A number of measures introduced in Budget 2019 have an impact on the taxation for individuals. The key measures introduced are as follows:
- An increase of €750 in the standard rate band for income tax (the point at which individuals move to the higher rate of income tax). The new standard rate band will be €35,300.
- The earned income tax credit for the self employed is to be increased by €250 to €1,300.
- As has been a trend for the last number of years the USC bands for income up to €70,000 have been adjusted downwards. The rate applicable to incomes of between €19,372 and €70,044 has been reduced from 4.75% to 4.5%
- The home carer tax credit has been increased by €300 to €1,500, up from €1,200.
Capital Acquisitions Tax
The CAT class A threshold (the tax free threshold on gifts and inheritance passing from parents to children) has been increased to €320,000. This is in line with the commitment in the programme for Government to restore the class A threshold to pre-recession levels over the lifetime of the Government. The projected target for the threshold in the programme for Government is €500,000.
The interest deduction on residential property lettings has been restored to 100% from 85%. Therefore from 1 January, 100% of interest incurred on a loan to purchase, improve or repair a residential property that is let will be deductible against the rental income from that property. This simply accelerates the restoration of the interest deduction by 2 years.
- Stock relief for farmers renewed for a further 3 years
- Young trained farmers stamp duty relief to be extended beyond the end of 2018
- Income averaging for farmers will now be available to farmers with off farm income.
In the main, the measures announced will have the greatest albeit modest impact on middle-income earners with incomes up to €70,000. In addition, the measures announced in the agricultural sector will act as a support to farming families who may be facing significant challenges both as a result of the weather factors this year and in light of the possible Brexit impact on the sector.
While the measures announced have a modest impact on middle-income earners the measures overall do little to change the excessively high level of taxation on certain individuals and the self-employed in particular. With data from the Department of Finance’s Tax Strategy Group it can be established that almost 20% of tax payers (those earning between €50,000 and €100,000) pay 32% of the total income tax (& USC) received by the Exchequer. Any measure to relieve the tax burden on this group of taxpayers is welcome, albeit the overall effective tax rate for many in this bracket remains well over 50%. While the Minister sensibly sees the need to create a Rainy Day Fund to withstand economic shocks into the future, under the current income tax regime your average taxpayer and their families are not afforded the same privilege.
The increase in the earned income tax credit is welcome. However, the taxation burden imposed on such individuals who successfully develop and expand business remains a disincentive to entrepreneurship. Again, we see another lost opportunity to improve on CGT entrepreneur relief – maybe next year, or will there be a nice surprise in the Finance Bill?
The measures targeted at the private rental sector are somewhat more modest than was expected. As highlighted in our comments in prior years a package of measures to incentivise landlords to retain rental properties or induce new landlords into the market is required. At present the taxation regime (coupled with regulation) makes letting an unattractive proposition for investors.