A number of measures were announced in Budget 2018 that will have an impact on individual’s taxation. The key areas in which changes were announced are as follows:
- An increase in the standard rate band for income tax of €750 to €34,550 for single earners. For married one income couples, the standard rate band increases from €42,800 to €43,550.
- The USC 2.5% rate is to be reduced to 2%. The ceiling for this band is to be increased to €19,372 from €18,772. The 5% rate is to be reduced to 4.75%. Thus, the marginal rate of tax on incomes up to €70,044 will be 48.75% going forward
- Increase in the home carer tax credit from €1,100 to €1,200
- Increase in the earned income tax credit from €950 to €1,150
- Medical card holders with income of up to €60,000 will continue to pay USC at the lower rate (now 2%) for a further two years.
- Expenses incurred prior to the letting of a property are to be allowed as a deduction for tax purposes. This applies for properties that have been unlet for 12 months or more. If the property is removed from the rental market within 4 years then the relief will be clawed back. A cap of €5,000 will apply per property.
- No increases to the CAT thresholds.
- Agricultural land used for solar panel purposes (covering up to 50% of the land) will qualify for CAT agricultural relief and CGT retirement relief
- Consanguinity relief for inter family farm transfers, which applies stamp duty at a rate of 1%, is to continue.
- Young trained farmers stamp duty relief is to continue
- The much lauded merger of Universal Social Charge and PRSI has been announced, although no details for implementation were published. A working group is to be established to explore the proposed merger.
While the changes announced in relation to income tax are welcome, the level of taxation in Ireland remains stubbornly high and acts as a disincentive to attracting talent into Ireland, particularly in this crucial period before the UK leaves the European Union. In addition this high level of taxation is a disincentive to domestic business owners and entrepreneurs.
Any downward change to the Universal Social Charge rates has to be welcomed. However, the government did not introduce any reduction to the 3% surcharge on self-employed individuals earning over €100,000. The marginal rate of income tax for such individuals remains at 55%. As the surcharge was introduced as an emergency measure it was hoped that it would be reviewed but to date there appears to be no desire to remove the surcharge or even decrease it slightly.
The implementation of changes arising from the USC/PRSI merger working group is likely to take some time. The complexities of each of these charges, the interaction of the changes and how they apply to taxpayers will be a difficult area to negotiate.
The changes to the rental sector are welcome, but are limited. Given the level of vacant property in the country it was hoped that more significant measures to encourage individuals to make properties available for renting would have been introduced.
Having regard to the increases in property values in the last number of years, and the changes to CAT residential relief, it was hoped that the tax free thresholds for gift and inheritance tax might have been increased closer to their pre-recession levels.
Overall the taxation measures introduced were significant in number, but not in impact. The overall policy has been to improve matters for middle income earners. This has been slowly achieved over the last few Budgets. However, the high marginal rate of tax is not a positive message for Ireland in its bid to win new enterprises as a result of Brexit.