Minister for Finance Michael Noonan introduced the 2014 Budget on 15th October 2013, followed by the Minister for Public Expenditure and Reform Brendan Howlin with the publication of the Spending Estimates. This Budget is the sixth in a series which is designed to redress Irelands’ budgetary position and return the Country to growth.
The delivery of the 2014 Budget maintains the progress made in previous Budgets. However, it is important to recognise the necessity to achieve the elimination of Irelands Budget deficit with corrections in the order of €3.5 billion, €3.1 billion and €2.0 billion required over the years 2013 to 2015 to get the deficit down to 2.9% - a requirement of being in the Euro.
Of the €3.5 billion required in 2013, tax changes account for some €1.1 billion. With no increases in income tax rates, there were few surprises to Budget 2014 from a tax perspective. That said, people will feel the effects of this Budget in their pockets, with less disposable income, it remains to be seen how this will impact on consumer sentiment, going forward. In tandem with Budget 2014, the Minister for Finance reaffirmed the Government’s “100% commitment” to the 12.5% corporation tax rate, through the publication of the Ireland’s International Tax strategy statement.
Additionally, the Budget contains a number of detailed and specific pro-growth and pro-jobs measures which cumulatively, it is envisaged, will have a positive impact.
The Budget and the Individual
It was well flagged that Budget 2014 would not alter income tax rates, tax credits, or impose general increases in USC rates. However, as a carry forward from Budget 2013 PRSI for employees on unearned income (e.g. rental income, deposit interest, dividends etc.) will become payable, effective 1st January 2014. Incentives for Start Your Own Business (SYOB) and Home Renovation Incentive (HRI) were announced.
Deposit Interest Retention Tax (DIRT) has been increased from 33% to 41%. Additionally, the rate of exit tax on life assurance policies and investment funds has increased to 41%. The increased rate will apply to all payments, including deemed payments, made on or after 1 January 2014.
Other measures include
- Top Slicing Relief for all ex gratia payments made after 1st January 2014, will be abolished.
- The limitation of relief for medical insurance premiums with a limit of €1,000 per adult and €500 per child to apply for premiums.
- One parent family tax credit changes
- High Earners’ Restriction(HER) amendments
- Film Investment relief expires 2016 as opposed to2015.
- The abolition of Tax reliefs on loans to acquire an interest in a Partnership.
The Budget and PensionsThe Minister for Finance announced a number of proposed changes to pensions. Primarily,
- Income Tax relief at the marginal rate for qualifying Pension contributions was unaffected.
- Effective 1st January 2014, the Standard Fund Threshold has been reduced from €2.3 million to €2 million. Individuals with Values up to €2.3 million as at the 1st January 2014, will be able to protect such a holding by claiming a Personal Fund Threshold (PFT).
- The 0.6% pensions levy is set to be increased to 0.75% and will remain in existence until the end of 2014, a reduced levy of 0.15% will be introduced from 2015.
- On the crystallisation of pension benefits, defined benefit pension entitlements will be valued by reference to a capitalisation factor of 20 for benefits accrued up to 1 January 2014, and an age related factor for benefits accrued thereafter.
- At present, the maximum tax-free lump sum that can be taken from a pension scheme is €200,000, while a further €375,000 can be taken subject to the standard income tax rate of 20%. Any excess above €575,000 is subject to marginal rate income tax of 41% and USC of 7%.The threshold of €575,000 will reduce to €500,000.
The Budget and PropertyThe Minister has given his assurances that the central national Local Property Tax rates will not
be varied during the lifetime of this Government, this will provide comfort to taxpayers. In 2015, local authorities will have the power to vary rates by 15% above or below the central national rates. The Relief from CGT in respect of real Property bought and held for seven years has now been extended and will apply to Property acquired before 31st December 2013.
The Budget and Capital Taxes
Both Capital Acquisitions Tax and Capital Gains Tax are unchanged at 33% .
A Stamp Duty exemption for Shares traded on the Enterprise Securities Market (ESM), is available subject to a commencement Order.
The Budget and Business Tax
The Minister’s speech contained 25 Pro Business measures, many of which were non Tax related. As previously stated, the Minister reaffirmed the Government’s “100% commitment” to the 12.5% corporation tax rate, through the publication of the Ireland’s International Tax strategy statement.