On 13 October 2015, Minister for Finance Michael Noonan introduced Budget 2016, the final Budget of this government’s current term. Budget 2016 was widely welcomed in terms of the measures announced, particularly around personal taxation reliefs, rate reductions to USC and movement of entry points. Tax practitioners have for some time urged attention be directed to Irelands Personal Tax regime and in particular to the relative uncompetitive treatment of Irish based Entrepenours. Due to the tight Budgetry position in previous years, little room existed to address this position. However, Budget 2016 took advantage of more favourable conditions to bring in measures to redress this position. The package of incentives for entrepreneurs and the Knowledge Development Box should encourage domestic business growth.
The tax adjustments announced in Budget 2016 were directed primarily at improving the tax position for the employed, and those low to middle income earners. Measures introduced included reductions in USC, a package of enhancements for entrepreneurs and the gradual introduction of a tax credit for the self-employed. The effective tax rate for the self-employed will also be brought closer to that of PAYE workers.
While the main focus of this Budget has been to give back to the ‘squeezed middle’, it will also have a positive impact on private businesses and entrepreneurs. USC changes designed to put money back in the pockets of consumers will help reinforce returning consumer confidence and significantly benefit domestically focused businesses.
We detail hereunder some of the main announcements contained within this years Budget.
- Capital Gains Tax: A cut in rates from 33% to 20% on up to €1 Million in gains for certain qualifying Entrepenurs efor
- USC:A cut in rates for low and middle income earners
- Capital Acquisitions Tax: (Inheritance Tax) The Tax free threshold for Category A raised from €225k to €280k (This applies mainly to gifts and inheritances from parents to their childre) Effective 14 October 2015.
- Property Tax – No property revaluation until 2019 (it was due in 2017)
- Income Tax: A €550 tax credit for non PAYE earners. Plus An increase in the Home Carer Tax Credit from €810 to €1,000, and increase in the home carer’s income threshold from €5,080 to €7,200.
- State Pension increase of €3 a week and also €3 weekly increase for carers aged 66 and over. Increases for Qualified Adults aged under 66 years will go up by €2 and increases for qualified adults aged 66 years or over will go up by €2.70 a week.
- The Pension Levy of .15% introduced for 2014 and 2015 will expire at the end of 2015.
- Pay. The statutory minimum wage is to rise from €8.65 to €9.15 per hour from January as previously recommended by the Low Pay Commission.
The 2016 Budget was generally in line with expectations with €1.5 billion of
expansionary measures split 50/50 between reduced taxes and increased expenditure. The only
tax increase announced related to a 50 cent increase in excise duty on cigarettes and tobacco
Additionally,in Budget 2016 the government continued their support of private pension provision and did not announce any changes to how such pensions operate.
Key Points on Pensions
- Pension Levy has ceased and it does not apply in 2016. The minister repeated the commitment of the last two budgets that 2015 is the last year of the Pension Levy.
- Marginal rate income tax relief retained on pension contributions.
- No change announced for AMRF limits.
- No change announced for early access withdrawal of 30% of AVCs. This is permitted to 26 March 2016
In previous Budgets Minister Noonan has stated that the government believes it is in people’s best interest to continue to invest in pensions. There were no changes announced to pension options, funding limits or the tax relief available. The only announcement on private pensions was the confirmation of the demise of the Pensions Levy at the end of 2015.
Key Points on Investment & Life Assurance.
No change was announced to the exit tax rates, either personal or corporate, which apply to life assurance savings and investment products. Thus the exit tax rate for personal investors is still 41% and the rate for corporate investors is unchanged at 25%.