The ‘Inheritance Tax Trap’ That Hurts Us All

June 8, 2015

It is great to see the Irish Independent today highlighting the Inheritance Tax trap, where ordinary families are being hit by enormous tax charges on even modest inheritances.

The tax free threshold for parent-child gifts and inheritances has been cut by almost 60% since 2009.

Now, increasing property prices mean that more families than ever are being hit by Capital Acquisitions Tax (CAT).

The Inheritance Tax Trap

Worse still, CAT is now levied at 33%. This represents a breathtaking 65% hike on the 20% rate that applied up to November 2008.

This is bad news, and not just for those receiving inheritances and gifts:

  • The high rates and low thresholds actually stifle the tax take from CAT, as people who hold even modest levels of wealth are discouraged from gifting them to family members until after their deaths.
  • Such wealth-hoarding is particularly unproductive in the Irish economy which has suffered a major credit squeeze since 2008.

The situation is actually much worse for those who wish to leave assets to nieces, nephews or other relatives, where the tax-free thresholds are pitifully low.

Our high CAT regime is clearly delaying economic recovery, and must be reformed without delay.

For more, see Charlie Weston’s article and opinion piece, and the paper’s editorial in today’s Irish Independent.


Budget 2015: The Full List of Measures

October 14, 2014

Here is the full list of Tax measures included in Budget 2015.

Some, but not all, of  these measures were unveiled in Minister Noonan’s Budget Speech to the Dáil this afternoon.

Michael Noonan announces Budget 2015.

Michael Noonan announces Budget 2015.

Income Tax 

The standard rate band of income tax increases by €1,000 from €32,800 to €33,800 for single individuals and from €41,800 to €42,800 for married one earner couples.

The higher rate of income tax falls from 41% to 40%.

USC

The USC rates and bands for 2015 are as follows:

Incomes of €12,012 or less are exempt.

  • Otherwise the first €12,012 is @ 1.5%
  • From €12,013 to €17,576, USC is @ 3.5%
  • From €17,577 to €70,044, USC is @ 7%
  • From €70,044 to €100,000, USC is @8%
  • PAYE income in excess of €100,000 faces a USC charge of 8%
  • Self-employed income in excess of €100,000 faces a USC charge of 11%.

There are now 8 different bands of USC, a tax which is now more complex than ever before.

Tobacco 
The excise duty on a packet of 20 cigarettes rises  by 40 cents (including VAT). A  a pro-rata increase on other tobacco products will also take immediate effect.

The excise duty on roll-your-own tobacco rises by an additional 20 cents (including VAT) per 25g pouch, again immediate effect.

Betting Duty
Betting Duty is being extended in 2015 to remote operators and betting exchanges.

Vehicle Registration Tax (VRT)

The VRT reliefs on the purchase of

  • hybrid electric vehicles,
  • plug-in hybrid electric vehicles,
  • plug-in electric vehicles, and
  • electric motorcycles

are being extended to 31 December 2016.

Microbreweries
The special relief on Excise Duty, which cuts the standard rate of Alcohol Products Tax by 50% on beers from microbreweries producing 20,000 hectolitres or less per annum is being extended to microbreweries  produce 30,000 hectolitres or less per annum.

Mineral oil

A 30 day deferral of excise duty on mineral oil is to be introduced.

Natural Gas as a Transport Fuel

The excise rate for Natural Gas and BioGas as a propellant (ie transport fuel) will be set at the current EU Minimum rate and this rate will be held for a period of eight years.

Artists’ Exemption 

The threshold for the artists’ exemption from Income Tax is being increased from €40,000 to €50,000.

The Exemption is also being extended to non-resident artists, who are resident in another EU/ EEA State.

The Foreign Earnings Deduction is being extended for a further 3 years until the end of 2017 and is now widened to  include Chile, Mexico and certain unspecified countries in the Middle East & Asia.

The number of qualifying days abroad is being reduced from 60 to 40.

The minimum stay in a country is cut to 3 days and now includes travelling time.

The Special Assignee Relief Programme is also being extended for a further 3 years, until the end of 2017.

