Finance Act 2012 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.
- No changes have been made to income tax rates, tax credits and tax bands.
- The universal social charge exemption limit has increased from €4,004 to €10,036 and will move to a cumulative system in line with the PAYE system.
- An additional USC charge of 5% will apply for 2012 and subsequent years to individuals in the following circumstances:
The individual has aggregate income in the tax year of €100,000 or more, and part of that income is sheltered by accelerated industrial buildings allowances or section 23 type relief claimed by residential lessors.
The surcharge is applied to the amount of the income sheltered by the property relief.
- A household charge of €100 has been introduced from 2012. An exemption will apply to those in receipt of mortgage interest supplement and for those living in certain categories of unfinished housing estates. It will be possible to pay the charge in instalments. It is envisaged that the charge will be replaced with a full property tax in 2014.
- The requirement that the domicile levy can only be applied to Irish citizens is to be removed.
- Mortgage interest relief has been increased to 30% for first time buyer mortgages taken out from 2004 to 2008. Relief will be available in 2012 at 25% (reducing to 20% over seven years) for first time buyers and 15% for other purchasers. Relief will no longer be available in respect of houses purchased after 31 December 2012 and will be fully abolished from 2018.
- DIRT on ordinary deposit accounts has been increased by 3% to 30% and to 33% for certain life assurance policies and investment funds.
- A Special Assignee Relief Programme has been introduced to assist multinationals and indigenous companies in sourcing key workers from abroad. The relief exempts 30% of a qualifying individual’s employment earnings between €75,000 and €500,000 from income tax.
- A new foreign earnings deduction relief will apply where an individual spends sixty days a year developing markets for Irish businesses in Brazil, Russia, India, China and South Africa provided that all business journeys last at least four full days. The relief will reduce the individual’s taxable Schedule D or Schedule E income in proportion to their foreign working days as compared with their total working days. Relief is capped at €35,000 and the deduction will operate for three years ending in 2014.
- The PRSI base will be widened in 2013 to include rental, investment and other forms of income for those with employment income. The remaining 50% employer PRSI relief on employee pension contributions is being removed with effect from 1 January 2012.
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 2012, 2013 and 2014.
- There have been three principal changes to the R & D tax credit regime as follows:
The first €100,000 of qualifying R & D expenditure will benefit from the full 25% tax credit on a volume basis, irrespective of whether or not there is an increase on the 2003 base year R & D expenditure. The tax credit will continue to apply to incremental R & D expenditure in excess of €100,000 as compared with the 2003 base cost spend.
The eligibility limits for outsourced R & D costs have been changed to allow the greater of €100,000 or the existing percentage limits.
A portion of the credit may now be used to reward key R & D employees. A director of the company concerned or a connected company does not qualify nor does an employee who has a material interest in the company (shareholding of greater than 5%). 75% or more of the employee’s duties must comprise the creation of new knowledge, processes, products, methods and systems and 75% of the related cost of their employment must qualify as R&D expenditure.
- From January 2012, the employer rebate on statutory redundancy payments will reduce from 60% to 15%.
- The capital gains tax and capital acquisitions tax rates are being increased from 25% to 30% in respect of disposals and gifts / inheritances respectively made on or after 7 December 2011.
- Full relief from capital gains tax will continue to apply to a transfer of certain business and farming assets within a family where the individual making the transfer is aged 55 to 66. Where the individual making the transfer is over 66, an upper limit of €3 million on retirement relief will be imposed subject to a 2 year transitional period for individuals aged 66 or who reach that age before 31 December 2013.
- Disposals of certain business/farming assets to non family members will continue to be subject to the existing exemption limit of €750,000 provided that the transfer is made by an individual aged between 55 and 66 years of age. If the transfer is made by an individual over 66 years of age then the €750,000 limit will be reduced to €500,000. This is also subject to a 2 years transitional period for individuals aged 66 or who reach that age before 31 December 2013
- The tax free threshold amount that a child can receive from their parents is being reduced from €332,084 to €250,000 for gifts / inheritances taken on or after 7 December 2011.
- A CGT incentive will apply to properties acquired between 7 December 2011 and 31 December 2013. If a property is acquired during this period and is held for at least seven years, the gain attributable to that seven year holding period will be exempt from CGT. The property must be acquired for a consideration equal to the market value (or not less than 75% of the market value if acquired from a relative) of the property in order for the relief to apply.
- Stamp duty on commercial property is being reduced from the current top rate of 6% to a flat rate of 2%. The reduced 2% rate will apply to instruments executed after 6 December 2011.
- Consanguinity relief will continue to apply to transfers of non-residential properties for intra-family transfers until the end of 2014.
- There will be no change to stamp duty on residential property. A rate of 1% will continue to apply on the first €1 million of consideration. Consideration over €1 million will be subject to duty at 2%.
- Finance Act 2012 restricts carried-forward relief claimed by passive investors in accelerated capital allowances projects.
- The standard VAT rate has been increased by 2% from 21% to 23%.
- The deemed distribution rate from ARFs has been increased from 5% to 6% in circumstances where the aggregate annual asset value exceeds €2 million (effective from 31 December 2012) and the ARF rules have been extended to PRSAs which have vested.
The transfer of ARF assets on the death of an ARF owner to his / her child aged over 21 years old has been increased from a tax rate of 20% to 30%.