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There are no changes to the personal tax rates, tax bands or tax credits.
The table below sets out the tax bands and the principal tax credits for 2010.

Personal Tax

Reforming Personal Tax

The Minister intends to introduce a new system of personal taxation in 2011 with just two charges on income namely:

• a new universal social contribution to replace employee PRSI, the health levy and income levy;
• and income tax at progressive rates.

He also hopes to see closer integration of the tax and social welfare system.

Non Residents

The Government intend to introduce measures which will impose on all Irish nationals and domiciled individuals, whose worldwide income exceeds €1 million and whose Irish located capital is greater than €5 million, a requirement to pay €200,000 as an Irish domicile levy each year regardless of where they are tax resident. Full details of this measure will be set out in the Finance Bill.

Mortgage Interest Relief

To assist homeowners who are in negative equity, mortgage interest relief which would be due to expire in 2010 following measures introduced in the last Budget, will now continue until 2017. To encourage people to buy houses over the next three years the following is proposed:

• qualifying loans taken out before 1 July 2011 will continue to get relief at current levels for seven years; and
• transitional arrangements will apply to loans taken out in the subsequent 18 months at a reduced level and duration.

It is intended that mortgage interest relief will be abolished by the end of 2017.

High Income Earners

The so called ‘high income earners restriction’, which applies to those availing of certain tax incentives and deductions, is being further restricted in 2010.

When this restriction was originally introduced the intention was to ensure that those individuals availing of the specified reliefs would pay a minimum effective rate of tax.

This measure is being amended for 2010 and subsequent tax years in order to achieve an effective rate of income tax of 30% for those subject to the full restriction. The entry level threshold for the restriction will now occur at adjusted income levels of €125,000 and the full restriction will apply

at €400,000. This compares to a 2009 threshold level of €250,000 and a minimum tax at full restriction of approximately half the top tax rate.

Pensions

Currently, lump sum payments from pension schemes on retirement can be paid tax free, within certain limits. The Minister has indicated that pension lump sums below €200,000 will continue to enjoy this tax free status.

The treatment of sums above this level, and the tax treatment of pensions, including a consolidated 33% rate of tax relief, is to be considered in the National Pensions Framework to be published shortly by the Government.

Business Tax

The Budget speech contained few tax measures aimed directly at corporates. The key points of interest were:

Corporation Tax

The 12.5% corporation tax rate on trading income will remain unchanged.

Exemption for Start-Ups

The exemption from corporation tax and capital gains tax for certain trading start up companies in 2009 will be extended to new start-ups in 2010. The exemption applies for three years and is subject to certain anti-avoidance provisions.

Capital Allowances

The scheme of accelerated capital allowances for energy efficient equipment is being extended to include refrigeration and cooling systems, electro mechanical systems and catering and hospitality equipment.

PRSI Exemption

A PRSI exemption will be introduced to encourage employers to recruit individuals who have previously been unemployed. Further details in relation to this scheme will be announced by the Minister for Social and Family Affairs.

Smart Economy

Recent times have seen the introduction of significant tax incentives aimed at boosting Ireland’s ’smart economy’. In particular, the R&D tax credit was substantially improved, while a new relief for Intellectual Property was introduced. Both reliefs have the objective of creating high value added
activity in Ireland.

An Innovation Taskforce was established to examine the impact of certain tax incentives on economic activity. Upon receipt of its report, the Minister will consider making further changes to the above tax incentives in the Finance Bill.

It is worth noting that the existing exemption for patent royalties/dividends was left untouched. However, it is possible that changes will be made to the patent regime in the Finance Bill. The Commission on Taxation report has recommended the abolition of the patent exemption.

Financial Services Sector

Ireland’s tax regime is currently very favourably disposed towards the financial services and funds sectors. The Minister has expressed his desire for Ireland to become the ‘European hub’ for the funds industry and intends to introduce changes in the Finance Bill which will further strengthen our
‘competitive edge’.

These changes will be very welcome in the current climate.

Capital Taxes

Capital Gains Tax

No change announced in the Budget to the current capital gains tax rate of 25%.

Capital Acquisitions Tax

No change announced in the Budget to the current capital acquisitions tax rate of 25%.

Stamp Duty

No changes announced in the Budget to the current rates of stamp duty.

NAMA – ‘Windfall Tax’

The recently passed National Asset Management Agency Act 2009 includes a windfall capital gains tax charge on any increase in the market value of development land which is attributable to a rezoning decision. The rezoning decision is one made on or after 30 October 2009.