The upper salary threshold is being removed.

The residency requirement is being amended to only require Irish residency.

The exclusion of work abroad is also removed.

The requirement to have been employed abroad by the employer is being reduced to 6 months.

Employment and Investment Incentive
The EII is being amended “to raise company limits, increase the holding period by 1 year and include medium-sized companies in non-assisted areas and internationally traded financial services”. These measures are subject to EU approval.

Hotels, guest houses and self-catering accommodation will remain eligible for a further 3 years, and the operation and management of nursing homes will be included for  the next 3 years.

Seed Capital Scheme
The scheme is being rebranded as “Start-Up Relief for Entrepreneurs” (SURE) and being widened to included those who have been unemployed up to 2 years.

Rent-A-Room  Scheme

The threshold for exempt income under the Rent-A-Room Scheme is being increased from €10,000 to €12,000 per annum.

Water Charges
Tax relief at 20% will be provided on water charges, up to a limit of €500 per annum. Relief will be given annually for charges paid in the previous tax year.

Home Renovation Incentive
The Home Renovation Incentive (which allows a 13.5% tax rebate on refurbishment, extension and improvement work) will now include rental
properties “owned by landlords subject to income tax”.

Capital Gains Tax

The CGT incentive relief, which provided Capital Gains Tax exemption in respect of the first 7 years of ownership, for properties purchased between 7 December 2011 and 31 December 2014 will not being extended beyond 31 December 2014.

Where property purchased in this period is held for seven years, the gains accrued in that period will not attract CGT.

Windfall Tax

The 80% Windfall Tax on land disposal gains & land development profits attributable to planning decisions is being abolished from 1 January 2015.

Farming

The amounts of long term land leasing income exempt from Income Tax rises by 50%.  A new threshold is being introduced for lease periods of 15 or more years, with income of up to €40,000 being exempted.

The long term land leasing income exemption is also being extended to companies which lease land.

The 40 years of age threshold for leasing relief is being abolished.

 

Income averaging, which allows full-time farmers to calculate their income tax position based on rolling average earnings over 3 years, will now be revised to calculate incomes over 5 years.

It is also extended to farmers with other income from “on-farm diversification”.

 

The farmer’s flat-rate addition rises from 5% to 5.2%. This addition VAT-unregistered farmers for VAT incurred on their farming inputs.

 

The deadline for Capital Gains Tax relief for farm restructurings  is being extended to 31 Decemeber 2016.

CGT Retirement Relief can now apply to land that has been leased for up to 25 years in total (increased from 15) ending with disposal.

Retirement Relief is being extended to land currently let under conacre (11 month letting) and which is disposed of by 31 December 2016 or enters a long-term (5-25 years) letting arrangement (ending with disposal) by that date.

CAT Agricultural Relief will now only be available:

  • for agricultural property gifted to or inherited by active farmers, and
  • to individuals who are not active farmers but who lease out the property on a long-term basis for agricultural use to active farmers.

In addition, 5-35 year Agricultural leases  to active farmers will be exempt from Stamp Duty.

Consanguinity relief, which halves the applicable rate of Stamp Duty, will be extended for a period of three years for transferors under 65 years old, where the transferee is an active farmer.

Corporation Tax

The 2003 base year restriction for the R&D Tax Credit is being removed from 1 January 2015.

The limited Corporation Tax relief on trading income (and certain capital gains) of new start-up companies in the first 3 years of trading is being extended until the end of 2015.

This 80% restriction on aggregate capital  allowances in respect of intangible assets (and any interest expense incurred on borrowings to fund the expenditure) will be removed.

The Accelerated Capital Allowances for Energy Efficient Equipment, which incentivises companies to invest in energy efficient equipment, is being extended to the end of 2017.

DIRT

A new relief from DIRT will apply on savings used by first time house buyers towards the deposit on their first home.

The Dept of Finance Summary of 2015 Budget Measures is here.


