Budget 2TAX FA

0CTS & F

1IGUR

2ES

Chartered Certified Accountants & Registered Auditors

Sky Business Centre, Plato Business Park

Damastown, Dublin 15, Ireland

ph: +353 1 821 0300

email: info@hanleymorgancooper.com

Budget 2012

Rates & Credits 2012

Personal tax credits 2012 € 2011 €

Single persons 1,650 1,650

Married persons 3,300 3,300

Additional one-parent family 1,650 1,650

PAYE 1,650 1,650

Age credit single 245 245

Age credit married 490 490

Home carer 810 810

Dependent relative tax credit 70 70

Rent relief: (not available to claimants after 7 December 2011)

Under age 55 single persons 320 320

Under age 55 married persons 640 640

Over age 55 single persons 640 640

Over age 55 married persons 1,280 1,280

Incapacitated child 3,300 3,300

Blind persons:

Single 1,650 1,650

Married (only if both blind) 3,300 3,300

Widowed additional credit 540 540

Widowed person bereaved in year of assessment 3,300 3,300

Widowed parent:

1st year after year of bereavement 3,600 3,600

2nd year after year of bereavement 3,150 3,150

3rd year after year of bereavement 2,700 2,700

4th year after year of bereavement 2,250 2,250

5th year after year of bereavement 1,800 1,800

Exemption limit age 65 and over single / widowed 18,000 18,000

Exemption limit age 65 and over married 36,000 36,000

Standard rate bands 2012 € 2011 €

Single / widowed 32,800 32,800

Married couple – one income 41,800 41,800

Married couple – two incomes (non-transferable excess) 65,600 65,600

One-parent / widowed parent 36,800 36,800

Tax rates 2012 € 2011 €

Standard 20% 20%

Top rate 41% 41%

PRSI 2012 € 2011 €

Employee ceiling None None

Employee PRSI rate 4% 4%

Employer PRSI rate 10.75% 10.75%

Universal social charge 2012 € 2011 €

Total income exemption 10,036 4,004

Income up to €10,036 pa (income up to €4,004 pa in 2011) 2% 2%

Income between €10,037 & €16,016 pa 4% 4%

Income over €16,016 – under age 70 7% 7%

Income over €16,016 – over age 70 4% 4%

Self-employed income > €100,000 – under age 70 10% 10%

Self-employed income > €100,000 – over age 70 7% 7%

Budget 2012

Personal Tax

Personal rates and bands

All existing tax credits, rates and bands were maintained by the Minister in his budget speech.

Household charge

A charge of €100 is introduced in 2012. Waiver from the charge applies to those living in unfinished housing estates and those on mortgage interest supplement.

Mortgage interest relief

This is only available on taxpayer’s main residence. Rate of relief increased to30% for first time buyers who purchased homes between 2004 & 2008. Non first time buyers relief remains at 15%. First time buyers in 2012 get relief at 25%. Relief will no longer be available on loans taken out on or after 1st January 2013, and will be fully abolished from 2018.

Tax on savings

Deposit Interest Retention Tax (DIRT) increased to 30% (27% in 2011).Exit tax applying to life insurance policies and investment funds increased to 33% (30% in 2011). Both increases are with effect from 1st January 2012.

PRSI relief on employee pension contributions

Current 50% relief for employer PRSI on employee pension contributions eliminated with effect from 1st January 2012. PRSI base will be broadened with effect from 2013 to include other income including rental & investment income.

Property based relief

A 5% surcharge is introduced on certain individuals sheltering income either in Section 23 type relief, or in Accelerated Capital Allowance schemes:

5% surcharge is applicable to individuals with gross income > €100,000, and will only apply to the amount sheltered (owner-occupier relief for residential properties remains unaffected)

Investors in accelerated capital allowance schemes will no longer be able to use the allowances beyond the tax life of that scheme where the tax life expires after January 2015 (where the tax life of a scheme has ended before 1st January 2015 no carry forward of allowances into 2015 will be allowed)

Domicile levy

In an attempt to broaden the base for application of the levy, the citizenship condition has now

been removed. The levy applies (regardless of the taxpayer’s residence status) to worldwide

income exceeding €1m, an Irish income tax liability of less than €200,000, and Irish property

valued in excess of €5m as at 31 December in the relevant tax year (not allowing for attached

debts or encumbrances).

Business Tax

Corporation tax rates

Standard rate on trading income remains at 12.5%. Investment & Rental income is 25%.

Start-up companies

The start-up scheme which allows three year’s tax-free profits up to specified limits and subject to

certain conditions, has been extended to include companies which commence to trade during

2012, 2013 or 2014. The relief from corporation tax during the first three years of trade is linked to

the amount of employer’s PRSI paid by the company subject to a maximum of €5,000 per

employee in an accounting period.

Budget 2012

Research & development tax credit

Changes to the existing regime include:

The first €100,000 of qualifying expenditure will benefit from the 25% credit

25% credit applies to the incremental expenditure in excess of €100,000 as compared

with base year 2003

Relief for sub-contracted work is increased to the greater of existing 10% / 5% limit, or,

€100,000

An option to reward employees involved with the R&D work with a portion of the

credit

Capital gains tax

Annual exemption per individual remains at €1,270. Rate increased from 25% to 30% with effect

from 7th December 2011.

