- There have been no changes to the income tax or Univeral Social Charge (“USC”) rates or rate bands.
- The reduced rate of USC for medical card holders has been extended for a further year until the end of 2020.
- The earned income tax credit for the self-employed is to be increased by €150 to €1,500.
- The home carer tax credit has been increased by €100 from €1,500 to €1,600.
- Dividend Withholding Tax (“DWT”) on dividends paid from Irish companies will increase from 20% to 25% from 1 January 2020 and will increase further in line with the individual’s tax rate from 1 January 2021 onwards.
- Farm restructuring relief from capital gains tax (e.g. on selling and purchasing or exchanging parcels of land to bring them closer together) has been extended to 2022 with no changes to relief.
- The CAT class A threshold (the tax free threshold on gifts and inheritance passing from parents to children) has been increased by €15,000 to €335,000 from €320,000.
When? What to do now?
The majority of measures will apply from 1 January 2020 (with the exception of the further increase in the CAT class A threshold which will apply from 9 October 2019 and the DWT which will apply from 1 January 2021).
The risk of a no-deal Brexit has heavily affected the ability of the Minister to make the further reductions in USC rates and the income tax/USC rate bands that the Government had previously committed to. However, given the projected reduction in growth from 5.5% in 2019 to just 0.7% in 2020 in the event of a no-deal Brexit, it is not surprising that the Minister has exercised considerable caution. Nevertheless, in the event that a no-deal Brexit does not materialise, it would be hoped that the Minister might consider reassessing the budget measures and providing some relief to taxpayers.
The increase in DWT with effect from 1 January 2021 to link in with the PAYE modernisation system is interesting. For the majority of compliant taxpayers this will merely result in an acceleration of the payment of their tax liabilities. For some individuals with significant dividend income and little in the way of any other taxable income, it should mean that they will have paid all of their income tax before they have even filed their income tax returns which is a considerable difference to the current regime.
The increase in the CAT Class A threshold is welcome but the government are some way off returning this threshold to €500,000 and this is unlikely to happen any time soon.