Budget 2013: The Key Points

December 5, 2012

The main points of Minister Noonan’s Budget 2013 Speech, announced this afternoon:

Noonan Dec 2012

Business

The Minister announced a new 10 Point Tax Reform Plan which “includes measures that will make a real difference to SMEs”.

These include:

  • Reforms to the 3 Year Corporation Tax Relief for Start Up Companies
  • Increasing the cash receipts basis threshold for VAT from €1 million to €1.25 million and changes to the Close Company Surcharge.
  • A doubling of the initial spend eligible for the R&D tax credit  from €100,000 to €200,000
  • Extensions to the Foreign Earnings Deduction for work related travel.

In addition, a diesel rebate is to apply for hauliers from 1 July 2013.

A new “PlusOne initiative” will encourage employers to hire long-term unemployed individuals. This will replace the existing Revenue Job Assist and Employer PRSI Incentive schemes.

Farming

The 25% & 100% Stock Relief incentives will continue until 31 December 2015.

A wider range of registered farm partnerships (eg beef production) can now avail of an enhanced 50% rate of Stock Relief.

A new Capital Gains Tax relief will apply on disposals of farm land for farm restructuring purposes. This once-off relief  will apply from  January 2013 to December 2015,  and is subject to EU approval.

Film Industry & Tourism

The Film Tax Relief Scheme is extended to 2020, and the scheme will move to a tax credit model in 2016. These changes are aimed to ensure that production companies and not ‘high earner’ investors, will now benefit from the tax relief.

The 9% VAT rate for the tourism industry will continue  in 2013.

Property

A three-year Local Property Tax exemption will apply to:

  • All new or previously unoccupied homes bought before the end of 2016.
  • Purchases of any homes in 2013 by first time buyers.
  • Residences in unfinished estates.

In addition, the Budget 2012 Capital Gains Tax incentive for properties bought before 31 December 2013 means that they will be exempt from Capital Gains Tax if held for at least seven years.

New “Real Estate Investment Trusts” will allow commercial property investors “to finance property investment in a risk diversified manner”.

Pensions

  • Tax relief on pension contributions will only apply to schemes delivering a pension income of up to €60,000 per annum. This will apply from 1 January 2014.
  • Tax relief on pension contributions will continue at the marginal rate of tax.
  • The 2012 Pension Levy will cease after 2014.
  • the reduced rate of USC for over-70s earning over €60,000 will cease from 1 January 2013.
  • Top Slicing relief will no longer be available on ex-gratia lump sum termination /severance payments, where the non-statutory payment is over €200,000.
  • Individuals with AVCs may in 2013 withdraw up to 30 per cent of their value. Withdrawals will be subject to marginal rate income tax. This will apply for 3 years after Finance Act 2013 is passed.

PRSI

The minimum annual self-employed annual contribution will rise from €253 to €500.

The weekly €100 PRSI-exempt allowance for employees is being abolished.

“Unearned” trade or profession income will be subject to PRSI in 2013

From 2014, PRSI will apply to rental income, investment income, dividends and deposit interest.

Local Property Tax

The Local Property Tax will commence from 1 July 2013. Its main features are as follows:

  • It will be collected by the Revenue Commissioners
  • Owners of residential properties, including rental properties, will be liable for payment.
  • The tax will be payable on the basis of the self-assessed market value of the property. The Revenue Commissioners “will provide valuation guidance”.  Alternatively, “a competent valuer” can be used.
  • The tax will be 0.18% of the market value up to €1m, and 0.25% on values over €1m.
  • Properties valued between €100,000 – €1m will be charged “at the mid-point of valuation band of €50,000 width” eg where the value is between €150,001 and €200,000, the tax will be calculated at 0.18 per cent of €175,000.
  • Properties below €100,000 will be charged at 0.18% of €50,000.
  • Properties valued over €1 million will be liable at 0.18% on the first €1m and at 0.25% on the balance.
  • Payment options  will include direct debit; credit & debit cards, cash (!!)  or “deduction at source” from salary,pension or “certain State payments”.
  • Exemptions largely correspond to exemptions from the Household Charge.
  • A “system of voluntary deferral arrangements” will apply to
    • individuals earning up to €15,000, & couples earning up to €25,000.
    •  individuals earning whose “gross income less 80 per cent of mortgage interest” is below €15,000, (€25,000 for a couple).  Marginal relief will apply where the income is up to €10,000 over the income limit
  • Interest will be charged on deferred amounts at 4% per annum. Deferred property taxes and interest will have to be discharged on the sale/transfer of the property.

