The National Recovery Plan was released on 24 November, 2010.
The main measures were:
- Reduction in pension reliefs
- Changes to Capital Taxes
- The abolition of tax exemptions and reliefs
- Broadening the income tax base
- Commitment to the 12.5% corporation tax rate
- The increase in the rate of VAT from 21% to 22% in 2013 and 23% in 2014
The first four points need additional comment.
Tax free ex gratia termination payments and pension lump sums in excess of €200,000 are to be taxed. This measure is expected to take effect from 1 January 2011. Therefore someone with a pension fund in excess of €800,000 might give consideration to retiring before 31 December 2010 if they have reached the appropriate age for retirement or if they happen to be a director that could qualify for early retirement and can fulfill all necessary conditions. Needless to say this is not something to be entered into lightly. Please feel free to contact us if you wish to discuss further.
PRSI and health levy relief is to be abolished for employee pension contributions from 2011. It does not mention whether employer’s PRSI might be payable on employer contributions.
The annual earnings limit that can be taken into account for individual pension contributions is to be reduced from €150,000 to €115,000. It appears this is effective from 24 November 2010.
Tax relief on individual pension contributions will be reduced over a 3 year period from 2012 at the following rates:
- 34% in 2012
- 27% in 2013
- 20% from 2014
Therefore it makes sense for an individual to maximize pension contributions in 2010 and 2011.
The Standard Fund Threshold for tax relieved pension funds is to be reduced in 2011 from the current level of €5,400,000.
The rates for CGT and CAT are 25%. There has been no mention of increasing the rates in 2011 but it cannot be ruled out. The plan envisages a broadening of these taxes e.g. in 2012 the current single CGT rate of 25% will be changed to a system of differing rates for different levels of gains. A similar system of progressive tax rates may be introduced for CAT and the CAT free thresholds reduced. Reliefs and exemptions from CAT and CGT will be limited or abolished. The Government may follow the Commission for Taxation report here. For example, the Commission for Taxation report recommended that CGT and CAT reliefs on the transfer of family businesses and farming assets be capped at €3,000,000. They also suggested for CAT purposes the level of deduction applied to the taxable value of business or farming assets be reduced to 75% from 90%.
The Abolition of Tax Exemptions and Reliefs
The plan provides for the abolition of various tax exemptions and reliefs including:
- Patent royalties (effective from 24 November 2010)
- BIK exemption on employer provided childcare
- Rent credit, trade union subscription credit, income tax age credit and age exemptions to be phased out
Broadening the Income Tax Base
Standard rate bands and tax credits will be reduced. Put simply we will all pay more income tax and some previously outside the income tax net will start paying income tax.
The merging of PRSI, the health levy and the income levy into a universal social charge has been mentioned again – without specifics.
If you have any queries on the above or other matters contained in the National Recovery Plan, please do not hesitate to contact us on 021 4310266 or email@example.com.