The income tax regime in Ireland continues to be overly complex and applies a significant tax burden on a narrow sector of taxpayers. The proposals for a form of merger of the PRSI charge and the Universal Social Charge should be given a cautious welcome. Both charges apply in very different ways and to different categories of taxpayers. Whereas PRSI does not apply from age 66 onwards, USC applies to all age categories. In addition, those who come to work in Ireland on secondment pay USC but currently may not pay PRSI. However, as a positive, perhaps as part of this review the 3% USC surcharge on the self-employed on incomes over €100,000 may finally be addressed. Issues such as these and others will need to be carefully addressed to ensure a fair system emerges.
The ongoing restriction of interest deduction for residential properties, the current prohibition on the deduction of LPT from rental profits, coupled with the high level of marginal taxation applied to rental income (up to 55%), results in a disincentive to property owners to make properties available to the rental market. Indications in previous Budgets suggest a gradual return to full interest deduction and a possibility of a LPT deduction for rental properties. Such measures should be accelerated to relieve stress on the rental market by incentivising property owners to make properties available.
In relation to CGT and CAT, the current rate of both taxes remains stubbornly high at 33% thus acting as a disincentive for assets to pass to the next generation.
The tax free thresholds for CAT, particularly those with regard to close family relations and strangers remain historically low. While the Class “A” threshold (parent to child) has increased slightly in the last few Budgets it is still significantly behind where it was prior to the recession. Given the increases in property values in the last couple of years, and the changes to CAT residential relief, the tax free thresholds should be restored to their prerecession levels. Reliefs and exemptions in the area of CAT have been heavily restricted in the last number of years and as such it would be hoped that no further changes will arise.
The current aggregation of gifts and inheritances received since 5 December 1991 when determining the amount of tax free threshold remaining is long overdue a review. Further, the quantum of the annual small gift exemption of €3,000 should also be reviewed to reflect current cost of living/assets values. This is particularly acute since Finance Act 2014 effectively abolished the ability of a parent to provide support to their children once out of full time education. In the UK for example there is no gift tax regime, provided the parent survives 7 years beyond the date of the gift. Such measures encourage the transfer of assets to the next generation during your lifetime.
The simplification of the income tax regime is long overdue and the proposed measures to deal with same should be brought forward as soon as possible. It is positive that Government are focusing on this important topic. Given the complexities involved, we would anticipate such reforms taking a number of years to be enacted. We would recommend that an extensive consultation process should be undertaken with relevant stakeholders to ensure a fair system emerges.
The stresses on the rental market might be somewhat alleviated by incentivising property owners to make vacant properties available for rent. This might be aided by measures such as restoration of the full interest deduction and deductibility of LPT charges.
We would expect some measures to be announced to incentivize property owners with regard to renting properties, and the gradual restoration of the interest deduction. Measures may be announced to review simplifying the tax system but it would be somewhat surprising if specific measures are announced and brought forward for implementation immediately.
We would hope to see changes to CAT thresholds particularly for benefits passing between parents and children and an increase in the small gift exemption.