News
Budget 2012
Budget 2012 includes a number of measures aimed at assisting the recovery of our economy as follows:
- Strong endorsement of our 12.5% corporation tax rate
- A range of enhancements to our R&D tax credit regime that will benefit the SME sector
- New tax incentive for employees involved in R&D activities
- Property sector incentives - a reduction in stamp duty from 6% to 2% on commercial property, a 7 year capital gains tax "holiday" for certain property investments and enhanced mortgage interest relief measures (increased relief for certain first time buyers)
- New income tax relief to attract key talent to Ireland (SARP)
- Tax exemption for employees assigned abroad to the BRIC countries and South Africa
- Extension to the Corporation Tax exemption for new start-up companies to 2014
- Extension to the tax relief for companies investing in renewable energy projects to 2014
The principal revenue raising mechanisms focussed on indirect and capital taxes as follows:
- Standard rate of VAT increased by 2% to 23%
- Capital Gains Tax increased by 5% to 30%
- Capital Acquisitions Tax increased by 5% to 30% with a reduction in the tax free thresholds for gifts and inheritances taken by children from parents from €332,084 to €250,000
- Introduction of a household charge of €100
- Increases to Carbon Taxes and motor taxation
- ARF drawdown increase from 5% to 6% for 2012
Other measures included:
- Increase in DIRT to 30%
- Restrictions on the availability of property reliefs including a 5% surcharge targeted at property investors whose gross income exceeds €100,000
- Abolishing the 50% relief from PRSI for employers on employee pension contributions
- Amendments to CGT Retirement Relief for both inter family and third party transactions for those aged over 66 to encourage earlier transfers of businesses and farms
- Increase in USC exemption limit to €10,036
- Indication that from 2013, PRSI payable by employees and certain pensioners will extend to non-employment income such as rents, dividends etc.
- Removal of the 50% Stamp Duty relief for interfamily transfers from 2015
As always, the devil will be in the details of the Finance Bill in early 2012. However this Budget has sent out a number of strong messages from a tax perspective. It included a number of incentives aimed at kick starting the property market. Potential investors must now ask themselves whether the fall in property prices combined with the reduction in Stamp Duty and 7 year CGT "holiday" now provides the conditions for them to re-enter the Irish property market.
The emphasis has clearly switched to indirect taxes and capital taxes to raise revenues and in order to provide more predictability for our tax base. The introduction of a property tax (albeit at €100 per household initially) brings us in line with most of our European neighbours. Similarly, European VAT rates have also trended upwards over the last number of years so there was not much surprise at this change.
However, it is the changes to capital taxes that will provide tax planning opportunities. The reductions in CAT (tax free) thresholds, increase in CGT and CAT rates and amendments to CGT Retirement Reliefs indicate that the trend of increasing the tax take in the capital taxes area is expected to continue. Curtailments in areas such as CAT Business and Agricultural Reliefs are expected in the future (perhaps even in the Finance Bill 2012) and reductions to these very generous reliefs were specifically mentioned by the Commission on Taxation previously.
In view of this upward trend in capital taxes, our current low asset values and the reduction in stamp duty (which also applies to business transfers), you should be asking whether now is the time to gift a significant portion of assets to the next generation. In doing so, you would be availing of the very favourable capital taxes reliefs that currently exist but may not last forever!