The Household Charge is abolished  from 1 January 2013 and the NPPR Charge will end on 1 January 2014.

The Revenue Commissioners will “strictly enforce”  the Local Property Tax and collect any unpaid Household Charge for 2012.  Unpaid arrears will rise to €200 per property from 1 July 2013.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. Maternity Benefit will remain exempt from the USC.

Excise Duties

There is no increase on excise duty on diesel and petrol

Immediate rises from midnight tonight:

  • 10 cent on a pint of beer or cider & on a standard measure of spirits
  • €1 0n a  standard 75cl bottle of wine
  • 10 cent on a pack of 20 cigarettes
  • 50 cent on a 25g pack of “roll your own” tobacco

VRT and motor tax will rise from 1 January 2013.

Carbon tax will apply to solid fuels at a rate of €10 per tonne from 1 May 2013, and €20 per tonne from 1 May 2014.

Capital Taxes

DIRT on deposit interest rises from 30% to 33%

Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates similarly go from 30% to 33%

Capital Acquisitions Tax (CAT) thresholds are cut by 10% from midnight tonight.

Corporation Tax

The Minister remains fully committed the Corporation Tax tax rate of 12.5%

The Minister has confirmed that Ireland has agreed a new Inter-Governmental Agreement with the United States in relation to the US Foreign Account Tax Compliance Act, commonly, (if unfortunately), known as FATCA.


31 October 2012 Tax Deadline – 3 Weeks To Go

October 10, 2012

We are now only three weeks away from the 31 October tax deadline. This year, the annual Halloween “Pay & File” date is more important, and covers more taxes, than ever before.

31 October 2012 is the deadline to:

  • File a Form 11 Self-assessment Income Tax return  for 2011
  • Pay any remaining Income Tax liability for 2011
  • Pay Preliminary Tax liability for 2012
  • File a 2011 Capital Gains Tax Return, if you have made a Capital Gain in 2011.
  • File a Capital Acquisitions Tax Return if you received a Gift or Inheritance in the period from 1 September 2011 to 31 August 2012.
  • Pay a Capital Acquisitions Tax liability arising from a Gift or Inheritance in the period from 1 September 2011 to 31 August 2012.
  • Pay Domicile Levy  and file a Domicile Levy Form DL 1 tax return.
  • Make a backdated RAC, AVC and PRSA pension payment to claim tax relief for 2011.

It’s worth noting that the 31 October deadline affects all classes of taxpayers, not just the self-employed or those on high incomes. If you think you need to file a return, or make a tax payment this October, give yourself plenty of time to avoid the late end-of-month rush.

If you don’t fully understand all aspects of your tax position, you should strongly consider getting an experienced accountant or tax specialist to advise your on your liabilities and file your return on your behalf. Don’t leave it too late though, as all accountants and tax experts will have a heavy workload in the coming weeks.

For more detail, see my recent article on the 31 October deadline for Contemporary Living.


Budget 2012 – More Highlights

December 6, 2011

The 2012 Summary of 2012 Budget Measures – Policy Changes is now online.

This includes the following points that were not fully addressed in the Minister’s Speech today.

Budget 2012 6 December 2011USC Surcharge on ‘Property Reliefs’ income – A surcharge will apply from 1 January 2012 on individuals with gross incomes over €100,000. The surcharge will be 5% on the amount of income sheltered by property reliefs in a given year. This will be operated as a a higher rate of USC and will apply to all ‘high earning’ investors with Section 23 or accelerated capital allowance schemes investments

Investors in accelerated capital allowance schemes will no lose their entitlement to unused capital allowances,  beyond the tax life of the scheme after 1 January 2015.

The new 2% Stamp Duty rate on non-residential property applies from Budget Day, 6 December 2011.

