The changes below take effect from 1 January 2012 unless otherwise stated.
Income Tax
Tax Rates, Credits and Bands
No change in standard 20% rate or in 41% top rate of income tax. Also no change in the value of bands and Tax credits for 2012.
Mortgage Interest Relief
Mortgage Interest Relief is increased to 30% for First-Time Buyers between 2004 and 2008.
Current rates of Mortgage Interest Relief will be extended to First-Time Buyers and Non-First-time Buyers in 2012. Relief will no longer be available to house purchasers who purchase after the end of 2012 and will be fully abolished from 2018.
For those who wish to buy a home in 2012:
• First time buyers will get mortgage interest relief at a rate of 25 per cent rather than the 15 per cent previously proposed; and
• Non-first time buyers will benefit from relief at 15 per cent instead of the reduced rate of 10 per cent previously proposed.
Property Transactions and Reliefs
These measures will apply to the various property-based tax relief schemes in the following manner:
Section 23-type Reliefs and Accelerated Capital Allowances
A surcharge will be introduced effective from 1 January 2012 on individuals with gross incomes over €100,000. The surcharge will apply at a rate of 5% on the amount of income sheltered by property reliefs in a given year.
This surcharge (essentially a higher rate of USC) will apply to all investors regardless of whether they invested in Section 23 or accelerated capital allowance schemes with this level of gross income.
Residential owner-occupier relief is unaffected by these changes.
Accelerated Capital Allowances
Investors in accelerated capital allowance schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015.
Where the tax life of a scheme has ended before 1 January 2015 no carry forward of allowances into 2015 will be allowed.
Corporation Tax
Rates of Tax
No change in 12.5% rate of Corporation Tax.
3 Year Tax Relief for Start-up Companies
The scheme which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading is being extended to include start-up companies which commence a new trade in 2012, 2013 or 2014.
R&D tax credit
A number of changes are being made to the R&D tax credit scheme as follows:
The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis. The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000 as compared with such expenditure in the base year 2003. This will provide a targeted benefit to SMEs.
At present sub-contracted R&D costs are eligible where they do not exceed 10% of total costs or 5% in the case of sub-contracting to third level institutions. This limit can disproportionately affect smaller companies who may have greater need to outsource R&D work than larger multinationals with greater internal resources. The outsourcing limits for sub-contracted R&D costs are being increased to the greater of 5 or 10% as appropriate or €100k. This will provide a targeted benefit to SMEs.
Companies in receipt of the R&D credit will have the option to use a portion of the credit to reward key employees who have been involved in the development of R&D. It is envisaged that there would be no additional cost to the Exchequer as the bonus comes from the R&D credit already received by the company and the employee still pays the full tax liability on their other income. This change will be monitored closely and if abused will be removed.
Capital Gains Tax
The current rate of 25% is being increased to 30%. This increase applies in respect of disposals made after 6 December 2011.
A new incentive relief from CGT is being introduced for the first seven years of ownership for properties bought between Budget night and the end of 2013, where the property is held for more than seven years. Where such property is held for more than seven years the gains accrued in that period will not attract CGT. This measure comes into effect after 6 December 2011.
Measures to incentivise timely farm transfers
Full retirement relief from CGT for intra-family transfers will be maintained for individuals aged 55 to 66. An upper limit of €3m on retirement relief for business and farming assets disposed of within the family is introduced where the individual transferring the assets is aged over 66 years. This will incentivise earlier transfer of farms. (The current unlimited amount applies for a transitional period of two years for individuals currently aged 66 or who reach that age before 31 December 2013.)
The current upper limit of €750,000 for assets transferred outside the family for individuals aged between 55 and 66 years will be maintained. The upper limit for retirement relief for business and farming assets transferred outside the family is reduced from €750,000 to €500,000 for individuals aged over 66 years. (The current upper limit of €750,000 applies for a transitional period of two years for individuals currently aged 66 or who reach that age before 31 December 2013.)
Full details of these measures will be set out in the Finance Bill.
Capital Acquisitions Tax
The current rate of 25% is being increased to 30%. This increase applies in respect of gifts or inheritances taken after 6 December 2011.
The current Group A tax-free threshold is being reduced from €332,084 to €250,000. This reduction applies in respect of gifts or inheritances taken after 6 December 2011.
