Personal Tax Matters
The income tax measures outlined below are effective from May 1 2009.
The Minister announced that the income levy rates will be doubled to two per cent, four per cent and six per cent respectively. The two per cent rate will apply to income in excess of €15,028. The four per cent rate will apply to income in excess of €75,036 and the six per cent rate to income in excess of €174,980 per annum. This levy applies on gross income before deductions including for example, tax credits or pension contributions. This levy does not however apply to social welfare payments.
The health levy rates will double to four per cent and five per cent. The higher rate will apply to annual income of €75,036 or more. While the doubling of the income levy was broadly expected, combined with this doubling of the health levy it represents a material increase in the effective income tax burden that will have to be borne by individuals.
There will be no change to the lower or higher tax rates. They remain at 20 per cent and 41 per cent respectively. The Minister did not announce any changes in personal or married tax credits, the employee tax credit or tax bands. This will be of little comfort to taxpayers in view of the dramatic effective hikes in taxes on income in the form of the increase to levies outlined above.
The employee PRSI contribution ceiling will increase from €52,000 to €75,036.
There will be no change to existing arrangements for tax relief on pension contributions, which continue to attract tax relief at the taxpayer’s marginal rate of tax 20 per cent or 41 per cent.
With effect from May 1 2009, mortgage interest relief will be discontinued for any mortgage over seven years old.
The amount of interest relief that can be claimed in respect of rented residential property will be reduced from 100 per cent to 75 per cent with effect from April 7 2009. While these provisions will apply to both new and existing residential properties, they will not affect commercial properties.
The rates of DIRT tax on savings has been increased to 25 per cent for deposit interest and 28 per cent for life assurance policies and investment funds with effect from midnight on April 7 2009.
The rate of Capital Gains Tax has been increased from 22 per cent to 25 per cent in respect of disposals made from midnight on April 7 2009.
Capital Acquisitions Tax
The rate of Capital Acquisitions Tax has been increased from 22 per cent to 25 per cent with effect from midnight on 7 April 2009.
The lifetime tax-free thresholds for Capital Acquisitions Tax have been reduced by 20 per cent. The thresholds now stand at €434,000, €43,400 and €21,700 respectively and apply in respect of gifts or inheritances taken from midnight on 7 April 2009.
Business Tax Matters
Corporation tax rates remain unchanged.
The Minister confirmed that details of a new scheme of capital allowances for capital expenditure incurred on the acquisition of Intellectual Property will be contained within the upcoming Finance Bill.
The Minister outlined initial details of a new stamp duty trade-in scheme which will provide that no stamp duty will be payable by a person who accepts a trade-in property in exchange or part exchange for a new house or apartment. Stamp duty will be payable when the person subsequently sells on the swapped/traded-in house.
A new one per cent levy will apply on life assurance policy premiums paid on or after 1 June 2009.
The rate of stamp duty on non-life insurance policy premiums is being increased by one per cent to three per cent. This increase will apply to renewals and offers of insurance issued by an insurer from midnight on 7 April 7 2009 where premiums are received by the insurer on or after 1 June 2009.
The special 20 per cent rate of income tax that applied to trading profits from dealing in or developing residential development land is being abolished. With effect from the tax year 2009, such income will be taxed at the individual’s relevant marginal rate of income tax. In the case of companies, for accounting periods ending on or after January 1 2009 such income will be liable to the 25 per cent rate of corporation tax. These new provisions also have implications for the way in which accumulated trading losses from dealing in or developing residential development land can be used.
The Minister announced the termination of the capital allowances scheme for private hospitals and nursing homes. Transitional arrangements will apply for projects that are at an advanced stage of development and further details will be contained within the Finance Bill.
Increases in excise duties were also announced which will apply from midnight on 7 April 7 2009. Excise duty on diesel goes up by five cent a litre and cigarettes increase by 25 cent on a packet of 20. No increases were announced on the price of petrol, beer or wine.
A margin scheme is being introduced for second-hand cars with effect from 1 July 2009. Under these provisions, dealers will be taxed on their margin on the second-hand cars acquired and resold after that date. Special arrangements were also announced for second-hand cars already in stock at July 1 2009 that are resold by December 31 2009.
A new incentivised scheme of early retirement in the public service has also been announced, which will apply to certain civil and public servants aged 50 and over. Individuals that avail of this incentive will not suffer any actuarial reduction of pension entitlements and will be able to receive a percentage of their pension lump sum on retirement from the public service with the balance payable on normal retirement age.
The pension levy for public servants has been amended to lessen the impact on lower paid public servants, with higher paid public servants now bearing an increased proportion.
The general rates of social welfare remain unchanged.
The rate of jobseeker’s allowance and basic supplementary allowance will be reduced to €100 per week from the beginning of May 2009 for new claimants under 20 years of age. The associated qualifying adult rate will also be reduced to €100. However, these provisions will not apply where a claimant is entitled to an increase for a qualified child.
The Christmas bonus payment will not be made in 2009.
Changes were announced to the rent supplement eligibility and payment regime.
The early childcare monthly supplement is to be halved to €41.50 per child with effect from May 1 2009 and abolished at the end of 2009. However, it will be replaced in January 2010 with a free early childhood and education year for pre-school children between the ages of three years three months and four years six months.
The Minister indicated that the area of child benefit is currently under review and that new provisions regarding means testing or taxing of such benefits are likely to be included in the next budget.