Consanguinity relief from Stamp Duty, which applies on transfers of non-residential properties between blood relatives is to be retained to the end of 2014 but will be scrapped after 1 January 2015. This relief provides for a 50% cut in the standard rate of Stamp Duty on intra-family transactions.

The €100 household charge will be replaced by a full property tax in 2014.

The increases in Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) from 25% to 30% will apply from Budget Day. The cut in the tax-free Group-A CAT threshold (most commonly parent-to-child gifts and inheritances) will cut the maximum tax-free sum from €332,084 to €250,000. This also applies with immediate effect.

A new CGT incentive relief applies to properties bought between Budget night and the end of 2013. If the property is held for more than seven years, the Capital Gain arising in that period will not attract CGT. This incentive is introduced with immediate effect.

The tax relief scheme for corporate investment in renewable energy projects is being extended from 31 December 2011 to 31 December 2014. This scheme encourages investment in approved renewable energy projects in the solar, wind, hydro (including ocean, wave or tidal energy) and biomass sectors

The exit tax on life assurance policies is being increased from 27% to 30% in line with the increase in DIRT tax on deposit interest. These changes apply from 1 January 2012.

The €200,000 Domicile Levy is being extended to include non-Irish citizens. The Budget 2011 version of this levy was an embarrassing failure with just 10 people declaring themselves liable to pay it by the recent deadline, according to RTE News last month.

The VAT rate increase from 21% to 23% will apply from 1 January 2012. Traders will therefore avoid the VAT hike on their pre-Christmas and pre-New Year Sales receipts.

The VAT rate on District Heating is being cut from 21% to 13.5%

Admission charges to open farms will become liable to VAT from 1 January 2012. This will be charged at the 9% VAT rate for tourist enterprises.

Excise Duty on cigarettes goes up by 25 cents (including VAT) for a packet of 20. A pro-rata increase applies to other tobacco products.

The Carbon Tax increase on petrol and diesel applies from midnight on Budget Day, with the corresponding increases in Kerosene, Marked Gas Oil, Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas applying from 1 May 2012.

Betting Duty of 1% is being applied to remote betting. A  Gross Profits Tax of 15% is being charged on betting exchanges. These will commence from the second quarter of 2012, subject to EU Commission approval.

Research & Development Tax Credit – The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis. The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000 compared to the equivalent expenditure in the base year 2003.

The outsourcing limits for sub-contracted Research & Development costs are being increased.

A portion of the R&D credit may be used to reward key employees who have been involved in the development of R&D.

The annual ‘imputed distribution’ charge on Approved Retirement Fund (ARF) assets is being increased from 5% to 6% in respect of ARFs with asset values over €2 million. This comes into effect on 31 December 2012. A similar charge will now apply to vested PRSAs with assets in excess of €2 million.

The 20% ‘final liability tax’ on the transfer of ARF assets on the death of an ARF owner to their adult children is being raised to 30%.

The current 50% employer PRSI relief for employee contributions to occupational pension schemes and other pension arrangements is being scrapped from 1 January 2012.

Capital Gains Tax Retirement Relief

The existing unlimited retirement relief from CGT for transfers of ‘qualifying assets’ to family members will be maintained for individuals aged 55 to 66. An upper limit of €3 million will apply to such transfers made by owners over 66 years, after a two year transitional period.

The current upper limit of €750,000 for assets transferred outside the family is being retained for individuals aged between 55 and 66 years. However a lower limit of €500,000 will apply to such disposals by persons over 66 years after a similar two year transitional period.

 

 

 

 

 


The National Recovery Plan – List of Tax Changes

November 24, 2010

The National Recovery Plan 2011-2014 has just been announced and is now available online

The Taxation Measures in the Plan are outlined on pages 89-103 of the document.

Page 89 lists the following ‘Key Messages’ of the Plan’s tax measures.