Deposit Interest Retention Tax and Exit Taxes on Life Assurance Policies and Investment Funds
The rate of retention tax that applies to deposit interest, together with the rates of exit tax that apply to life assurance policies and investment funds, are being increased by 3 percentage points in each case and will now be 30% for payments made annually or more frequently and 33% for payments made less frequently than annually. The increased rates will apply to payments, including deemed payments, made on or after 1 January 2012.
Pensions
Approved Retirement Funds
The annual imputed distribution which applies to the value of assets in an Approved Retirement Fund (ARF) at 31 December each year is being increased from 5% to 6% in respect of ARFs with asset values in excess of €2 million (or, where an individual owns more than one ARF, where the aggregate value of the assets in those ARFs exceeds €2 million). The increase will apply in respect of asset values in affected ARFs at 31 December 2012 and future years.
The transfer of ARF assets on the death of an ARF owner to a child of the owner aged over 21 is subject to a final liability tax equal to the standard rate of income tax in force at the time of the making of such a distribution (currently 20%). It is proposed to apply a higher final liability tax rate of 30% to such transfers and the details of this will be published in the Finance Bill.
Personal Retirement Savings Accounts (PRSAs)
“Vested” PRSAs are PRSAs from which retirement benefits have commenced to be taken, usually in the form of the “tax-free ”retirement lump sum. The annual imputed distribution provisions which apply to ARFs will also apply on the same basis to “vested” PRSAs, where the assets are retained in the PRSA rather than being transferred to an ARF. This will include an increased deemed distribution percentage of 6% for vested PRSAs with assets in excess of €2 million. Where an individual holds more than one PRSA the deemed distribution will apply to the aggregate of the assets in all of that individual’s PRSAs once any one of them is vested. The increase will apply in respect of asset values in affected PRSAs at 31 December 2012 and future years. Further details will be published in the Finance Bill.
Employer PRSI on pension contributions
The current relief of 50% of employer PRSI for employee contributions to occupational pension schemes and other pension arrangements is being removed from 1 January 2012. The change will be legislated for in the Social Welfare Bill.
Stamp Duty
Transfers of non-residential property
Abolition of multiple Stamp Duty rates for non-residential i.e. commercial properties, including farm land replaced with a single rate of 2% in respect of instruments executed after 6 December 2011.
Consanguinity relief on transfers of non-residential properties to be retained for intra-family transfers to end of 2014. This relief is abolished after 1 January 2015.
VAT
Increase in standard VAT rate from 21 per cent to 23 per cent
The standard rate of VAT will be increased by 2 percentage points from 21 to 23 per cent with effect from 1 January 2012. This increase will apply to all goods and services which are currently subject to VAT at 21 per cent.
VAT rate on district heating reduced from 21% to 13.5%
The VAT rate applicable to district heating will be reduced from 21% to 13.5% in the Finance Bill, following consultation with the EU Commission. This will bring district heating in line with the majority of energy supplies that are subject to 13.5%. This measure also promotes energy efficiency and provides cost reduction solutions for business.
Admissions to open farms to apply at the 9% reduced rate
Following changes at EU level, admissions to open farms will become liable to VAT from 1 January 2012. Consistent with the recent VAT reduction in respect of the tourist industry, the rate of VAT on admissions to open farms will apply at the reduced rate of 9%.
Domicile Levy
The “citizenship”condition for payment of the levy is being removed. This will broaden the base for the levy and make it more difficult to avoid.
A set of proposed amendments to the current regime applying to non-residents will be published in early 2012 and put out to public consultation to inform preparation for further changes in 2013.
Business Incentives
Renewable energy generation
The qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects is being extended from 31 December 2011 to 31 December 2014.
The purpose of the scheme is to encourage investment in renewable energy projects and to facilitate the growth of electricity generation capacity using these sources.
To qualify for the relief the energy project must be approved by the Minister for Communications, Energy and Natural Resources and be in one of the following categories of technology:
• Solar
• Wind
• Hydro (including ocean, wave or tidal energy)
• Biomass
Special Assignee Relief Programme
Introduction of a Special Assignee Relief Programme to allow multinational and indigenous companies to attract key people to Ireland so as to create more jobs and to facilitate the development and expansion of businesses in Ireland. More details will be announced in the Finance Bill.
