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Budget 2016

Executive Summary

This year’s Budget was the fifth and final budget during the current coalition’s term. Such was the volume of budgetary leaks over the past 24 hours, this update could have been circulated at 9 a.m. this morning.

Ireland is currently the fastest growing economy in Europe, and with rising growth rates, better than expected exchequer returns and of course a general election around the corner, this Budget was well flagged as a give-away budget and an opportunity to give back something to the people after years of austerity. 

This summary will focus primarily on the Taxation measures presented by Minister Noonan with a brief outline of the Public Expenditure cuts announced by Minister Howlin.

The main features of Budget 2016 as they will affect you in business and in your personal life are as follows;

  • No changes to income tax rates of bands. Income tax rates remain 20% and 40%.
  • Entry threshold to USC increased from €12,012 to €13,000. 1.5% rate cut to 1%. This applies on the first €12,012 of income; 3.5% rate cut to 3%. This applies on income in excess of €12,012 up to an increased threshold of €18,668. 7% rate to 5.5%. This applies on income in excess of €18,668 up to €70,044
  • Increase of €190 in home carer tax credit to bring it up to €1,000.
  • Introduction of a tapered PRSI credit for low earning workers. This change will ensure that low-income earners will see a significant improvement in net incomes.
  • For Employer PRSI, the entry point to the top rate of 10.75% is increased by €20 per week to €376 per week from €356.01.
  • Capital Acquisitions Tax- the Group A tax-free threshold, which broadly applies to transfers between parents and their children, is increased from €225,000 to €280,000.
  • Proposal to be made to government to postpone Local Property Tax revaluation dates from 2016 to 2019.
  • Pension fund levy to be abolished by the end of 2015.
  • Introduction of earned income tax credit of €550 for self-employed individuals.
  • There is to be no change in the VAT rates, which includes the keeping of the 9% rate for the tourism / hospitality sector.
  • Stock relief and stamp duty relief for young trained farmers extended to December 2018.
  • New farm succession plan to be announced to make it easier to transfer farms.
  • Commercial motor tax rates are to be simplified, with the 20 existing rates to be replaced by five new rates, ranging from €92 to €900. The maximum rate had been €5,195.
  • Introduction of lower corporation tax rate of 6.25% for income arising from Knowledge Development Box.
  • A reduced CGT rate of 20% for entrepreneurs is to apply from the 1st of January 2016 onwards on the sale in whole or in part of a business up to an overall limit of €1 million in chargeable gains.
  • No changes in CGT or CAT rates apart from the above special CGT rate of 20% for entrepreneurs.
  • Extension of Home Renovation Tax Inventive Scheme to December 2016.
  • Stamp Duty of €2.50/€5 per annum on ATM/Debit cards to be abolished from 1st January 2016 and replaced by a new 12c ATM withdrawal fee from 1st January 2016, which would be capped at €2.50/€5 per annum per card.
  • Cigarettes to increase by 50c per packet of 20 from 14 October 2015
  • No change to main Corporation tax rate.
  • DIRT remains at 41%.
  • Minimum wage to increase by 50c to €9.15 per hour from January 2016.
  • Increase in child benefit by €5 to €140 from January 2016.
  • Introduction of Statutory paternity leave of two weeks will be introduced from next September. 
  • State pension to increase by €3 per week from January 2016.
  • Extension of free GP care for children under 12 (subject to successful negotiation with doctor’s representatives).
  • Free pre-school childcare will be available for children from 3 years until they start primary education or reach the age of five and a half years.
  • The Christmas bonus for social welfare recipients will be restored to 75 per cent of the recipient’s weekly payment.
  • The fuel allowance will be increased by €50 per week to €22.50.
  • The respite care grant for carers will be restored to its previous level of €1,700.
  • The bank levy is to remain in place until 2021 which is expected to bring in an addition €750 million over the period

Income Tax & Levies

As outlined previously the main change in terms of income tax is the reduction in the USC rates on incomes of up to €70,073. Any income over this is still liable to the USC at 8%. For the self-employed the additional surcharge on income in excess of €100,000 appears to remain.

