Budget 2014

Minister for Finance, Michael Noonan, TD, yesterday announced his budget for 2014. Some of the main areas of interest from yesterday's budget are now set out below. We also attach Revenue's Budget Summary for your review, which will outline the changes highlighted below in further detail.

Personal Tax Changes

No changes were announced in the rates or bands for Income tax, Universal Social Charge or Employee PRSI. The only change in relation to tax credits is the replacement of the One Parent Tax Credit with the Single Person Child Carer Tax Credit.

Start your own business

An incentive for individuals who have been long term unemployed for at least 15 months prior to starting their own business will provide a two year exemption from the charge to income tax up to a maximum of €40,000 income per annum.

Construction Sector

A new Home Renovation Incentive scheme is being introduced. Home-owners who carry out renovation and improvement work on their principal private residence in 2014 and 2015 will be able to avail of an income tax credit of 13.5% on qualifying expenditure. Relief will be available on qualifying expenditure over €5,000 up to a maximum of €30,000. Work qualifying for relief includes building extensions, window fitting, plumbing, tiling and plastering carried on by tax compliant builders.

VAT

There will be no increases in the VAT rates in 2014. The reduced rate of 9% VAT for tourism-related goods and services is being retained. In positive news, the annual VAT cash receipts basis threshold is being increased from €1.25m to €2m with effect from 1 May 2014. While the Farmer’s Flat-Rate Addition will increase from 4.8% to 5%

Pensions

Tax relief will continue to be available at the marginal rate for pension contributions. However, the maximum allowable pension fund on retirement for tax purposes, known as the Standard Fund Threshold (SFT), is to be reduced from €2.3 million to €2 million from 1 January 2014.

The 0.6% pension scheme levy introduced to fund the Jobs Initiative in 2011 will be increased to 0.75% for 2014 and will be 0.15% for 2015. 

Capital Taxes

Most importantly there was no increase in CGT or CAT rates. Also, the incentive relief from CGT (in respect of the first 7 years of ownership) for properties purchased between 7 December 2011 and 31 December 2013 introduced in Finance Act 2012 is being extended by one year to include properties bought to the end of 2014. Where property purchased in this period is held for seven years the gains accrued in that period will not attract CGT.

A new CGT incentive is also being introduced to encourage entrepreneurs (in particular “serial” entrepreneurs) to invest and re-invest in assets used in new productive trading activities. This relief will apply where an individual makes an investment in assets for use in a new productive trading activity in the period 1 January 2014 to 31 December 2018 and subsequently disposes of this investment no earlier than three years after the date of investment.
The CGT payable on the disposal of this new investment will be reduced by the lower of:

(i) the CGT paid by the individual on a previous disposal of assets in the period from 1 January 2010 or

(ii) 50% of the CGT due on the disposal of the new investment.

Commencement of this measure is subject to receipt of EU State Aid approval.

Finally, CGT retirement relief is being further extended to disposals of leased land in circumstances where, among other conditions, the land is leased over the long-term (a minimum lease of 5 years) and the subsequent disposal is to a person other than a child of the individual disposing of the farmland. The purpose of the measure is to encourage older farmers who have no children to lease out their farmland over the long term to younger farmers.

Savings

The DIRT rate will increase from 33% to 41% from 1 January 2014. The exit tax rate that applies to life assurance policies and investment funds will also increase to 41%. This same rate will apply whether the payment is made annually or more frequently.

Research & Development (R&D) Tax Credit

The main amendments to the R&D tax credit were:

1. The limit on the amount of expenditure on R&D outsourced to third parties which can qualify for the R&D tax credit is being increased from 10% to 15%.
2. The amount of  expenditure eligible for the R&D tax credit on a full volume basis (without reference to the 2003 base year) is being increased from €200,000 to €300,000.

Conclusion

Listed above are just some of the key points of Mr Noonan’s budget for 2014. 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 who may be able to assist you in better managing your tax affairs, meeting your compliance obligations and improving your overall tax efficiency in light of yesterday's amendments.