Foreign Earnings Deduction
Introduction of a Foreign Earnings Deduction for temporary assignments to BRICS countries i.e. aiding companies seeking to expand into emerging markets in Brazil, Russia, India, China and South Africa. Further details will be released in the Finance Bill.
Household Charge
A €100 household charge is to be introduced from January 2012 which will oblige every homeowner in the State to help fund Local Authorities. This will be replaced by a property tax based on the value of the property details to be released in the middle of 2012. The charge must be paid by the end of March 2012 and a late penalty of €10 will apply if paid within 6 months of the due date, €20 between 6 and 12 months and €30 if the payment is 12 months late. Certain exemptions will apply.
Employer Redundancy Rebates
Workers who are made redundant are entitled to a tax free statutory redundancy payment. It is worth two weeks pay per year of service, plus a bonus week, capped at €600 per week. Some employers give an extra payment on top of this. Up to now employers had been able to claim back 60% of statutory redundancy payments from the Government. However this has now been significantly reduced to 15%.
Third Level College Fees
Third level college registration fees are increased by €250 from €2,000 to €2,250.
Drugs Rebate Scheme
The threshold for the drugs rebate scheme has increased by €12 per month i.e. from €120 to €132.
Excise Duties
Tobacco Products Tax
Excise Duty on a packet of 20 cigarettes is being increased by 25 cents (including VAT) with a pro-rata increase on other tobacco products, with effect from midnight on 6 December 2011.
Carbon Tax
The carbon tax will be increased by €5 to €20 per tonne on fossil fuels. The increase will apply to petrol and auto-diesel with effect from midnight, 6 December 2011; and from 1 May 2012 to Kerosene, Marked Gas Oil, Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas.
Betting Duty
The Betting (Amendment) Bill is now at an advanced stage and will facilitate the extension of the betting duty of 1% to remote betting and the introduction of a betting intermediaries’ duty (Gross Profits Tax of 15%) to cover betting exchanges. Following publication of the Bill there is a legal requirement to notify the EU Commission 3 months in advance of enactment of the Bill. It is intended that the new taxation regime will commence from the second quarter of 2012.
Vehicle Registration Tax (VRT) and Motor Tax - Public Consultation
It is planned to review the current CO2 bands and rates structures in line with technological advances in motor vehicles. A public consultation will be undertaken in this regard with a view to adjusting the bands with effect from a target date of 1 January 2013.
Motor Tax
Motor Tax rates across all categories will increase with effect from 1 January 2012.
Farmers Taxation
Stock Relief for Registered Farm Partnerships
An enhanced 50% stock relief (100% for certain young trained farmers) for registered farm partnerships is being introduced and will run until 31 December 2015 subject to clearance with the European Commission under State Aid rules.
Retirement Relief Amendments
Please see above retirement relief incentives introduced for early transfers of farms.
Extension of the existing VAT Refund Order for flat-rate farmers to include a refund on the purchase of wind turbines
The existing VAT refund order, which provides for the refund of VAT paid by un-registered farmers on the construction of farm buildings, fencing, drainage and reclamation of farm land, will be amended to provide that such farmers may claim a refund on wind turbines purchased from 1 January 2012. This change is part of a series of measures aimed at assisting and promoting the farming community.
Universal Social Charge
Increase of lower exemption threshold from €4,004 to €10,036.
Social Welfare
• No change to most weekly social welfare payments.
• Child benefit for first and second child unchanged. There is a cut to €148 from €167 for the third child and from €177 to €160 for the fourth and subsequent children. All rates will drop to €140 per child from 2013. No more €635 one-off payments for twins/triplets/quads.
• The fuel allowance will only be paid for 26 weeks instead of the previous 32 weeks.
• For one parent families payments only made until youngest child is 7 years for new claimants from 2014. Age limit reduced from 14 to 12 next year.
• Qualifying age for Disability allowance increased from 16 to 18. To compensate a Domiciliary allowance will be extended to 16 and 17 year olds.
• Disability allowance cut from €188 per week to €100 per week for new claimants aged between 18 and 21.
• Disability allowance cut from €188 per week to €144 per week for new claimants aged between 22 and 24.
• Increase in minimum number of PRSI contributions required to qualify for a widow/er‘s contributory pension from 156 contributions to 520 i.e. increase from 3 years to 10 years.