There was no changes to the income tax rates or bands. However, self-employed individuals will now benefit from a tax credit of €550.

Universal Social Charges:

  • Incomes of €13,000 or less are exempt. Otherwise,
  • €0 to €12,012 @ 1%
  • €12,013 to €18,668 @ 3%
  • €18,669 to €70,044 @ 5.5%
  • €70,045 to €100,000 @ 8%
  • PAYE income in excess of €100,000 @ 8%
  • Self-employed income in excess of €100,000 @ 11%
  • Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will now pay a maximum rate of 3% USC.

VAT

The 9% rate applicable to certain service industries (tourism / hospitality etc) will continue in 2016. No further changes.

Home Renovation Incentive (HRI)

This incentive which came into force following Budget 2014 provides a tax credit to homeowners who carry out renovation and improvement works on their principal private residences and investment properties. The tax credit is calculated at 13.5% of qualifying expenditure over €5k to a maximum of €30k. This scheme has now been extended to December 2016.

Capital Gains Tax (CGT)

A CGT relief for entrepreneurs will be introduced from January 2016 and a lower CGT rate of 20% will apply to the disposal in whole or part of a business up to an overall limit of €1m in chargeable gains.

No changes were announced with regard to CGT rates.

Capital Acquisitions Tax (CAT)

The Group A threshold (Parent to child, primarily) has been increased from €225,000 to €280,000 with immediate effect.

No changes were announced with regard to CAT rates or bands.

Corporation Tax

The Government has stated its commitment to maintaining the 12.5% Corporation Tax rate.

The 3 year start up tax exemption has been extended for a further 3 years, while a special corporation tax rate of 6.25% will apply to certain qualifying income from R&D activity.

Deposit Interest Retention Tax (DIRT)

No changes were made to rate of DIRT.

Customs & Excise

Excise duty on a packet of 20 cigarettes is being increased by 50c with effect from 14 October 2015. No changes to duty on alcohol, petrol or diesel.

VRT & Motor Tax

No changes were announced with regard to VRT or private motor tax.

Changes were made to the rate of tax for heavy goods vehicles. The rate of motor tax will now reduce.

Pensions

No change to tax relief and confirmation that the pension levy will now be abolished at the end of 2015.

Brief outline on the Public Expenditure measures

  • Child Benefit – increase in the amount by €5 per child.
  • Extra Pre-school year- proposed extension for children aged 3 and up to 5 ½ or until they start school.
  • Statutory Paternity Leave- 2 weeks leave from September 2016.
  • Christmas – 75% Christmas bonus for social welfare recipients.
  • State Pension- increase of €3 per week.
  • GP Care- proposed extension to children under 12.

Advice

Over the coming days we will be reviewing the budget in detail and preparing appropriate analysis. If you require any clarification on any of the Budget matters please do not hesitate to contact your advisers as follows;

Telephone: 01 491 4132
E-mail: cathal@opeswealthtrust.ie
frank@opeswealthtrust.ie
Internet: www.opeswealthtrust.ie
Office: 192-194 Harold’s Cross, Dublin D6W AP86

 

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Budget 2015

Executive summary

This year’s Budget was the first budget after leaving the troika programme. It was also our first budget since the economy has started to recover and emphasis was very much placed on “building for the future”.

This summary will focus primarily on the Taxation measures presented by Minister Noonan with a brief outline of the Public Expenditure cuts announced by Minister Howlin.

The main features of Budget 2015 as they will affect you in business and in your personal life are as follows;

