DECEMBER CLIENT NEWSLETTER 2011
Budget 2012
Considering the exceptional times in which we live the Budget paid some recognition to the role the farming industry can play in restoring the Irish economy, boosting exports and increasing employment. Both the IFA and Macra Na Feirme deserve credit for the manner in which they presented the farming viewpoint in pre-Budget lobbying. The reduction in the stamp duty rate is significant, as is the justified retention of the 90% gift & inheritance tax agricultural relief. These positives together with current land values has overshadowed the increase in the gift & inheritance tax and capital gains tax rates from 25% to 30%, the reduction in gift & inheritance tax family exempt thresholds and the absence of a meaningful capital gains tax and stamp duty consolidation relief.
Contents:
Budget 2012
- GIFT & INHERITANCE TAX
- CAPITAL GAINS TAX
- STAMP DUTY
- INCOME TAX CREDITS AND BANDS
- UNIVERSAL SOCIAL CHARGE
- ENHANCED STOCK RELIEF FOR REGISTERED PARTNERSHIPS
- PROPERTY RELIEFS
- MORTGAGE INTEREST RELIEF
- DEPOSIT INTEREST RETENTION TAX (DIRT)
- INCOME TAX DEDUCTION FOR CARBON TAX
- VALUE ADDED TAX
- HOUSEHOLD CHARGES
- CORPORATION TAX
- IFAC PROFIT MONITOR REPORT
GIFT & INHERITANCE TAX
Tax Rate Increase
The current rate of 25% is being increased to 30% for gifts or inheritances taken after 6th December 2011.
Tax exempt threshold reduced
The tax exempt amounts which may be transferred tax-free have been reduced as follows:
| WHERE THE PERSON RECEIVING HAS THE FOLLOWING RELATIONSHIP TO THE GIVER | Tax Free Amount | |
| From 06/12/11 | Up to 06/12/2011 | |
| Group A (Child, orphaned grandchild, favourite nephew) |
250,000 | 332,084 |
| Group B (Parent receiving a gift, grandparent,grandchild, brother, sister, niece/nephew) |
33,208 | 33,208 |
| Group C (Any other relationship) |
16,604 | 16,604 |
In January 2009 a child could have received €542,544 tax-free from their parents and it is now reduced to €250,000 i.e. a 54% decrease. Over the same period the tax rate has increased from 20% to 30%.
CAPITAL GAINS TAX
Increase in Capital Gains Tax Rate
For capital disposals made after 6th December 2011 the rate of capital gains tax has been increased from 25% to 30%.€3m ceiling on CGT Retirement Relief for farmers aged over 66 years
An upper limit of €3m on Retirement Relief for business and farming assets disposed of within the family will be introduced in late 2013 where the individual transferring the assets is aged over 66 years.
Full Retirement Relief from CGT for intra-family transfers will be maintained for individuals aged 55 to 66.
Capital Gains Tax Retirement Relief on Non-Family Transfers and Sales
Currently there is an upper limit of €750,000 for qualifying assets sold or transferred outside the family by individuals aged 55 and over. This upper limit is being maintained for farmers aged between 55 and 66 years but is to be reduced from €750,000 to €500,000 for disposals after late 2013 by individuals aged over 66 years.
Capital Gains Tax Incentive to purchase property
The Budget proposes a capital gains tax holiday in respect of properties bought between 6th December 2011 and 31st December 2013. Where this property is held for more than 7 years the gain attributable to that period will not attract capital gains tax.
STAMP DUTY
Transfers of commercial property (including farmland) occurring on or
after 7th December 2011 will enjoy a 2% rate of stamp duty.
| CURRENT RATES OF STAMP DUTY ON LAND TRANSFERS | ||
| From 07/12/11 | Up to 06/12/11 | |
| Up to 10,000 | 2% | Exempt |
| 10,001 to 20,000 | 2% | 1% |
| 20,001 to 30,000 | 2% | 2% |
| 30,001 to 40,000 | 2% | 3% |
| 40,001 to 70,000 | 2% | 4% |
| 70,001 to 80,000 | 2% | 5% |
| Excess over 80,000 | 2% | 6% |
Transfers between Related Persons
Where the transfer is between related persons, e.g. parent, brother,
sister, uncle, aunt, nephew, niece etc. the rate of stamp duty is half the
rate that would otherwise ordinarily apply.
The 2012 Budget proposes
the abolition of this relief on 31st December 2014.
