Ministers Noonan and Howlin were tasked with reducing the deficit in the country’s finances by €3.5bn in the Budget for 2013. In their highly anticipated Budget speeches, they emphasised their aim to achieve this in a balanced and fair manner. This has meant that they have cast the net widely and announced the following measures:
A Property Tax will be introduced as expected on 1 July 2013. The tax will apply to residential properties, including rental properties, and will be payable on the market value of the properties as assessed by the owner. The Revenue Commissioners will provide some guidance on valuations and will also accept valuations by independent valuers. The rate of the tax will be:
Market value up to €1m 0.18%
Market value over €1m 0.25%
The tax will be collected by the Revenue Commissioners and can be paid by direct debit, cash, credit card or salary deduction. A half year’s Property Tax will be due for 2013. From 2015 local authorities will have the power to vary the rates of Property Tax by up to +/-15% of the above rates.
Those that are currently exempt from the household charge will also be exempt from the new Property Tax. In addition, first time buyers of residential property in 2013 and purchasers of new or previously unoccupied homes will be exempt from the Property Tax up to 2016.
There will also be provisions to allow certain people on lower incomes or with significant mortgage repayments to defer payment of up to 15% of their Property Tax.
The household charge will be abolished from 1 January 2013 and the Non Principal Private Residence (“NPPR” ) charge will disappear on 1 January 2014. Unpaid arrears together with any interest and penalties relating to both of these taxes will be pursued.
Personal Tax Matters
As promised, there will be no change to income tax rates, tax credits or tax bands in 2013. However there were a number of changes around PRSI and the Universal Social Charge (“USC” ):
• The reduced rate of USC of 4% which applied to those over 70 will no longer apply from 1 January 2013. Those over 70 with income of over €60,000 will pay the standard 7% rate of USC on income over €16,016.
• The PRSI exemption of €127 per week for employees will be abolished – an extra €5 cost for employees each week.
• PRSI will apply to unearned income e.g. rental income, dividends, deposit interest in future. For most people this will apply from 1 January 2014.
• The annual minimum PRSI contributions for the self-employed will increase from €253 to €500 in 2013.
Other personal tax measures announced were:
• Maternity benefit will be taxable from 1 July 2013 but will continue to be exempt from the USC.
• The rate of DIRT applying to deposit interest will increase by 3% to 33% from 1 January 2013.
• The income tax relief available to those who invest in qualifying film production companies is extended to 2020 but the Minister signalled his intention to reduce the rate of relief from the marginal income tax rate of 41% to 20% in 2016.
• Top slicing relief on ex-gratia redundancy payments operates to ensure that the tax paid on ex-gratia payments is capped at that individual’s average effective tax rate for the past three years. This relief will be abolished from 1 January 2013 for ex-gratia redundancy payments in excess of €200,000 meaning that they will be taxable at 41%.
• The income tax relief for donations to charities will apply at a single blended rate of 31% in 2013.
• The rate used to calculate the taxable benefit on preferential loans from employers to employees will decrease by 1% to 4% on home loans but increase by 1% to 13.5% on all other loans.
Relief will continue to be available for contributions to pensions at the marginal 41% rate. However it is intended that this relief will only apply to contributions to pensions creating an annual pension of €60,000 and following consultation, new rules may be announced in 2014.
Up to now individuals could not access any pension contributions before retirement. In 2013-2016 there will be a window which will allow individuals to withdraw up to 30% of their Additional Voluntary Contributions to pension schemes. These withdrawals will be subject to tax at 41%.
Business Tax Matters
The Minister announced some tax measures aimed at the SME sector which will apply from 1 May 2013:
• Extending the income tax relief available to employees travelling abroad for work to include time spent in Algeria, Egypt, Kenya, Ghana, Democratic Rep of Congo, Nigeria, Senegal and Tanzania.
• Increasing the exemption from the close company surcharge on undistributed investment income and professional service income from €635 to €2,000.
• Increasing the amount eligible for the Research & Development tax credit on a full volume basis (without reference to the 2003 base year spend ) by €100,000 to €200,000.
• Introducing a rebate on diesel for tax compliant hauliers starting in 1 July 2013.
• Replacing the Revenue Job Assist Scheme and some Employer PRSI incentives with new “+1” incentives designed to encourage job creation for the long term unemployed.
• Enhancing the start up exemption from corporation tax to allow any unused relief in the first three years of trading to be carried forward into future years.
• Extending the Employment and Investment Incentive Scheme which provides for income tax relief for investment in certain companies to 2020, subject to EU approval.
The Minsters announced the extension of stock reliefs from 2012 to 2015 and have broadened the definition of farm partnerships which qualify for stock relief to include beef as well as milk partnerships.
There will be a new relief from Capital Gains Tax on sales of farm land in 2013-2015 where the proceeds are reinvested for the same purpose within 24 months of the initial sale. The relief will also apply to certain land swaps. This relief will be subject to obtaining approval from the EU.
The flat rate VAT addition for farmers will be reduced from 5.2% to 4.8% on 1 January 2013.
The rates of Capital Gains Tax and Capital Acquisitions (Gift/Inheritance ) Tax increase by 3% to 33% from midnight on 5 December 2012. In addition the lifetime exemptions from Capital Acquisitions Tax are being reduced by 10% from the same date.
As had been announced earlier in the week, there will be no change in basic social welfare rates. However, child benefit will be reduced by €10 per child per month and the duration of job seekers benefit will be reduced by 3 months.
There will be reductions to certain household benefits provided to those claiming social welfare e.g. telephone and electricity allowances.
Changes in the health area include:
• The medical card prescription charge will increase from 50 cent to €1.50 per item.
• The Drug Payment Scheme threshold will increase from €132 to €144 per month.
• Medical cards held by those over 70 with incomes over €600 per week (€1,200 for a married couple ) will be replaced with GP only cards.
Indirect and Excise Taxes
The 9% VAT rate applying to the tourism and hospitality sector will continue into 2013.
The cash receipts basis for accounting for VAT can now apply to those businesses with sales of up to €1.25m, an increase of €250,000.
The excise rates were increased with effect from midnight on 5 December to apply an extra 10 cent to a packet of 20 cigarettes, 10 cent to a pint of beer/cider and a measure of spirits with an extra €1 added to a bottle of wine.
The carbon tax will apply to solid fuels (coal/oil ) at a rate of €10 per tonne from 1 May 2013 and €20 per tonne from 1 May 2014.
While there was no increase in excise rates on petrol or diesel, the rates of VRT and motor taxes will increase on 1 January 2013. The motor tax rates for cars registered before 1 July 2008 have broadly increased by 7.5%. The increase in motor tax on newer cars varies from 6% to 24% with cars in the CO2 category B hit hardest.
This article was compiled by the KPMG Galway Tax Team, Odeon House, Eyre Square, Galway. Tel: 091-534600.