PENSIONERS

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Summary of Tax Changes in the Budget on 7th Dec 2012. 

Mortage Interest Relief

Extra relief for interest for property bought during the property explosion. Relief applies to mortgage holders who took their mortgages out between 2004 & 2008 get 30% relief. First time buyers in 2012 will qualify for 15%.

Vat

Vat Rate set to increase from 21% to 23% on Jan 1st 2012.

PRSI

PRSI Now extends to profit on rental incomes. Starting in 2013.

Redundancy

Employers can now only claim 15% rebate on any redunancies they make.

CAT & CGT

Capital Gains Tax Rate increased from 25% to 30%

Capital Acquisitions Tax Rate increased from 25% to 30%

Household Tax

€100 levy per household.

Exceptions apply

1) If the home is in an unfinished housing estate.

2) If householder is in receipt of mortgage interest supplement.

Property Reliefs.

Investors in buy to let schemes will now have to pay a 5% surcharge on their income over €100,000.

Illness Benefit.

Employees off sick will now be taxable on their illness benfit.

Corporation Tax

Any company starting to trade in 2012, 2013, & 2014 will be exempt from Corporation Tax.

R & D.

A new simplified system applies to Research & Developement Expenditre aimed at small companies.

Universal Social Charge.

Limit increased from €4,004 up to €10,036 before you start to pay the USC.

We do NOT charge a higher fee to obtain your refund! 

 Same Fee for all Tax Returns.

Summary of Budget 2011 Tax Changes

A look into what the Budget 2011 Tax changes and what it means for you.

UNIVERSAL SOCIAL CHARGE (USC)            

Health Levy and Income Levy to be abolished and replaced by a new Universal Social Charge on a revenue neutral basis in 2011, at the following rates and thresholds:

0% < €4,004 

2% €0 to €10,036 

4% €10,037 to €16,016 

7% > €16,016

OTHER INCOME TAX       

 1)     Reform of RCT (Relevant Contracts Tax) 

Replacement of the current RCT rate of 35% with a two rate withholding system on a revenue neutral basis: 

• 20% rate for subcontractors registered for tax with an established compliance record;
• 35% rate for subcontractors not registered for tax; 

The monthly repayment system will be abolished and replaced with an offset system;   Strengthening of the reporting system for RCT Principals in order to enhance compliance and reduce the opportunities for fraud.

2)     Public Service Pension-related Deduction 

From 1 January 2011, the pension-related deduction which is charged to earnings in the public service will be subject to employee PRSI and the Universal Social Charge to be introduced on 1 January 2011. The PRSI change will be legislated for in the Social Welfare Bill. 

3)     Employment and Investment Incentive 

Reform of the existing Business Expansion Scheme in order to increase in the amount those companies can rise under the Scheme. 

4)     Relief for Energy Efficiency Measures 

A new scheme will be reduced in order to encourage individuals to make their homes more energy efficient. Relief will be given up to a maximum expenditure of €10,000 at the standard rate of income tax. Credit will be given in the following tax year.

ABOLITION OF RELIEFS

The following reliefs will be abolished from 1 January 2011 unless otherwise stated:

1)     Rent Relief to be phased out over 8 years; the same timeline as previously announced for Mortgage Interest Relief.

2)     Patent Royalty Exemption, effective from the launch of the  National Recovery Plan on 24 November 2010.

3)     Tax relief on Loans to Acquire an Interest in Certain Companies.

4)     Abolition of tax relief for Trade Union Subscriptions.

5)     Termination of the scheme of accelerated capital allowances for farmers who incur capital expenditure on farm buildings and  structures for use in the control of pollution.

6)     Tax exemption from BIK for Employer Provided Childcare.

7)     Abolition of tax relief on subscriptions to professional bodies.

8)     Capital expenditure on new machinery and plant for use in mining.

9)     Approved Share Options Scheme, effective from the launch of the National Recovery Plan on 24 November 2010.

10)  Tax relief for new shares purchased by employees.

11)  Exemption from Tax in respect of grants or payments to the National Co-Operative Farm Relief Services Limited.

PHASED ABOLITION OF PROPERTY-BASED   ‘LEGACY’ RELIEFS

This measure will restrict the various property-based tax relief schemes in the following manner: 

Section 23

1) 
Section 23-type Relief: From 1 January 2011, this will be restricted to income from the Section 23 property itself (currently such income can be set against all rental income).  At end of 10 year holding period, any unused relief will be lost.

2)    
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.

3)    
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.

4)    
Residential owner-occupier relief is unaffected by these changes. 

Capital Allowances (These restrictions apply solely to passive participants)

1)      With effect 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:

a.     7-year period - 7-year schemes;
b.     10-year period - 10 year schemes.

2)     From 2011 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.

3)     Schemes with a period over 10 years which has not ended will be truncated to 7 years from when allowances are first made.

4)     Capital allowances 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 7 year after the allowance was first made.

5)     Guillotine from 2014 Termination of all unclaimed and unused capital allowances, arising after or carried forward from 2014 as well as unused Section 23 relief carried forward from 2014. 

INCOME TAX: RESTRICTION OF RELIEFS

The following Income Tax/USC/PRSI reliefs will be restricted from 1 January 2011 unless  otherwise stated:

1)     Charge to the Health and Income Levy (USC) on Approved Profit Sharing Schemes.