INCOME TAX CREDITS AND BANDS
| TAX CREDITS | 2012 € |
| Single person with no dependent child | 1,650 |
| Married | 3,300 |
| Widowed person with no dependent child | 2,190 |
| Widowed person bereaved in year of assessment | 3,300 |
| Single parent with dependent child | 3,300 |
| Widowed parent with dependent child: - Additional credit in year following bereavement - (reducing credit for subsequent years) |
3,600 |
| Incapacitated child | 3,300 |
| Married couple - home carer | 810 |
| Blind person’s tax credit - Single/one spouse blind - Married (both blind) |
1,650 3,300 |
| Dependent relative | 70 |
| Age tax credit: - Single - Married |
245 490 |
| Employee Tax credit | 1,650 |
| Medical insurance | At source |
| Mortgage Interest relief on private residence | At source |
| Certain fees paid to private colleges | Partially |
| Employment of carer (incl.relative) to take care of incapacitated person | 50,000 |
| Allowances at marginal rate | |
| Business Expansion Scheme Maximum relief per annum |
150,000 |
| Qualifying film relief: - Maximum relief per annum |
50,000 |
| Medical expenses | 20% |
| Pension contributions | 15%-40% |
| Permanent health benefit schemes: - Maximum % of statutory income |
10% |
LOW INCOME EXEMPTION LIMITS
| EXEMPTION LIMITS | 2012 € |
| Single/widowed 65 years & over | 18,000 |
| Married 65 years & over | 36,000 |
PRSI RATES
The following are the PRSI contribution and new Universal Social Charge rates for the main categories of contributors (excluding public servants):
EMPLOYEES
| Employer's Contribution | Employee's Contribution | |||
PRSI Levies (Universal Social Charge) |
Employer | 2011 Ceiling | Employee | 2011 Ceiling |
| *1 10.75 | No limit | *2 4.00% | No limit | |
| *3 2% | €0 to €10,036 | |||
| 4% | €10,037 to €16,016 | |||
| 7% | In excess of €16,016 | |||
SELF-EMPLOYED
| Rate of Contribution 2011 | Income Ceiling 2011 | |||
| PRSI Levies (Universal Social Charge) | 4.00% | No limit | ||
| *32% | €0 to €10,036 | |||
| 4% | €10,037 to €16,016 | |||
| 7% | €16,016 to €100K | |||
| 10% | In excess of €16,016 | |||
*2 Where an employee earns €289 or less per week no PRSI is payable by the employee in that week. For employees earning over €289 per week the PRSI free weekly allowance remains unchanged at €127 per week.
*3 The Zero rate for the Universal Social Charge only applies where the income does not exceed €10,036. Where the €10,036 limit is exceeded the 2% rate applies to all of the income in that segment.
*4 There are reductions in the Universal Social Charge rates for medical card holders and persons aged over 70 years.
The minimum PRSI contribution for self-employed persons earning over €3,174 per annum is €253 with no PRSI liability if earnings are less than €3,174, however, to preserve pension entitlements, you should contact the Department of Social and Family Affairs regarding the advisability of making a voluntary contribution.
INCOME TAX RATES AND BANDS
The standard rate of income tax remains unchanged at 20% and the marginal rate at 41%.
| PERSONAL STATUS | TAX YEAR 2012 |
| Single/widowed persons (no dependent children) and married persons assessed as single persons | First €32,800 @ 20% Balance @ 41% |
| Single/widowed persons (with dependent children) | First €36,800 @ 20% Balance @ 41% |
| Married couple (one spouse with income) | First €41,800 @ 20% Balance @ 41% |
| Married couple (both spouses with income) | *First €41,800 @ 20% + an additional €23,800 or amount of second
spouse’s income if less. Balance at 41% |
| *This band is transferable between spouses but only up to €41,800 i.e. the maximum band available to either spouse is €41,800 |
UNIVERSAL SOCIAL CHARGE
The Universal Social Charge came into effect on 1st January 2011 and is a tax payable on gross income, including notional pay, after any relief for certain trading losses and capital allowances but with no allowance for pension contributions. The Universal Social Charge effectively replaced the Health Contribution and Income Levy. For 2011 individuals with gross income of less than €4,004 per annum were exempt and Budget 2012 proposes increasing the exemption to €10,036. The rates and income thresholds are as follows for 2012:
For self-employed with incomes in excess of €100,000 as follows:
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| Persons with yearly gross earnings of less than €10,036 are exempt from the 2% Universal Social Charge and from Income Tax on earnings up to €8,250. | |||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAX
There was no increase in Income Tax rates, no narrowing of the rate bands and no reduction in personal tax credits. The income tax changes relating to farming are as follows:
ENHANCED STOCK RELIEF FOR REGISTERED PARTNERSHIPS
To encourage Farm Partnership formation the Budget proposes an increase in the existing 25% Stock Relief to 50% for all registered farm partnerships and retention of the 100% Stock Relief for certain Young Trained Farmers forming such partnerships. This proposal is subject to clearance with the European Commission under State Aid rules.
