Proposed changes announced in Budget 2012 (“the Budget”) and given effect in Finance Bill 2012 (“the Bill”) include:
- Universal Social Charge (USC) – Increase in exemption threshold from USC from €4,004 to €10,036 for 2012 and subsequent years
- Illness Benefit – Removal of the existing tax exemption for the first 36 days of Illness Benefit and Occupational Injury Benefit
- Mortgage Interest Relief – Increase in mortgage interest relief to 30% for first time buyers who took their mortgage out during the years 2004 to 2008 which will not be available to those who purchased after the end of 2011, although first time buyers who purchase property in 2012 will get mortgage interest relief at 25% and non first time buyers will benefit from relief at 15%
- Special Assignee Relief Programme (‘SARP”) – Introduction of SARP for a three year period to attract key people to Ireland to help expand established multinational and indigenous companies. SARP will operate to exempt from income tax 30% of income between €75,000 and €500,000 for employees assigned to work in Ireland for a minimum of 12 months in Irish operations of companies situate in jurisdictions with which Ireland has a double tax treaty. The relief will be available for a maximum of 5 years
- Foreign Earnings Deduction - Foreign Earnings Deduction (“FED”) to be available to individuals who spend 60 days or more in a year aiding Irish market development in Brazil, Russia, India, China and South Africa (BRICS countries). The FED will be a maximum of €35,000 per annum and will be available for the period 2012 to 2014
- Deposit Interest Retention Tax (DIRT) – Increase in DIRT from 27% to 30% on ordinary deposit accounts and from 30% to 33% on long term deposit accounts from 1 January 2012. The tax treatment of deposit interest received by an individual from non-EU financial institutions is also amended so that such income will be taxed at 30% where the recipient is a standard rate taxpayer and has returned the income on time. Such interest income will be taxed at 41% where the recipient is a higher rate taxpayer or if the income is not returned on time
Capital Gains Tax (“CGT”)
Proposed changes announced in the Budget and given effect in the Bill include:
- Rate - Increased rate of CGT from 25% to 30%, effective 7 December 2011
- Property Held for 7 Years – Introduction of a tax incentive in relation to property (situate in any EEA state) purchased between 7 December 2011 and 31 December 2013 and held for a period of 7 years which provides that any capital gain accrued in that period will be exempt from CGT
- Retirement relief – Introduction of a cap on retirement relief of €3 million where an individual is aged 66 or over and is transferring farming business assets subject to a 2 year transitional period for individuals aged 66 or who reach 66 before 31 December 2013 during which time the cap will not apply. Also introduced, a reduction of the upper limit of €750,000 in respect of non intra-family, or third party, transfers of farming business assets to €500,000 for individuals aged 66 or over, again subject to the same 2 year transitional period
A further change not flagged in the Budget is the amendment to the existing provisions on location of assets for CGT purposes so that, in respect of disposals made on or after 8 February 2012, shares in an Irish incorporated company will be treated as located in Ireland for CGT purposes regardless of where the share certificate is located.
The Bill includes a provision which results in further tightening of anti-avoidance measures in relation to offshore settlements established by Irish resident or ordinarily resident individuals.
Capital Acquisitions Tax (“CAT”)
The Bill gives effect to the proposals announced in the Budget statement to reduce the Group A tax free threshold for gifts and inheritances from parents to children to €250,000 and the increase in the rate of capital acquisitions tax from 25% to 30%. In addition, the Bill rounds up the Group B tax free thresholds for gifts and inheritances for certain relatives from €33,024 to €33,500 and the Group C tax free threshold for other gifts and inheritances from €16,602 to €16,750. The Bill also abolishes the annual CPI indexation of tax free group thresholds.
The Bill changes the pay and file date again for CAT from 30 September each year to 31 October.
The CAT Act contains particular provisions on the taxation of discretionary trusts and the Bill provides for the broadening of the definition of discretionary trusts to any entity which is similar in its effect to a discretionary trust. The Bill also provides that trustees of a discretionary trust include persons acting in a similar capacity to trustees. The explanatory memorandum indicates that these amendments relate to "foundations" and any wealth management structures with connections to Ireland should be reviewed in the context of the potentially wide affect of their application.
Post Retirement Tax Issues
Confirmation that vested PRSAs will now be subject to the "imputed distribution" regime which previously applied only to ARFs. Under this regime, an annual payment/distribution based on a percentage of the fund assets is deemed to be made to the ARF/vested PRSA holder (whether such payment is made or not). This "deemed" distribution is subject to income tax.
As indicated in the Budget, the annual deemed distribution is increased to 6% of the ARF/vested PRSA assets in the case of funds with assets in excess of €2 million. The 6% deemed distribution will apply to the full amount of the fund (rather than just the excess over €2 million). Funds with assets valued less than €2 million are liable to a 5% deemed distribution. In cases where an individual owns more than one ARF/vested PRSA, the 6% rate applies if the combined asset values exceed €2 million.
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 the rate of which is being increased from 20% to 30%.
Measures have been put in place to address cash flow issues for individuals with both public and private sector pensions where tax liabilities are crystallised on retirement because the maximum allowable pension fund threshold is exceeded.
With effect from 1 January 2012, an increased levy applies to all health insurance renewals and new contracts at the rate of €95 for each person aged less than 18 years and €285 for each insured person aged 18 years and over.
Artist's Tax Exemption
The Bill amends previous legislation to allow the publication by Revenue of the names of individuals in receipt of the artist’s tax exemption as well as the title or category of their work.