Finance Act 2011 contains a number of measures to address the public finance deficit and create employment. The significant changes and the retention of existing tax rates and allowances under each of income tax, corporate and capital taxes, and indirect taxes are detailed below.
- 10% reduction in income tax bands and the main tax credits.
- Abolition of income and health levies which have been replaced with a Universal Social Charge (USC) which will apply to all payments made by an employer on or after 1 January 2011. The USC applies to gross income inclusive of notional pay after relief for certain capital allowances but before pension contributions. It does not apply to EU deposit income, social welfare payments, certain termination payments, gains from some investment funds, and employment income taxed in a double taxation treaty jurisdiction or employment income earned outside Ireland to which the remittance basis applies. The USC rates are 2%, 4%, 7% and 10% respectively based on the level of gross income. The exemption limit is €4,004 and the rate is capped at 4% for income earned by individuals who are over 70 years old, and for medical card holders.
- Removal of employee PRSI ceiling of €75,036. The self – employed PRSI rate will be increased from 3% to 4%.
- PAYE is to be operated on employee share remuneration from 1 January 2011 whilst income tax relief for the cost of new shares purchased by employees in an employer company will no longer qualify for an income tax deduction. In addition, income tax relief has been abolished on the grant of options under approved share option schemes with effect from 24 November 2010. Options granted before this deadline but exercised after the deadline will no longer qualify for income tax relief.
- Rent relief will be phased out over 7 years at reducing relief rates until 31 December 2017.
- Tax relief on trade union subscriptions has been abolished whilst the payment of professional body membership fees by an employer will be subject to payroll taxes from 2011 unless wholly, exclusively, and necessarily incurred for the purposes of the employment.
- Tax relief available to persons who borrow money to purchase an interest in or provide a loan to a trading company or its holding company, will be phased out over three years. 75% relief in 2011 will reduce to 50% and 25% in 2012 and 2013 and no relief will apply in 2014.
- Preferential loan benefits in kind will be reduced to take account of the interest actually paid by the employee as compared with interest payable under a loan agreement.
- A lifetime cap of €200,000 now applies to ex-gratia termination payments with effect from 1 January 2011, subject to certain exclusions.
- Employees of Irish based airlines will be within the charge to Irish income tax irrespective of whether they work in Ireland or abroad.
- The Employment and Investment Incentive Scheme (EIIS) has replaced BES. The EIIS lifetime and annual investment limits are €10 million and €2.5 million respectively as compared with €2 million and €1.5 million under BES. The key differences with BES are as follows:
Holding period for shares reduced from 5 to 3 years.
The scheme is available to most companies other than those carrying on an excluded trade. Excluded trades include the operation and management of hotels, nursing homes, residential care homes, financing activities, filim production, dealing in shares, securities and financial assets, and dealing in or developing land.
Subscriber tax relief has been reduced from 41% to 30% with a further 11% relief available at the end of the shareholding period if certain employment or R & D criteria have been met.
- The seed capital scheme has also been simplified and opened up to more businesses.
- DIRT on ordinary deposit accounts has been increased to 27% and to 30% for certain life assurance policies and investment funds.
Corporation Tax and Capital Taxes
- The 12.5% corporate tax rate on trading profits has been retained.
- The three year exemption from taxation for profits and capital gains of new companies (other than companies involved in land dealing, petroleum and mineral activities or professional services companies) incorporated after 14 October 2008 has been extended to qualifying start up companies that commence to trade in 2011.
- Costs incurred to acquire assets which qualify for capital allowances as intangible assets cannot also be included as qualifying expenditure for the R & D tax credit.
- Abolition of corporation tax relief for patent royalties paid on or after 24 November 2010. Income received from a qualifying patent or dividends received from exempt patent income are no longer exempt from tax with effect from 24 November 2010.
- The accelerated capital allowances rate of 100% for energy efficient equipment has been extended for a further three years until 31 December 2014.
- Changes to interest deductibility provisions in respect of certain intra group transactions.
- No change to existing capital gains tax and capital acquisitions tax rates. The capital acquisitions tax thresholds have been reduced with effect from 8 December 2010 whilst the pay and file deadline has been brought forward to 30 September for returns delivered on or after 21 January 2011.
- Stamp duty on residential property is being reduced to a rate of 1% for the first €1 million and 2% for the balance in excess of €1 million for transactions executed after 8 December 2010.
- Certain reliefs and exemptions will be abolished on 8 December 2010 which include first time buyer relief, consanguinity relief for residential property transfers, the exemption for residential property transfers valued at less than €127,000, and site to child relief.
Relevant contracts tax
- The administrative burden will be reduced by the move towards electronic filing and plans to phase out the C2 card system. Three rates of RCT have been introduced being 0%, 20% and 35% for zero rate contractors, standard rate contractors and all other contractors respectively. Incorrect application of rates will result in the principal becoming liable to a penalty based on 35% of the payment made and a potential fine of €5,000.
- Film relief has been extended to 31 December 2015.
- The restrictions on the use of certain property based incentives as outlined in the Budget and transposed into the Finance Bill have been deferred pending the outcome of an economic impact assessment.
- The standard VAT rate has not changed. The National Recovery Plan proposes to increase the standard rate of VAT to 23% by 2014.
- The deemed distribution rate from ARFs has been increased to 5% for assets valued at 31 December 2010 and future years.
- The relevant earnings limit has been reduced from €150,000 to €115,000 for 2011 and contributions made in 2011 in respect of 2010 will also be subject to the 2011 limit.
- Employee PRSI relief on employee pension contributions has ceased with effect from 1 January 2011 as has the employer’s PRSI exemption on employee pension contributions. The employer’s PRSI rate will apply at 50% of the normal rate.
- The tax free lump sum on retirement is restricted to a lifetime limit of €200,000. The next €375,000 will be taxed at the standard rate with the balance being taxed at an individual’s marginal income tax rate inclusive of USC.
- ARF flexible options on pensions are being extended to all DC schemes.
- The standard fund threshold has been reduced from €5.4 million to €2.3 million.