In this Issue
Budget 2011
Income Tax Cut-off Points and Credits
Universal Social Charge
Reliefs Abolished with effect from 1 January 2011
Income Tax: Restriction of Reliefs
PRSI Changes
Tax on Savings
RCT
Corporation Tax
Property Incentive Reliefs
Pensions
Capital Acquisitions Tax (CAT) & Capital Gains Tax (CGT)
Business Expansion Scheme
Sundry
PM Services
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Parfrey Murphy

We specialise in providing Tax, Accounting and Business Advice to new and owner-managed businesses on a friendly and personal basis. Whether you are a sole trader, or own a new or expanding company or you require tax advice we can offer help and assistance of the highest calibre, based on our technical skills, confidentiality, professional independence, the personal commitment of our partners and staff, and the will to succeed.

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Budget 2011
This newsletter contains a summary of the main changes in Budget 2011. If you have any queries about how the budget will affect you, please do not hestiate to contact us on pm@parfreymurphy.ie.

Please feel free to forward this newsletter to colleagues and friends.

Income Tax Cut-off Points and Credits

Standard Rate Cut-Off Point Changes

20102011
Single€36,400 @ 20%€32,800 @ 20%
Married (1 spouse working)€45,400 @ 20%€41,800 @ 20%
Married (2 spouses working)€72,800 @ 20%€65,600 @ 20%

 

Personal Tax Credit Changes

20102011
PAYE€1,830€1,650
Sinlge€1,830€1,650
Married€3,660€3,300
Incapacitated Child€3,660€3,300
Blind Person Single€1,830€1,650
Blind Person Married€3,660€3,300
Age Credit Single€325€245
Age Credit Married€650€490
Home Carer€900€810
Widowed€2,430€2,190
One Parent Credit€1,830€1,650
Dependent Relative€80€70

Universal Social Charge
A Universal Social Charge (USC) has been introduced to replace the income and health levies. It does not replace PRSI. 

  • Those with incomes not exceeding €4,004 are exempt from the USC
  • For those under 70 the USC is applied as follows: First €10,036 of income is at 2%, next €5,980 is at 4% and remainder is at 7%
  • For those over 70 the first €10,036 of income is at 2% and the remainder is at 4%
  • There are exemptions for genuine capital allowances used in business
  • There are no exemptions for pension contributions.

Reliefs Abolished with effect from 1 January 2011
  • Rent relief is to be phased out over 8 years as with mortgage interest relief
  • Patent Royalty relief has been abolished with effect from 24 November 2010
  • Tax relief on loans used to acquire shares in certain companies 
  • Tax relief on Trade Union Subscriptions 
  • Farm Buildings Accelerated Allowances for Pollution Control Tax exemption 
  • BIK on childcare provided by employer
  • Tax relief on subscriptions to professional bodies
  • Tax relief on capital expenditure on Mining Machinery 
  • Tax relief on approved Share Option Scheme from 24 November 2010 
  • Tax relief for new shares purchased by employees 
  • Exemption from tax in respect of grants or payments to the National Co – Operative Farm Relief Service Limited

Income Tax: Restriction of Reliefs
Income Tax: Restriction of Reliefs from 1 January 2011 (unless otherwise stated)
  • Charge to the Health and Income Levy (USC) on Approved Profit Sharing Schemes 
  • Charge to the Health and Income Levy (USC) on Approved Save As You Earn Schemes 
  • Charge to the Health Levy (USC) on Unapproved Share Options 
  • Charge to Health Levy (USC) on Share Awards 
  • Restriction of the tax free element of ex-gratia termination payments to €200,000 so that payments above this amount will be subject to tax at the marginal rate. This charge will apply with effect from 1 January 2011.  
  • Ceiling of €40,000 on the tax exempt earnings of artists 
  • Introduction of a charge to PRSI on Approved Profit Sharing Schemes 
  • Introduction of a charge to PRSI on Approved Save As You Earn Schemes
  •  Introduction of a charge to PRSI on Unapproved Share Options 
  • Introduction of a charge to PRSI on Share Awards

