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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