Currently Milk Production Partnerships are an example of registered Farm Partnerships and the recommendations from the National Rural Network Strategic Issues Working Group report on the potential of crossfarm enterprises partnerships to facilitate entry into and establishment in farming is awaited.
PROPERTY RELIEFS & ACCELERATED CAPITAL ALLOWANCES
Section 23 type property and accelerated capital allowance reliefs allow individuals to invest in "tax designated properties" allowing the capital cost of those investments to be offset against all rental income.
The 2012 Budget proposes the introduction of a 5% surcharge effective from 1st January 2012 on individuals with gross incomes over €100,000 on the amount of income sheltered by Section 23 type and accelerated capital allowance property reliefs in a given year.
MORTGAGE INTEREST RELIEF
In order to assist people who purchased their first homes during the property boom in the years 2004 to 2008 the Mortgage Interest Relief is being increased to 30%.
Incentive to purchase property in 2012
The current rates of Mortgage Interest Relief will be extended to first time buyers and non-first time buyers in 2012.
DEPOSIT INTEREST RETENTION TAX (DIRT)
Effective from 1st Januar y 2012 the rate of DIRT that applies to deposit interest, together with the rates of exit tax that apply to life assurance policies and investment funds, are being increased to 30%. Where payments are made less frequently than annually, the rate is being increased to 33%.
INCOME TAX DEDUCTION FOR CARBON TAX
The Budget proposes allowing farmers a double income tax deduction for increased costs arising from the changes in Carbon Tax.
VALUE ADDED TAX
Changes in VAT rates
With effect from 1st January 2012 the standard rate of VAT is being increased from 21% to 23%.
Open Farms
The rate of VAT on admissions to Open Farms will apply at the reduced rate of 9%.
Wind Turbines
VAT paid by a VAT un-registered farmer on wind turbines purchased on or after 1st January 2012 will qualify for VAT 58 refunds similar to farm buildings, fencing, drainage and reclamation.
HOUSEHOLD CHARGE
The Budget proposes the introduction of a household charge of €100 per dwelling in 2012. The proposal is an interim measure pending design and implementation of a full property tax which will apply in 2014.
CORPORATION TAX
3 Year Tax Relief for Start-Up Companies
This existing scheme which provides relief from Corporation Tax on trading income and certain gains of new start-up companies in the first three years of trading is being extended to include start-up companies which commence a new trade in 2012, 2013 or 2014.
The exemption will not apply to the following activities:
- A trade or part of a trade previously carried on by another person to which the company has succeeded
- Land development, mining and petroleum activities
- Companies providing certain professional services
- Primary production of agricultural products
- Processing and marketing of agricultural products
- Export-related activities
- Where the trade is contingent on the use of domestic rather than imported goods
- Activities in the coal sector
- Road-freight transport operations
- Undertakings in difficulty
The majority of the restrictions to the relief set out above were as a result of long consultations with the European Commission and the necessity for any relief to comply with Commission Regulations.
If you are considering setting up a new business in 2012-2014 you should consider if this relief would be of benefit to you.
RELEVANT SOCIAL PROTECTION, EDUCATION AND HEALTH CHANGE PROPOSALS
- Farm Assist – The means test calculation for Farm Assist is being revised to save the Exchequer €5.2m annually
- Pension – There is an increase in the number of PRSI contributions required to qualify for the Widow(er)’s Contributory Pension from 156 to 520 contributions with effect from July 2013. Other changes are to be introduced for new claimants of state pension and for backdating claims.
EDUCATION GRANTS/ASSET TEST
- Asset Test – The means test for student maintenance grants is to be amended to take account of the value of certain capital assets as well as income. This is to apply in 2013/14 for new entrants.
- Higher Education Student Contribution – This is to be increased by €250 from €2,000 to €2,250.
HEALTH
- Nursing Home Support Scheme Fair Deal – An additional €55m has been allocated for this scheme.
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