The effective rate of capital gains tax liable on such a gain is 80% and it applies to relevant disposals on or after 30 October 2009. In addition, any profits or gains made from carrying on a trade of dealing in, or developing land shall also be liable to an income tax rate of 80% to the extent such profits or gains are attributable to rezoning decisions on or after 30 October 2009. All other losses arising are ring fenced and not available to reduce the ‘windfall’ taxes.
NAMA itself is exempt from capital gains tax, income tax and corporation tax on any gains it makes.

Property Tax

The Minister indicated that the Commission on Taxation’s recommendation for the introduction of a property tax would be implemented. Work is to commence shortly to register and value land in advance of the introduction of a site valuation tax.

Water Charges

Similarly, the Government is committed to the introduction of a system of water metering in homes. Water charges, when introduced, will be based on the level of consumption above a certain free allocation.

Indirect Taxes

VAT

The standard rate of VAT will reduce to 21% with effect from 1 January 2010. A new margin scheme for used-car dealers is being introduced with effect from 1 January 2010 and the existing scheme is being phased out.

EXCISES

Alcohol
Excise duty will reduce from midnight on 9 December 2009 for the following items:

• beer and cider – 12 cent per pint (VAT inclusive);
• spirits – 14 cent per half glass (VAT inclusive); and
• wine – 60 cent per 75cl bottle (VAT inclusive).

Vehicle Registration Tax (VRT)

A car scrappage scheme is to be introduced with effect from 1 January 2010. VRT relief of up to €1,500 will be provided where a car of 10 years or older is scrapped and a new car (with CO2 emissions less than 140g/km) is purchased.

Existing schemes which provide for relief of VRT on purchases of electric and hybrid vehicles which were due to expire on 31 December 2010 will be extended to 31 December 2012.

Carbon Tax

A carbon tax of €15 per tonne (including VAT) is to be introduced on fossil fuels as follows:

• petrol and auto-diesel from midnight on 9 December 2009;
• kerosene, marked gas oil, liquid petroleum gas (LPG), fuel oil and natural gas from 1 May 2010;
• coal and commercial peat – subject to commencement order.

(Participants in the EU Emissions Trading Scheme (ETS) will be exempt from the tax in respect of the fuels so covered – on that basis electricity will not be subject to the tax).

Finance Bill 2010

As is the norm, the Budget speech alluded to certain other changes which will be introduced in the Finance Bill 2010 (due to be published in early February). The principal items flagged in the Budget were:

Curtailment of Tax Reliefs

The ‘curtailment and removal’ of certain tax reliefs will be outlined in the Finance Bill. The Commission on Taxation report had recommended that certain reliefs, principally those which facilitated the tax efficient transfer of businesses, be curtailed. It was expected that some changes might be introduced in the Budget itself. However, the Minister has now given a clear indication that he intends to make certain changes in the Finance Bill. No further details were given.

The removal of existing reliefs in the Finance Bill will encourage those looking to restructure their affairs to do so in advance of the Finance Bill. It is likely that many traditional re-organisation structures will no longer be tax effective post Finance Bill 2010 publication.

National Solidarity Bond

A national solidarity bond will be introduced in the New Year with the purpose of raising funds to finance capital investment programmes. The taxation treatment of the bond will be set out in the Finance Bill but the main features of the bond are expected to be:

• 5,7 or 10 year term;
• interest paid annually;
• redemption bonus for those who leave funds invested;
• possibility to invest in bond in instalments; and
• bond to be sold by NTMA.

Anti-Avoidance Measures

The Minister also announced his intention to introduce measures to tackle the shadow economy, smuggling and excise fraud and anti-avoidance schemes. Full details will be included in the Finance Bill. It is worth noting that the Finance Bill normally includes other measures not detailed in the Budget
speech.

Budget 2010

This leaflet is only a summary of the Budget Speech and is not intended to be a comprehensive guide.
Produced & Issued 09/12/09.

You and Your Money – August 2009

In the last of our four-part series, Johnny McNamara looks at the danger of counter party risk and shows you how to minimise the external threat to your own personal economy.

In previous articles I have developed the concept of managing and controlling your own personal economy. The key to achieving this is to identify the areas of your finances that are in your control and to recognise the areas that are outside of your control. Where you identify an area that you have no control over, this becomes a risk to your personal economy and so, it is vital to minimise these risks every way you can.

One of the biggest risks to our wealth today is known as “counter party risk.” This can be defined as the risk to each party of a contract that the other party will not live up to its contractual obligations. In most financial contracts, counter party risk is also known as “default risk.”

Counter party risk is apparent in almost all aspects of our financial lives from our savings and investments right through to our pension arrangements. The effects of counter party default have been particularly evident in the current economic climate, which has seen the collapse of many large financial institutions both here and across the world. This has led to the images we have all seen of people queuing outside banks for fear of losing their money.

