A 10% rate applies to self-employed income over €100,000.
Property-Based Reliefs
Significant changes are proposed to the abolition and restrictions of property-based reliefs originally
announced in Budget 2011. With effect from 1 January 2012, a surcharge will be introduced on
individuals with gross income over €100,000 in respect of all property-based reliefs (i.e. Section
23-type relief and accelerated capital allowances).
The surcharge will apply at a rate of 5% on the amount of income sheltered by property-based
reliefs in the particular year.
All unclaimed and unused accelerated capital allowances will no longer be available for use
beyond the tax life of the building where that tax life ends after 1 January 2015. Where the tax life
of a building ceases prior to 1 January 2015 no carry forward of allowances will be permitted after
1 January 2015.
DIRT & Exit Taxes
30% on annual deposit interest and 33% for certain other investment products.
Mortgage Interest Relief
It is proposed to increase mortgage interest relief to 30% for first time buyers of properties between
2004 and 2008.
Mortgage interest relief will no longer be available for house purchases after the end of 2012. For
2012, first time buyers will obtain interest relief at 25% whereas, non first time buyers will obtain
interest relief at 15%.
Domicile Levy
The condition to be a citizen of Ireland to be liable to Irish domicile levy of €200,000 is being removed.
PENSIONS
The annual rate of imputed income distribution which applies to the value of assets in an Approved
Retirement Fund at 31 December each year to be increased from 5% to 6% at 31 December 2012
and future years, only in cases where the aggregate value of the assets held in the ARF are in excess of
€2 million.
A similar regime will now also apply to “vested” PRSAs.
The transfer of ARF assets on the death of an ARF owner to a child of the owner aged over 21 is
subject to tax at a rate of 20%. This tax rate will be increased to 30%.
The current 50% employer PRSI exemption for employee contributions to pension schemes is
being abolished.
BUSINESS TAXATION
Corporation Tax Rate
No change to the 12.5% corporation tax rate.
Extension of 3 year Tax Exemption for Startup Companies
The current scheme is extended to new companies commencing a new trade in 2012, 2013 and 2014.
Changes to R&D tax credit
The first €100,000 of qualifying R&D expenditure will qualify for the 25% R&D tax credit on a volume
basis. Credit will continue to apply to incremental expenditure in excess of €100,000 compared to
such expenditure in the base year 2003.
Relief for outsourced R&D work increased to the greater of 5%/10% or €100,000.
Companies will have the option to use a portion of the credit to remunerate key employees involved in
the development of R&D.
Renewable energy generation
The scheme of tax relief for corporate investment in certain renewable energy projects is being
extended for 3 more years to the end of 2014.
Measures to promote international trade
Multinational and indigenous companies can avail of a “Special Assignee Relief Programme” aimed at
attracting key people to work in Ireland.
A foreign earnings deduction will apply to individuals spending 60 days a year developing markets for
Ireland in Brazil, Russia, India, China or South Africa.
Measures to be introduced to support the international funds industry, the corporate treasury
sector, the international insurance industry and the aircraft leasing industry.
Redundancy rebates
Rebates for employers on payments of statutory redundancy reduced from 60% to 15% with effect
from 1 January 2012.
Rent reductions for NAMA properties
Tenants in commercial properties, in respect of which NAMA has acquired the underlying loan, may
be able to avail of rent reductions if it can be shown that the rents are in excess of current market levels
and threaten the viability of the tenant’s business.
This will apply only to business leases entered into before 28 February 2010.
VAT
From 1 January 2012 the standard rate of VAT will increase from 21% to 23%.
Unregistered farmers will be entitled to a refund of VAT on the purchase of wind turbines from 1
January 2012.
Stamp Duty
The existing rates of stamp duty on non-residential property will be replaced by a flat rate of 2% for
instruments signed after 6 December 2011.
Household charge
A household charge of €100 will apply to most residential properties from 1 January 2012. This
will be replaced by a property tax in 2014.
Capital Acquisitions Tax
From 7 December 2011 the rate of capital acquisitions tax will increase from 25% to 30%.
The exemption threshold between parent and child (Group A) is reduced from €332,084 to €250,000
from 7 December 2011.
Capital Gains Tax
From 7 December 2011 the rate of capital gains tax will increase from 25% to 30%.
A new relief is being introduced whereby any gains accruing during the first seven years on properties
acquired between midnight 6 December 2011 and 31 December 2013 will be exempt from capital
gains tax, provided those properties are held for seven years or more.
Retirement relief on farm transfers will be amended.
The unlimited relief on intra-family transfers will continue to apply up to age 66. Thereafter, the relief
will only apply up to €3 million. Where farm assets are transferred outside the family the existing
threshold of €750,000 will be reduced to €500,000 if the farmer is aged 66 or more. Transitional relief
will apply to certain individuals.
VAT AND CAPITAL TAXES
Excise Duty, Carbon Tax and VRT
From midnight 6 December 2011 the rates of excise duty on tobacco, petrol and diesel will increase.
Carbon tax on fossil fuels will also increase by €5 per tonne from midnight 6 December 2011.
From 1 January 2012 the rates of motor tax will increase.
The manner in which VRT and motor tax is charged is being reviewed with a view to implementing a
new system from 1 January 2013.
A betting intermediaries’ duty will be introduced to cover betting exchanges. Betting duty will also be
extended to include remote betting.
ECONOMIC OVERVIEW
Predictably, Mr Noonan’s Budget indicates substantial indirect and capital tax increases in
2012. The Budget changes are targeted to increase tax revenues in 2012 by €1,650 million.
Separately, on Monday the government announced public expenditure (current and capital) reductions
in 2012 of €1,548 million (€2,150 million in a full year). More generally, the Exchequer balance (on
a like for like basis) is expected to fall by €2,706 million in 2012.
The Budget measures still severely constrain the capacity of the Irish economy to grow. With GDP
growth in 2011 expected at 1%, even this modest increase may not be improved on in 2012, when
the Minister is suggesting GDP growth might rise to 1.3%.
On the positive side, there is clear evidence the Exchequer is starting to regain control of the
Budget deficit. The deficit is expected to be reduced to 8.6% in 2012.
It is useful to reflect on the history of the deficit to GDP ratio over the last four years:
With a target of 3% in 2015, the government is on the way towards appropriate budgetary control.
In the longer term, this trend should allow the economy to regain momentum within three years.
In the interim, the Irish economy has to endure some further pain.
If you have any queries, please feel free to ring me on 1850 812 500.
If you would like to download or print a copy of our Budget 2012 Highlights, please click here.
Michael Byrne ACA
Partner DBASS Chartered Accountants
This blog is intended for general guidance only. No representation or warranty, express or implied, is made or liability
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