Retirement relief

Intra-family transfers:

Full retirement relief is maintained for individuals aged 55 to 66

A €3m upper limit will apply where the individual transferring the asset is aged over 66

A transitional period of two years, allowing unlimited relief will apply to individuals

aged 66, or who will reach that age before 31st December 2013

Outside family transfers:

Upper limit of €750,000 is maintained for individuals aged 55 to 66

Upper limit is reduced to €500,000 for individuals age over 66

A transitional period of two years, allowing the upper limit of €750,000 will apply to

individuals aged 66, or who will reach that age before 31st December 2013

Capital gains tax exemption

Exemption introduced for property bought between 7th December 2011 and 31 December 2013 and

must be held for at least seven years before being disposed of. This is with effect from 7th

December 2011.

Capital acquisitions tax

Parent-to-child gifts & inheritances after 7th December will be subject to a lower group threshold of

€250,000 tax-free (previously €332,084). All other groups remain at existing levels.

Value added tax

With effect from 1st January 2012:

Standard rate increased from 21% to 23%

District heating is reduced from standard rate to the reduced rate of 13.5%

2nd reduced rate of 9% introduced part-way through 2011 is now extended to include

Open Farms. From 1st January 2014 the 9% rate will revert to its former 13.5% rate.

Relevant contracts tax

A withholding system operates on a revenue-neutral basis, based on 0% for subcontractors who are

fully tax-compliant, 20% for subcontractors registered with an established significantly compliant

record and 35% for unregistered subcontractors.

Budget 2012

Stamp duty

Duty on stocks and shares remains at 1%. Duty on land, goodwill & commercial buildings reduced

from 6% to 2% with effect from 7th December 2011. The new 2% rate also applies to premiums

paid on commercial building leases.

The special 50% duty reduction for transfers within families (which was removed in respect of

residential property transfers in Budget 2011) is to be fully abolished with effect from 1st January

2015.

Farming taxation

50% stock relief will apply to farmers for registered farm partnerships until 31st December 2015

(subject to approval by the EU Commission). This relief is extended to 100% for certain young

trained farmers.

VAT refund order for flat rate farmers

The existing refund order is extended to include a refund on the purchase of wind turbines

purchased on or after 1st January 2012. The current order had already provided for a VAT refund of

unregistered farmers on the construction of fencing, drainage, farm buildings, and reclamation of

farm land.

Special Assignment Relief Programme (SARP)

The SARP is to be enhanced with the aim of attracting key talent to Ireland to create more jobs and

facilitate development & expansion of business here. This should be a welcome step for business

trying to secure increased investment for Irish projects.

Foreign earnings deduction

A new deduction is to be introduced to aid companies seeking to expand into emerging markets,

and will apply for individuals spending 60 or more days a year developing markets in the BRIC

zone (Brazil, Russia, India & China) as well as South Africa. Details will be outlined in the

Finance Bill.

Redundancy rebate

The current insolvency scheme is amended to reduce the employer rebate on statutory redundancy

payments from 60% to 15%.

Employment and Investment Incentive (EII), and

Seed Capital Scheme (SCS)

The European Commission recently granted approval for the introduction of the EII and SCS with

effect from 25th November 2011. Qualifying companies can avail of the former Business

Expansion Scheme (BES) provided the fundraising of capital is completed no later than 31st

December 2011.

Budget 2012

Possible future measures

Incentives for supplementary pension provision have been flagged by the Minister as being

targeted for reform. These may include:

Further reductions in the standard fund threshold

Reductions in tax relief on pension contributions

Possible retention of the pensions levy

Relief for investment in renewable energy projects

Tax relief provided to companies for investment in certain renewable energy projects is extended

to 31st December 2014. This measure is aimed at increasing the volume of electricity produced in

Ireland from sources such as solar, wind, ocean, wave, tidal, and biomass.

Vehicle registration tax

A consultation process will commence during 2012 in order to review options open for increasing

revenue streams from VRT and Motor tax.

Commentary

The impact of the 23% VAT rate on business and retail spending remains to be seen, although what

is certain is the increased demand it will have on individuals and business already struggling with

cash flow.

The measures introduced to encourage property movement are welcome, but without sufficient

cash in circulation, the effects of these may well become limited.

Two significant initiatives are the enhancement of the R&D tax credit regime and the new foreign

earnings deduction for employees of export-driven companies. It is hoped that these will combine

to entice overseas companies to invest in Ireland thereby injecting badly needed cash into the

economy, and also increase Irish exports to existing and new markets, which in turn should lead to

positive cash inflow to the country.

Various property reliefs, which have been flagged in previous Budgets as being targeted for

gradual phasing out, have been granted a stay of execution until the findings of an Economic

Impact Assessment have been published in the Finance Bill. It is only a matter of time however,

before the shelters that many investors have found to be so generous in recent years are removed,

and the investors look elsewhere for homes for their funds. It is important that future Budgets

consider the effect of not having such investment funds available to help support the economy.

Hanley Morgan Cooper

This leaflet is only a summary of the Budget Speech and is not intended to be a comprehensive guide or be taken as professional

advice – please consult Hanley Morgan Cooper in relation to specific issues and queries