While the Minister did not increase personal tax rates or bands there was a large number of new tax measures together with increases in Motor Tax rates, Excise Duties and VAT.
The package of measures is designed to bridge the gap between revenue and expenditure with a target deficit of 8.6% of GDP for 2012. The Taoiseach has indicated that based on the current plan it is his hope that the economy will be able to pay it own debts by 2015 without recourse to Third Parties.
Commenting on the Budget, Anthony Browne, Taxation Partner, O’Donovan Caulfield Lavin said, “The impact of the additional taxes and other costs and particularly the increase in VAT will impact on household budgets. This will greatly curtail spending power which in turn may lead to significant job losses in the retail sector.
“The ongoing turmoil within the euro also has greatly affected peoples spending patterns. It is hoped that a permanent solution to this crisis will be reached this week in Brussels but it is likely that this will require Treaty change. The only light at the end of the tunnel is that exports continue to be strong; however these too are going to be impacted upon by the ongoing economic situation.”
Key Expenditure Cuts:
Child Benefit
Over 2 years the Government will standardise the rate of payment of child benefit for all children. The new rates for 2012 are €140 for the first and second child, €148 for the third child and €160 for fourth and subsequent children.
Fuel Allowance
The government have decided to reduce the fuel season from 32 weeks to 26 weeks.
Redundancy & Insolvency Scheme
Up to now employers who have made employees redundant were entitled to a refund of 60% of the statutory redundancy paid to the employees. This has now been reduced to 15% with effect from 1 January 2012.
Other Expenditure changes
Job Seekers benefit is now going to be based on a 5 day week; The Drugs Payment Scheme monthly threshold is going to increase from €120 to €132; In education, we will see an increase in the current €2,000 student contribution by €250 in 2012.
Key Taxation Measures:
Universal Social Charge (USC)
There are no proposed changes in the rates of USC; however the annual exemption limit for 2012 is raised from €4,004 per annum, to €10,036. Therefore an employee who earns up to €193 a week will no longer pay USC. An employee who is charged USC during 2012 but whose income for the year does not exceed €10,036 will get a refund of the USC.
PRSI
There is a removal of the remaining 50% employer PRSI relief on employee pensions. The PRSI base has been extended to cover rental, investment and other forms of income from 2013.
Capital Acquisition Tax (CAT)
From 7 December 2011, the rate of tax on inheritances and gifts (CAT) will increase to 30% (from 25%). The gifts/inheritances Group A threshold which relates to children is reduced to €250,000 (from €332,084).
Capital Gains Tax (CGT)
From 7 December 2011, the rate of capital gains tax (CGT) will increase to 30% (from 25%). It was also announced that there is to be a modification of retirement relief from CGT as an incentive to transfer farms and businesses before the current owners reach the age of 66. Also there is to be a CGT incentive for property purchased between midnight on 6 December 2011 and 31 December 2013 and held for at least 7 years, whereby the gain attributable to those 7 years will be relieved from CGT.
Property Incentives
In a welcome move the Minister has decided not to proceed with the far reaching changes in property tax reliefs which were introduce in last years Finance Act but which were subject to a commencement order. Instead a surcharge of 5% on the amount of income sheltered will be introduced for individuals whose income exceeds €100,000.
Investors in accelerated capital allowance schemes will no longer be able to use capital allowances beyond the tax life of the particular scheme where the tax life ends after 1 January 2015
Where that tax life end before 1 January 2015 no carry forward of allowances into 2015 will be allowed
Household Charge
A household charge of €100 is being introduced in 2010 with some exceptions
Deposit Interest
Deposit interest retention tax is being increase to 30%
VAT
The Standard Rate of Vat will increase to 23% from 1 January 2012
Motor Tax Rates
Motor tax rates are increasing from 1 January 2012 across all categories. For example the €104 rate is increasing to €160 and the €156 rate to €225.
Employment and Investment Incentive (EII) & New Company Start ups
The EII scheme which replaces the BES Scheme has been approved by the European Commission and came into operation on 25 November 2011. This scheme allows qualifying companies to raise up to €10m in investment capital (maximum of €2.5m in any one year) with investors getting tax relief at 30% initially and an additional 11% after year three if the company has increased employment. The Business expansion scheme ends on 31 December 2011.
Separately the exemption from corporation tax for new start up companies in the first 3 years has been extended to 2014.
Mortgage Support
Mortgage Interest Relief has been increased to 30% for first time buyers who purchased their home between 2004 and 2008.
First time buyers in 2012 will receive a rate of 25% Mortgage Interest relief and non-first time buyers will receive the relief at 15%. This Mortgage Interest Relief will apply to houses bought in 2012 only.
Stamp duty
A reduction has been made on stamp duty on commercial property reducing the rate from 6% to 2% on all transfers with the rate taking immediate effect. This rate of stamp duty applies to all non-residential property, including farmland as well as commercial and industrial buildings.
Stamp duty provisions for residential property remain unchanged with a rate of 1% applying to all transactions up to and including €1 million and at 2% thereafter.
The above is an Overview of Budget 2012 and should not replace professional advice on any of these areas.