So how do you remove counter party risk from your personal economy? Unless you are going to store all your wealth in gold bullion and carry it around with you, it is impossible to remove all elements of counter party risk. However, the key to gaining more control is to remove as much counter party risk as possible.

In my last article I developed the concept of taking ownership of your pension funds. Taking ownership of all of your assets – whether they be in pension or any other form – is the first step in helping to eliminate counter party risk. Once you have been able to establish ownership, the next question must be: what asset classes should you look to invest in to further remove the threat of counter party risk?

A good starting point is to look at the concept of ownership versus loanership assets within your personal economy. To understand this concept fully, we must identify the difference between ownership assets and loanership assets or in other words, real assets versus financial assets.

A real asset is a tangible or physical asset that will only ever appear on one side of the balance sheet, i.e. the asset on one side does not create a liability on another balance sheet. Therefore a real asset does not carry any form of counter party risk as it is direct ownership. Gold is a prime example of a real asset that is tangible and has a value in its own right due to its scarcity and people’s desire to own it.

A financial asset is an asset that is essentially a contract between two or more parties that merely represents an asset. The financial asset itself has no intrinsic value because it is not a tangible or physical asset, but merely a representation of one. A financial asset therefore sits on both sides of a balance sheet. For one party entering in the contract there will be an asset (bonds, share certificates etc.) and on the other hand, the other party will have a liability (repayment of bond, value of share etc.)

This is where counter party risk is generated, as the asset owned is only as good as the other party’s ability or willingness to honour their side of the contract.

When you bring in other financial assets that include debt derivatives, you often find that this increases the amount of counter parties involved and so, increases further the risk of default somewhere along the chain. A great example of this can be seen from what happened with the sub-prime mortgage market, where the debt was repackaged further and further away from the real asset until eventually the chain collapsed. If you are at the end of the chain, you are the one who suffers most financially from the counter party risk and subsequent default.

Many people have been fooled into thinking that financial assets should be considered as savings. However, as we have seen over the last few years, through counter party default these assets can become worthless very quickly. When looking at where to invest, it is important to remember that real investment brings with it real assets and real capital formation, which is the cornerstone on which future wealth is built.

With this in mind, what can you do now to take back ownership of your personal economy? It is my opinion that a significant part of your wealth should be invested in real assets through structures in your ownership and control. The amount to which you hold your wealth in real assets will come down to your faith or lack thereof in the financial system as it currently stands. Recently we have seen a massive amount of mistrust generated in our financial systems – both locally and globally – which has already seen a shift in investment towards real asset classes.

Counter party risk is evident in every part of our financial lives and represents a big risk. One of the biggest counter party risks out there is what’s happening in the global economy. We know that we cannot control factors at play in the global or local economy, but we need to understand how they affect us so we can plan for the future. However, we also know that there are factors that can be controlled through ownership. It is only through ownership that you can gain control and it is only through control that you can gain the ability to manage your personal economy.

To arrange an appointment with McNamara & Associates, call 01 230 9000.

The rate of capital acquisitions tax is being increased from 22% to 25% in respect of gifts or inheritances taken from midnight on 7 April 2009.
The current tax free thresholds are being reduced by 20% as follows:

This reduction applies in respect of gifts or inheritances taken from midnight on 7 April 2009.

VAT

VAT MARGIN SCHEME FOR SECOND-HAND CARS
A margin scheme is to be introduced for dealers of second-hand cars. The new scheme will apply from 1 July 2009. Second-hand cars acquired after that date and later resold will be taxed on the dealer’s margin. Second-hand cars in stock on 1 July 2009 and sold after that date will be taxed on the re-sale price. Further details will be contained in the Finance Bill.

EXCISE DUTIES

INCREASE IN MINERAL OIL TAX ON AUTO-DIESEL
The mineral oil tax on auto-diesel will be increased by 5 cent per litre (including VAT) with effect from midnight on 7 April 2009.

TOBACCO EXCISE

The excise duty on a packet of 20 cigarettes will be increased by 25 cent (including VAT) with a pro-rata increase on other tobacco products, with effect from midnight on 7 April 2009.

FUTURE TAXATION MEASURES

The Budget speech gave clear indications that future tax increases, and the removal or reduction of various tax reliefs, are imminent. These changes can be expected to commence in Budget 2010 which will be presented in December 2009, by which time the Commission on Taxation will have reported.