  • Reduction in top rate of income tax from 41% to 40%.
  • Increase in the standard rate tax bands by €1,000 for single individuals and €2,000 for married couples.
  • Multiple changes to USC with changes to both the thresholds and rates.
  • There is to be no change in the VAT rates, which includes the keeping of the 9% rate for the tourism / hospitality sector
  • Farmers’ flat rate addition being increased to 5.2% from 5.0%
  • Changes to income averaging for farmers by increasing the term from 3 to 5 years.
  • Increase in the amount of income tax exempted from long terms leasing by 50% and introduction of a fourth threshold of lease periods of 15 or more years with an income of up to €40,000 been exempted.
  • Removal of the 40 years of age threshold of leasing relief.
  • Proposed changes to agricultural relief to ensure that relief will only apply to farm assets inherited or gifted to active famers and if not active famers then the relief will only apply if the land is leased on a long term basis to such farmers.
  • Extending stamp duty relief for non-residential land transfers between certain close relatives.
  • Extension of Home Renovation Tax Inventive Scheme to include expenditure on investment properties.
  • DIRT exemption for first time buyers of savings used to finance the 20% deposit on a home.
  • No changes in CGT or CAT rates
  • Artist’s exemption threshold to be increased by €10,000 to €50,000.
  • Changes to SARP & FED income tax relief measures to make the schemes more attractive.
  • Increase in threshold of tax exempt income under rent a room relief by €2,000 to €12,000.
  • Capital Gains Tax exemption for property purchases will not be extended beyond the end of 2014.
  • 80% windfall tax on property development to be abolished from January 2015.
  • No increase in excise duty on petrol or diesel.
  • Cigarettes to increase by 40c per packet of 20 from 15 October 2014
  • No change to Corporation tax rate
  • DIRT remains at 41%
  • Pension fund levy of 0.6% to be abolished by the end of 2014 and the levy of 0.15% to be abolished by the end of 2015.
  • Tax relief at standard rate on water charges up to €500.
  • Increase in child benefit by €5 from January 2015.
  • €2.2bn to be spent on social housing over next 3 years.

Income Tax & Levies

This was the first budget in years where changes were made to income tax rates, standard rate cut-off points and Universal Social Charge (USC) rates or bands.

A summary of the key income tax changes is outlined below:

  • An increase in the standard rate band of income tax by €1,000 from €32,800 to €33,800 for single individuals and from €41,800 to €42,800 for married one earner couples. An increase in the tax bands by €2,000 applies to married couples.
  • A reduction in the higher rate of income tax from 41% to 40%.
  • Increase in income tax exemption from rent a room relief to €12,000.
  • Increase in the amount of income exempt under long terms leases by farmers by 50%.

Universal Social Charges

  • Incomes of €12,012 or less are exempt. Otherwise,
  • €0 to €12,012 @ 1.5%
  • €12,013 to €17,576 @ 3.5%
  • €17,577 to €70,044 @ 7%
  • €70,044 to €100,000 @8%
  • PAYE income in excess of €100,000 @ 8%
  • Self-employed income in excess of €100,000 @ 11%
  • Extension of the exemption from the 7% rate of USC for medical card holders whose aggregate income does not exceed €60,000, who will now pay a maximum rate of 3.5% USC.
  • Individuals aged 70 years and over whose aggregate income is €60,000 or less will pay a maximum rate of 3.5% USC.

VAT

The 9% rate applicable to certain service industries (tourism / hospitality etc) will continue in 2014.

The farmer’s flat rate addition will be increased from 5.0% to 5.2% with effect from 01 January 2015.

Home Renovation Incentive (HRI)

This incentive which came into force following Budget 2014 provides a tax credit to homeowners who carry out renovation and improvement works on their principal private residences in 2014 and 2015. The tax credit is calculated at 13.5% of qualifying expenditure over €5k to a maximum of €30k. This scheme has now been extended to investment properties.

Capital Gains Tax (CGT)

No changes were announced with regard to CGT rates.

Retirement relief will be amended for farmers in respect of land leased out in certain circumstances. Increase from 15 years to 25 years.

CGT relief also available for farm restructuring where the first transaction is carried out by December 2015 and the restructuring is complete within 24 months.

The CGT relief for purchasing property before the end of December 2014 will not be extended.

Windfall tax which applies a tax of 80% to certain profits or gains from land disposal subject to planning decisions will be abolished from January 2015.

Capital Acquisitions Tax (CAT)

No changes were announced with regard to CAT rates or bands.

Changes to CAT are being introduced to target agricultural relief to farmers. In order to qualify for the relief the beneficiary must be an active farmer or lease the land to an active farmer.