PRSI Changes
  • Abolition of the PRSI ceiling of €75,036 
  • Class S (Self Employed) PRSI rate increased from 3% to 4% 
  • Modified PRSI rates (certain public servants) increased to 4% on incomes in excess of €75,036 
  • Introduction of a 4% PRSI charge for certain Office Holders

Tax on Savings
  • Deposit Interest Retention Tax (DIRT) 27% 
  • Exit taxes on Life Insurance Policies and Investment Funds 30%

RCT
  • New rate of 20% withholding tax for subcontractors who are registered for tax (35% for those not registered) 
  • New offset system to replace monthly repayment system 
  • Reporting system for RCT principles to be strengthened

Corporation Tax
  • No change to current CT rate of 12.5%
  • Extension of exemption for start up companies commencing to trade in 2011, however the relief due is now linked to the amount of employer PRSI paid.

Property Incentive Reliefs

Section 23 type relief
  • From 1 January 2011 Section 23 type relief will be restricted to income from that Section 23 property. Currently this relief can be set against all rental income
  • At the end of a 10 year holding period any unused relief will be lost
  • If the property is sold within this period the new owner will not get Section 23 relief and the seller continues to be subject to a clawback of the relief already given
  • For properties which are not yet sold in respect of which relief has not yet been claimed the 10 year period will be deemed to commence on 30 June 2011Owner occupiers are not affected by these changes.    

Capital Allowances  
 The following restrictions will apply to passive investors in capital allowance schemes:
  • With effect from 7 December 2010 any unused capital allowances carried forward beyond the relevant 7 year or 10 year period will be lost
  • From 2011 capital allowances will be ring-fenced against income from the property in respect of which the allowances arose with no opportunity to offset against other income
  • Schemes with a period over 10 years will be truncated to 7 years from when allowances were first made
  • All unused capital allowances arising to passive investors and Section 23 type reliefs arising after or carried forward from 2014 will be lost

Pensions
  • Employee contributions to occupational pension schemes will be subject to employee PRSI and the Universal Social Charge with effect from 1 January 2011
  • The current employer PRSI exemption for employee pension contributions to occupational pension schemes and other pension arrangements will be reduced by 50% from 1 January 2011
  • Reduction in the annual earnings limit from €150,000 in 2010 to €115,000 in 2011. Individuals who usually make a pension contribution when submitting their income tax return after the end of the tax year should note that the new reduced limit of €115,000 will be applied to contributions made in 2011 for the tax year 2010 even though the limit for the 2010 tax year is €150,000.
  • With effect from 1 January 2011 the tax free limit on retirement lump sums has been reduced to €200,000. Any sums paid over this amount up to €575,000 will be taxable at the standard rate of income tax. The balance will be taxable at the marginal rate of income tax. Tax free lump sums taken on or after 7 December 2005 will count towards determining whether the tax free amount has been used up
  • The annual imputed distribution to assets in an ARF is being increased from 3% to 5% in relation to asset values at 31 December 2010 and thereafter

Capital Acquisitions Tax (CAT) & Capital Gains Tax (CGT)
  • No amendments were introduced to the current CAT & CGT rates of 25%. 
  • The current CAT thresholds will be reduced by 20% in respect of gifts or inheritances taken on or after 8 December 2010. 
  • The Four Year Plan indicated a change in the CAT & CGT 25% rates to a system with different rates for different levels of asset values in 2012. No additional information on these proposals were set out in the Budget speech.

Business Expansion Scheme
  • This scheme is to be renamed the Employment and Investment Incentive. Subject to EU approval the maximum lifetime amount that can be raised by companies is being increased to €10 million (formerly €2m) and the amount that can be raised in any 12 month period will be €2.5m (formerly €1.5m).
  • The new relief will expire on 31 December 2013.

Sundry
  • A new tax incentive scheme is to be introduced to encourage taxpayers to invest in works that will improve the energy efficiency of their homes. Relief at the standard rate of income tax will be allowed on expenditure up to a maximum of €10,000 on a list of approved works.
  • The scheme of accelerated capital allowances for expenditure by companies on certain energy efficient equipment which was due to expire in 2011 has been extended to 2014.
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