On 13th October, Minister for Finance, Michael Noonan, TD, announced his budget for 2016. Some of the main areas of interest from this budget are now set out below.
Income tax rates and bands remain unchanged, however, a number of changes were made to the USC system. The entry point to the USC will rise from €12,012 to €13,000. The three lower USC rates are also to fall - the 1.5 per cent rate (on the first €12,012 earned) will be cut to 1 per cent; the 3.5 per cent rate (on income of €12,012 to €18,668) falls to 3 per cent; and the 7 per cent rate (on earnings of €18,668 to €70,044) will fall to 5.5 per cent. As a result of this the marginal rate of tax will fall to a maximum of 49.5 per cent for all people earning under €70,044.
The Minister also announced the introduction of an earned income tax credit of €550 for the self-employed and farmers, and business owners who are not eligible for a PAYE credit on their salary income. The credit is still less than the PAYE tax credit of €1,650 but it is a move in the right direction for the purposes of removing the disparity between the self-employed taxpayer and PAYE workers.
In another positive move, the home carer tax credit is set to increase from €810 to €1,000 along with an increase in the carer’s annual income threshold from €5,080 to €7,200. This credit applies where one spouse or civil partner cares for one or more dependent persons.
| No announcements were made in relation to tax relief on pensions. In line with comments made by the Minister in last year’s Budget, the “additional” pension levy of 0.15% will expire at the end of 2015. The original 0.6% pension levy ended in 2014. The Minister noted that the pension levy has “done its job” and is no longer needed to fund the 9% VAT rate, given the increased activity and employment. VAT remained untouched.The Minister has also announced three new tax measures aimed at encouraging and supporting entrepreneurs and small business owners. These are The Earned Income Tax Credit, as detailed above, a 20% CGT rate to apply to the disposal in whole or part of a business up to an overall limit of €1million in chargeable gains and extension of the 3-year relief from corporation tax for start-up companies to companies commencing to trade over the next 3 years. The Minister also confirmed the changes in the Enterprise and Investment Incentive Scheme (EII) which were announced in Budget 2015, but had been subject to State Aid approval. These included an increase in the annual limit companies can raise, to €5 million and an increase in the lifetime cap, to €15 million. Investments in the extension, management and operation of nursing homes will also qualify for the EII. The changes apply from midnight tonight. With regards to capital taxes, the current Class A (parent to child) CAT threshold will be increased from €225,000 to €280,000. The new threshold applies to gifts or inheritances received on or after 14 October 2015. The current Class B and Class C thresholds remain unchanged. There has been no change to the CAT rate of 33%. As stated above a reduced Capital Gains Tax rate of 20 per cent (rather than 33 per cent) will apply to the disposal in whole or part of a business up to an overall limit of €1 million in chargeable gains. Other than the reduced rate of CGT to apply to the disposal of a business, there has been no change to CGT. The headline rate of CGT of 33% remains unchanged.
The agricultural sector will benefit from the extension of tax measures which support farmers for a further three years, until the end of 2018. These measures include general stock relief, stock relief for young trained farmers, stock relief for registered farm partnerships and Stamp duty exemption for young trained farmers. A new Farm Succession measure will allow two people in a partnership with an appropriate profit-sharing agreement to make provision for the transfer of the farm at the end of a period not exceeding ten years. The aim of the measure seems to be to encourage the passing of the farm to the next generation of farmers. As a supporting measure, a €5,000 annual income tax credit will be available to the partnership to be split in the same profit sharing ratio. The details of this measure should be clearer in the Finance Bill next week. This measure is subject to EU State Aid approval. |
Listed above are just some of the key points of Mr Noonan’s budget for 2016. If you are unsure as to the impact this budget has had on your own personal position, please feel free to contact our qualified tax professionals at RDA Accountants Limited or log onto www.rda.ie