Corporation Tax

The Government has stated its commitment to maintaining the 12.5% Corporation Tax rate.

Deposit Interest Retention Tax (DIRT)

No changes were made to the headline rate. However there is an relief from DIRT on savings by first time buyers used to buy a home before 2017.

Customs & Excise

Excise duty on a packet of 20 cigarettes is being increased by 40c with effect from 15 October 2013. No changes to duty on alcohol.

Water Tax

Tax relief at standard rate will apply on water charges up to €500.

VRT & Motor Tax

No changes were announced with regard to VRT and Motor tax.

Pensions

The current pension levy of 0.6% will be abolished from 31 December 2014 and the additional levy of 0.15% introduced in 2014 will be abolished from December 2015.

Brief outline on the Public Expenditure measures

  • Child Benefitincrease in the amount by €5 per child.
  • Christmas – 25% Christmas bonus for social welfare recipients.
  • Living alone allowance – increase of €9 per week.

There was a detailed public expenditure programme announced and the above is the top issues that will face the majority of people.

Advice

Over the coming days we will be reviewing the budget in detail and preparing appropriate analysis. If you require any clarification on any of the Budget matters please do not hesitate to contact your advisers as follows;

            Telephone: 01 491 4132
            E-mail: cathal@opeswealthtrust.ie
                        frank@opeswealthtrust.ie
           Internet: www.opeswealthtrust.ie  
           Office: 192-194 Harold’s Cross, Dublin 6W

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Central Bank Approval – Debt Management Services

The Central Bank of Ireland has recently introduced new legislation to ensure that all firms providing debt management services to individuals are regulated. Each applicant firm are required to meet very stringent criteria layed down by the Central Bank in order to be formally approved.

We are delighted to announce that Opes Wealth Trust is one of a limited number of firms who have been successful in securing Central Bank approval for such services. Under the new guidelines outlined by the Central Bank only firms that are fully authorised under the new legislation can provide fee based advice relating to debt issues.

Opes Wealth Trust has been providing these services successfully on an ongoing basis to many of our clients over the last number of years. These services vary and include securing reduced monthly repayments, interest only terms, moratoriums, split mortgages, interest rate reductions, term extensions and other negotiations on our client’s behalf. This area continues to evolve as banks strive to come to terms with this problematic area of their business.

If you or anyone you know needs advice in this complex area Opes Wealth Trust are delighted to assist in any way we can.

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Falling interest rates and rising DIRT!

A little over 12 months ago interest rates of over 3% were available for fixed cash deposit accounts in Ireland. DIRT rates were at 33% and in certain financial institutions there was a government guarantee on cash deposits without any upper limit on the fund level protected. Since then we have seen the ending of the Irish Government Eligible Liabilities Guarantee (ELG), an increase in the DIRT rate to 41% (+4% PRSI) and a significant reduction in deposit interest rates available to savers.

Savers are now being forced to look elsewhere for a home for some of their cash if they are to receive a reasonable level of real investment return over time. We have been contacted by a number of our clients who are looking at alternative options for some of their cash deposits. There is no short and easy answer to the question of “where should I invest my money” as each person is unique with different personal and financial circumstances. Each individual has different investment objectives, attitudes to investment risk and investment time horizons.

As interest rates continue to fall and DIRT rates at historically high levels, investors will need to take on more investment risk if they are looking for greater investment returns (or even returns similar to interest rates available up until relatively recently). Getting appropriate advice in the context your circumstances and objectives is essential before any investment decisions are made.

The team at Opes Wealth Trust is happy to discuss any queries or options you have relating to an appropriate investment strategy.

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Interesting Tax Updates

Home renovation incentive

The 2014 budget introduced the Home renovation incentive which provides tax relief for homeowners by way of an income tax credit at 13.5% of qualifying expenditure on repairs, renovations or improvements carried out to the Homeowners main home by qualifying contractors.

Tax relief may be claimed on qualifying expenditure from €5,000 to a maximum spend of €30,000 inclusive of VAT. The income tax credit is payable over 2 years following the year in which the work is undertaken. Unused tax credits may be carried forward to the next tax year.