2)     Charge to the Health and Income Levy (USC) on Approved Save As-You-Earn Schemes.

3)     Charge to the Health Levy (USC) on Unapproved Share Options.

4)     Charge to the Health Levy (USC) on Share Awards.

5)     Restriction of the tax-free element of ex-gratia termination payments to €200,000 so that payments above this amount will be subject to tax at the marginal rate.  This change will apply with  effect from 1 January 2011.

6)     Ceiling of €40,000 on the tax exempt earnings of artists.

7)     Introduction of a charge to PRSI on Approved Profit Sharing Schemes.

8)     Introduction of a charge to PRSI on Approved Save-As-You-Earn Schemes.

9)     Introduction of a charge to PRSI on Unapproved Share Options.

10)  Introduction of a charge to PRSI on Share Awards

11)  Abolition of the PRSI ceiling of €75,036 +100 +145

12)  Class S (Self-Employed) PRSI rate increased from 3% to 4%

13)  Modified PRSI rates (certain public servants) increased to 4% on incomes in excess of €75,036

14)  Introduction of a 4% PRSI charge for certain Office Holders.

15)  Farm Stock Relief  the existing general 25% stock relief for farmers and the special incentive stock relief of 100% for certain young trained farmers are being extended from 1 January 2011 for a further two years subject to clearance with the European Commission under State Aid rules. 

PENSIONS

Employee PRSI on pension contributions: From 1 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. 

Employer PRSI on pension contributions: The current employer PRSI exemption for employee contributions to occupational pension schemes and other pension arrangements will be reduced by 50% from 1 January 2011. This change will be legislated for in the Social Welfare Bill. 

Contribution limit: The annual earnings limit which (along with age-related percentage limits) determines the maximum tax-relievable contributions for pension purposes is being reduced from €150,000 (2010) to €115,000 for 2011. The annual earnings limit for the year of assessment 2010 will also be deemed to be €115,000 for the purpose of determining how much of a pension  contribution paid by an individual in the year of assessment 2011 will be treated as paid in 2010, where the individual elects under existing rules to have it so treated.

Maximum allowable pension funds: The maximum allowable pension fund on retirement for tax purposes (known as the Standard Fund Threshold (SFT)), is to be set at €2.3 million with effect from 7 December 2010.  A higher threshold may apply if, on 7 December 2010, the capital value of an individual’s pension rights drawn down on or after 7 December 2005 (i.e. crystallised pension rights) when added to any uncrystallised pension rights the individual may have, as valued on 7 December 2010, are greater than €2.3 million and lower than €5,418,085 which is the current value of the SFT.

Approved Retirement Funds : The annual imputed distribution which applies to the value of assets in an Approved Retirement Fund (ARF) at 31 December each year is being increased from 3% to 5% in respect of asset values at 31 December 2010 and future years.

Retirement lump sums : The overall life-time limit on the amount of tax-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 or after 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 January 2011.

Extension of flexible options on retirement: All members 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.

CORPORATION TAX

3 Year Tax Exemption for Start-up Companies   This scheme is being extended to include start-up companies which commence a new trade in 2011. The scheme 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 amount.

Schedule 24 Taxes Consolidation Act 1997   This measure which sets out the mechanics for determining the  amount of the credit for foreign tax paid that can be set against Irish liabilities, is being amended to confirm the current treatment  of relevant trading charges on income for the purpose of computing relief for foreign tax. This confirmation applies to all tax returns and claims for repayment of, or reductions of, liability to corporation tax that are made on or after Budget Day.

CAPITAL ALLOWANCES

Energy-efficient equipment   The scheme of accelerated capital allowances for expenditure by companies on certain energy-efficient equipment is being extended for a further 3 years to end- 2014.

TAX ON SAVINGS

Deposit Interest Retention Tax and Exit Taxes on Life Assurance Policies and Investment Funds

The rate 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.

STAMP DUTY

Transfers of residential property:  Reduction in rate for transfers of residential 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, in respect of instruments executed on or after 8 December 2010, as follows:

• First time buyer relief
• Exemption for new houses under 125 sq m in size
• Relief on new houses over 125 sq m in size
• Consanguinity relief for residential property transfers
• Exemption for residential property transfers valued under €127,000
• "Site to child relief

CAPITAL ACQUISITIONS TAX

The current 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.

EXCISES

1)     Increase in Mineral Oil Tax on Petrol and Auto-diesel  The mineral oil tax will be increased by 4 cent per litre on petrol and 2 cent per litre on auto-diesel (both inclusive of VAT) with effect from midnight on 7 December 2010.

2)     Amending the Air Travel Tax to a single rate of €3 A single revised rate of Air Travel Tax of €3 will come into effect on 1 March 2011, on a temporary basis.

3)     Vehicle Registration Tax (VRT)   The following package of measures will be introduced:   Extension of the Car Scrappage Scheme   Extension of VRT relief for Hybrid Vehicles and Flexible Fuel   Vehicles Increase in the VRT flat-rate for Commercial (Category C)  vehicles

4)     Car scrappage 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.

5)     The VRT 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.

6)     The current VRT flat-rate of €50 for Commercial (Category C) vehicles is being increased to €200, to take effect from 1 May 2011.