  • Revenue measures will provide one third of the budgetary adjustment.
  • 40% of total revenue measures will be adopted in 2011.
  • The income tax system is unsustainable if 45% of tax units pay no income tax.
  • Radical base broadening across the tax system is needed.
  • All taxpayers must contribute.
  • By overhauling tax expenditures, those that can afford to pay more will pay more.
  • Tax policy emphasis must be on sustainable structural reform.
  • Funding of local service provision must be addressed.
  • The Government will maintain the 12½% rate of corporation tax.
  • Supports for small and medium enterprises will be reformed.

The document proceeds to announce the following changes

Tax Credits and Bands

Tax credits and bands are to be cut by a total of 16.5% over the 4 years covered by the plan.

Pensions Tax Relief

  • The rate of income tax relief on pension contributions will remain unchanged in 2011, but will be cut from 41% to 34% in 2012, to 27% in 2013 and 20% in 2014
  • The existing PRSI and Health Levy relief on employee pension contributions will be abolished from 2011.
  • The annual earnings cap for pension contributions eligible for relief will be cut from €150,000 to €115,000 in 2011.

Tax Reliefs

A range of Tax reliefs and exemptions are to be abolished in 2011. These are:

  • Tax exemption for patent royalties.
  • The investment allowance for machinery and plant and for exploration expenditure.
  • Approved Share Options Scheme.
  • BIK exemption on employer provided childcare.
  • The accelerated allowance for capital expenditure on farm buildings for pollution control.
  • The tax exemption for payments to National Co-operative Farm Relief Services Ltd.
  • Income tax relief for rent paid for private rented accommodation.37
  • Income tax relief for trade union subscriptions.
  • Income Tax Age Credit (phased over 4 years).
  • Income Tax Age Exemptions (phased over 4 years)

The following measures will also be adopted:

  • PRSI, Health and Income Levy charge will now apply to Approved Profit Sharing,Save-As-You-Earn,Unapproved Share Options and Share Awards Schemes.
  • Artist’s exemption from Income Tax will now be restricted to €40,000 earnings.
  • Ex-gratia termination and pension lump sum payments in excess of €200,000 will now be taxed.

VAT

The standard 21% rate of VAT will increase to 22% in 2013 and 23% in 2014.

Property Tax

A ‘Site Value Tax’ will be introduced in 2012, in the form of an interim fixed “household charge” of €100 per annum in 2012, and a full charge based on property value from 2013.

Carbon Tax

Carbon taxes will double over four years.

Capital Taxes

  • The 25% rate of Capital Gains Tax will change to a new system in 2012, with differing rates for different levels of gains.
  • The current tax-free thresholds for Capital Acquisitions Tax (CAT) are to be cut.
  • Current reliefs and exemptions from CGT, CAT and Stamp Duty ‘will either be abolished or greatly restricted’.

Corporation Tax

  • There will be no change in the 12½% rate of corporation tax.
  • The Business Expansion Scheme(BES) is to be reformed.

Gifts and Inheritance Tax – Big Changes from 14 June

May 28, 2010

Capital Acquisitions Tax (CAT) is the tax which is levied on gifts and inheritances. The December 2009 Budget announced some major changes to how this tax is administered. These changes come into effect on 14 June next.

Inheritance Tax Changes on 14 June

The main changes are as follows:

  • The annual Pay & File deadline of 31 October, that already applies to Income Tax, will now also extend to CAT on gifts and inheritances. Where a person receives a gift or inheritance between 1 September and 31 August in a given year, they are obliged to file a gift/inheritance tax return (Form IT38) with Revenue, and pay any liability arising, by the following 31 October.
  • The IT38 tax return must be filed online using the Revenue ROS system, except in a very limited range of circumstances, where a new paper form, Form IT38S, can be used.
  • Where a person has received a gift or inheritance since 1 September 2009, their deadline for paying their CAT tax liability and making their Form IT38 tax return is now extended to 31 October 2010 provided they pay & file online on ROS.  The same deadline also applies to gifts and inheritances received between now and 31 August next.
  • Where a person receives a gift or inheritance in the period between 1 September 2009 and 31 August 2010, they must pay the tax and file their return by 31 October 2011.

Revenue have today published a detailed notice explaining the changes.