Qualifying works must be carried out on or after 25 October 2013 and up to 31 December 2015. Qualifying works carried out between 25 October 2013 and 31 December 2013 and paid for during that period will be treated as though they were paid in 2014 for credit purposes. Where planning permission is required and is in place prior to 31 December 2015, works carried out up to 31 March 2016 will qualify for relief. The works may be phased, and multiple payments to different contractors are allowed. Claims may be made for costs at the 13.5% rate of tax and excluding anything subject to VAT at 23%. In order to qualify for relief Homeowners must be Local Property Tax (LPT) compliant and Contractors must be registered for VAT and RCT and must have a tax clearance certificate.

Debt Write off – Taxation Pitfalls

The Finance Act (No 2) 2013 aims to ensure that only a capital loss equal to the economic loss on a disposal of an asset is available. The rationale behind this piece of legislation is to ensure that individuals who benefit from a debt write off will not receive the benefit of a capital loss also. This is best explained by an example.

Example:

Michael bought new commercial premises in 2006 for €1.5m. The purchase was financed by way of a bank loan for €1.2m and personal cash of €300,000.

Due to the adverse economic environment Michael is unable to repay his loan as his business has suffered badly during the recession. The current value of the property has reduced to €750,000 while the loan outstanding is €1m.

Michael and the bank have entered into an agreement whereby Michael will sell the property for €750,000 and pay the proceeds to the bank. In return the bank will release the balance of the debt of €250,000.

In normal circumstance a capital loss of €750,000 would occur which Michael could carry forward and offset against any future capital gains. However, under the new rules the base cost of the asset is reduced by the amount of debt released and the capital loss is reduced.

Sale Proceeds

€   750,000

Cost

€1,500,000

Less Debt Release

€   250,000

Allowable Cost

€1,250,000

Allowable Loss

€   500,000

Each individual scenario is different and we are happy to provide advice in relation to this if you have any queries.

Succession Planning

Estate planning can often be one of the more difficult aspects of financial and tax planning. There are many reasons for this such as a parents fear that their children may not be able to run the family business successfully or that their children may squander their new found inherited wealth.

An additional fear is the associated tax costs involved in passing on assets to the next generation. This is a legitimate concern because since 2007 there has been an increase of 65% in the rate of tax payable on gifts or inheritances received. In addition to this, the amount a child can inherit tax free from a parent has reduced from €542,544 in 2008 to €225,000 today.

The good news is that with careful and advance planning some of these tax costs can be mitigated in the future.

If you need advice on this area please do not hesitate to contact us.

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Mortgage Market Update

The first quarter of 2014 has shown a significant increase in mortgage activity for Opes Wealth Trust. This is mainly due to the perception that the property market has started to recover. This can be confirmed by all the latest statistics from the various providers confirming that property prices in Dublin have increased by approximately 16% during 2013. Prices continue to edge upwards during 2014 in selected areas.

Other contributory factors include the increased and very welcome appetite of lenders to return to the mortgage market after years of stagnation. Increased rents have also played a part in driving mortgage activity levels as the cost of monthly repayments on a mortgage in many instances now is equal or indeed cheaper that monthly open market rents in some areas.

Opes Wealth Trust has been particularly active in recent months in arranging mortgages for first time buyers as well as for clients trading up to more suitable and spacious family homes. Supply issues continue to be a major topic of concern for most applicants particularly in the South Dublin area. Inevitably this had lead to sharp price increases in the affected areas which have been well documented in media and government circles over the past six months or so. 

Despite the issues raised above and the increased activity in the mortgage sector, not surprisingly the banks continue to adopt a cautious and prudent approach to mortgage lending. All pertinent areas of an applicant’s lifestyle are vigorously accessed prior to approving a mortgage application. These areas include the necessity for an historic and consistent level of monthly savings, employment history and security, a detailed assessment of each applicant’s current account and credit card statements over a 6 month period and more.

The team in Opes Wealth Trust is available to meet with anyone seeking to purchase a property with a view to putting a coherent and realistic plan in place that will entice any potential lender to advance the necessary funds to assist with purchasing a new home.

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