While the particular tax increases and reliefs to be affected are not yet known, the Minister for Finance in his speech, specifically mentioned the following:

• the elimination of “unnecessary” or “unjustified” reliefs and shelters
• ensuring that capital is taxed in a “fair” manner
• a review of all areas of tax exempt incomes
• the introduction of a Carbon Tax
• a form of property tax and
• review of the taxation of pension lump sums

In view of the proposed changes, and in particular the signalling of a future focus on taxing capital assets, taxpayers would be well advised to avail of the tax reliefs on capital assets before they are withdrawn or diminished.

PERSONAL TAX

INCOME LEVY

The income levy rates which were first introduced in October’s budget will now double and the income thresholds will reduce with effect from 1 May 2009.

HEALTH LEVY

The health levy contribution rates will double with the lower rate of 2% increasing to 4% and the higher rate of 2.5% increasing to 5%. The entry point to the higher rate
threshold will reduce from €100,100 to €75,036 with effect from 1 May 2009.

EMPLOYEE PRSI ANNUAL CEILING

The PRSI contribution ceiling will increase from €52,000 to €75,036 with effect from 1 May 2009.

MORTGAGE INTEREST RELIEF

Mortgage interest relief will be discontinued for any mortgage over 7 years from 1 May 2009.

DEPOSIT INTEREST RETENTION TAX AND TAXES ON LIFE ASSURANCE POLICIES AND
INVESTMENT FUNDS

The rates of retention tax that apply to deposit interest, together with the rates of tax that apply to (a) life assurance policies and (b) investment funds, are being increased by 2% in each case and will now be 25% and 28% respectively. The increased rates will apply to payments, including deemed payments, made from midnight on 7 April 2009.

BUSINESS TAXATION

INCOME FROM DEALING IN RESIDENTIAL DEVELOPMENT LAND

The special 20% rate applied to the trading profits from dealing in or developing residential development land is being abolished. The income will be charged at the
person’s relevant marginal rates of income tax or the 25% rate of corporation tax. This change will apply as regards Income Tax for the year of assessment 2009 and
subsequent years and as regards Corporation Tax for accounting periods (or part thereof) ending on or after 1 January 2009.

TRADING LOSSES FROM DEALING IN RESIDENTIAL DEVELOPMENT LAND

Where trading losses have been incurred from dealing in or developing residential development land in circumstances where, if trading profits had been made, they
would have been eligible to be taxed at 20%, and a claim to use those losses has not been made to and received by the Revenue Commissioners before 7 April 2009, the
losses will generally only be relievable (on a value basis) up to a maximum of 20%.

Where any such loss is a terminal loss, the restriction will be implemented by “ringfencing” the loss and preventing an offset against other income.

Full details of both changes will be contained in the Finance Bill.

CAPITAL ALLOWANCES

The property-related accelerated capital allowance schemes in the Health Sector are to be terminated. This scheme covers private hospitals, registered nursing homes, convalescent homes and associated residential units as well as mental health centres.

Transitional arrangements will be put in place for projects that are at an advanced stage of development. The Finance Bill will contain further details on this measure.

Schemes for palliative care units and childcare facilities will remain in place.

RESTRICTION IN INTEREST RELIEF FOR RENTED RESIDENTIAL PROPERTY

The maximum amount of interest which can be claimed as a deduction against rental income for residential properties is being reduced to 75% of the total interest paid (previously 100%) with immediate effect. This measure will apply to both new and existing mortgages.

Commercial properties are not affected.

CORPORATION TAX

The corporation tax rates of 12.5% and 25% will remain unchanged.

INTELLECTUAL PROPERTY

A scheme of tax relief is being introduced for the acquisition of intangible assets including intellectual property. Further details to be published in the Finance Bill.

STAMP DUTY

LIFE ASSURANCE POLICIES

A new 1% levy will be charged on Life Assurance Policy premiums received by an insurer on or after 1 June 2009.

NON-LIFE INSURANCE POLICIES

The current non-life insurance levy of 2% is being increased. The new rate of 3% will apply to renewals and offers of insurance issued by an insurer on or after midnight on 7 April 2009, where premiums are received by the insurer on or after 1 June 2009.

STAMP DUTY “TRADE-IN” SCHEME

A Stamp Duty “Trade-in” Scheme will be established. No stamp duty will be payable by a person who accepts a traded-in property in exchange or part exchange for a new house/apartment. Stamp Duty will apply when the person subsequently sells on the traded-in house. Full details will appear in the Finance Bill.

CAPITAL GAINS TAX

The rate of capital gains tax is being increased from 22% to 25% in respect of disposals made from midnight on 7 April 2009.

This leaflet is only a summary of the Budget Speech and is not intended to be a comprehensive guide.
Produced & Issued 07/04/09