Tax specialist Geraldine Corcoran provides an outline and some detailed insight into several of the measures in Budget 2015 and how they may impact on health professionals and patients, in a two-part series.
As part of Budget 2015, Finance Minister Michael Noonan’s fourth Budget and his penultimate Budget before election year, we saw a limited reversal of the never-ending cuts and tax hikes introduced as part of the austerity measures over the past few years.
However, many of the benefits gained in the Budget will be offset by the water charges and property tax, which will limit the amount of extra money left in the household budget. Also college fees are set to rise which will place an added burden on families.
Social Welfare recipients will receive a partial Christmas bonus (25 per cent of the weekly payment) this December and the Children’s Allowance is to be increased by €5 per month. The marginal income tax rate was cut by 1 per cent and the entry level to the top band was increased by €1,000.
However, the introduction of a new rate of 8 per cent Universal Social Charge (USC) on incomes over €70,044 and a penal 11 per cent rate on self-employed taxpayers with incomes in excess of €100,000 are very unwelcome measures.
These changes were introduced specifically to limit the benefit “high earners” would receive from cuts in the higher tax rates.
Minister Noonan stated that the Budget was aimed at helping “the squeezed middle”. He went on to explain that he deliberately increased the USC for earners over €70,044 to avoid high earners benefiting from “extravagant gains”.
He said: “If I just took a per cent off the marginal rate, once you got into very high incomes over €100,000 the gains would be very extravagant. So I have dealt with that by putting a cap at €70,044 so that the relief given by the reduction in income tax is taken away by the increase in the USC but those earning more than €70,044 will get the same relief as everyone else on the portion of their income up to €70,044.”
It is very unlikely that the majority paying the new 8 per cent rate would consider themselves “high earners”.
It is difficult to understand the Minister’s reasoning for penalising a self-employed person who has income over €100,000 but not a PAYE taxpayer on the same income. A self-employed person with income of €150,000 will pay €1,500 more in USC.
It is interesting to note that in the Dáil debate on February 15, 2012 Minister Noonan stated: “The 3 per cent surcharge of Universal Social Charge on self-employment income in excess of €100,000 was introduced in Finance Act 2011 as a transitional measure.”
The retention of this charge and indeed the very act of increasing it contradicts the Government’s stated aim of creating employment and encouraging entrepreneurship.
Minister Noonan continued with a promise that this approach would continue into the next Budget and “if the Government is re-elected, will also be followed in the 2017 Budget”.
The Health Service
In his speech, the Minister for Public Expenditure and Reform, Brendan Howlin stated that funding for the health service was a key priority for the Government. He allocated a budget of €13.1 billion to the health service, an increase of €305 million in support for 2015 and the first increase in seven years.
This will help fund the long-awaited extension of the BreastCheck screening programme to women aged 65-69. It will also allow more investment in suicide prevention and in expanding mental health teams.
An additional €25m has also been set aside to deal with delayed patient discharges in hospitals. This will be targeted at hospital and community services that can demonstrate initiatives to address the specific needs of delayed discharge patients more positively and thereby improve time lines for admissions from emergency departments (EDs) and waiting lists.
In an unwelcome move, the Government has decided to leave the prescription charge at the current level of €2.50 per item. ED fees and hospital bed charges will also be frozen. The threshold for the Drugs Payment Scheme will remain unchanged as will the income threshold for medical cards and GP visit cards.
The ‘Double Irish’
Probably the most significant move by the Government, and a move that dominated international reaction to the Irish Budget, was the phasing out of the so called ‘Double-Irish’ tax loophole over the next six years until the end of 2020 for existing companies based in Ireland and from January 1, 2015, for new companies. The structure, while entirely legal, was attracting unwelcome criticism from around the world as it helped multinationals to route money earned outside the US through Ireland to offshore tax havens and thereby to cut their tax bills to extraordinarily low levels.
Removing the loophole demonstrated that Ireland was proactive and also appeased the EU Commission, the US Government and other aggrieved parties. It was also leading to uncertainty. By taking action the Government is giving certainty to investors about corporate tax in Ireland for the future. However, the phasing out of the benefits until 2020 means it will not destabilise the existing stock of foreign direct investment (FDI).
Foreign Direct Investment
In a move to demonstrate that Ireland’s tax competitiveness will not be diminished by the removal of this loophole, the Government has announced the following measures:
• It will introduce a ‘Knowledge Development Box’. This is along the lines of patent and innovation boxes that have existed for many years in countries that compete with Ireland for FDI. The intention is that the Knowledge Development Box will be the best in its class and will deliver an ongoing competitive and sustainable effective tax rate.
• Enhancements to our existing Intellectual Property regime.
• The Minister also stressed that Ireland’s 12.5 per cent corporate tax rate was here to stay.
• Enhancements were made to the Special Assignee Relief Programme (SARP) regime, which will improve Ireland’s competitiveness in attracting senior foreign executives to relocate to Ireland, which will help develop global businesses in Ireland.
• Expansion to Ireland’s Tax Treaty network will be accelerated to ensure companies based in Ireland can compete globally.
• Enhancements to the existing Research and Development (R&D) tax credit regime.
• An increase in the resources of the Revenue Commissioner in its role as “Competent Authority”.
• The three-year corporation tax relief for start-up companies is being extended and the accelerated capital allowances scheme for energy-efficient equipment will be extended for a further three years.
Tax rates: In a widely anticipated move, the Minister announced the reduction of the top rate of income tax by 1 per cent to 40 per cent while the standard rate remained at 20 per cent. The threshold at which taxpayers will enter the top tax band has been increased from €32,800 to €33,800 for a single person and from €41,800 to €42,800 for a married couple with one earner. There has been no change in the personal tax credits.
PRSI: There have been no changes in the Pay Related Social Insurance (PRSI) Contributions rates for employers, employees or the self-employed.
USC: This charge, which is widely resented by taxpayers, is extremely popular with the Government as it is not possible to shelter from it with reliefs. It is applied to income before deducting superannuation contributions. It is also applied to exempt income such as that received up to the thresholds by artists.
On average about 80,000 low-paid workers will no longer pay USC from January 1 after Minister Noonan raised the entry point to the USC to €12,012. The bands and rates have been substantially overhauled.
Medical card holders
Prior to the Budget the maximum rate for PAYE workers was 7 per cent on income over €16,016 and self-employed individuals with income of more than €100,000 paid USC of 10 per cent on that income. This means that self-employed people who earn in excess of €100,000 will continue to pay taxes at a marginal rate of 55 per cent on incomes over €100,000. Medical card holders and those older than 70 years of age earning less than €60,000 will pay a maximum USC rate of 3.5 per cent.
Savings: The rate of Deposit Interest Retention Tax (DIRT) is to remain at 41 per cent of any interest that savers will earn. This increased rate also continues to apply to life assurance policies and investment funds. However, a measure of relief for those seeking to buy their first home was announced. First-time buyers will be able to save for their starter homes and retain 100 per cent of the interest they earn on their savings.
The legislation provides for a refund of DIRT to be made to a first-time purchaser on savings up to a maximum of 20 per cent of the price paid for the dwelling. The relief applies to the conveyance of a house or apartment on or after October 14, 2014, and prior to December 31, 2017. It does not apply to self-builds or the purchase of sites.
This initiative comes at a time when the Central Bank has proposed that financial institutions should only approve mortgages up to 80 per cent of the value of the property being purchased from January 1.
However, given the current low interest rates being earned on deposits, it is unlikely to be of great benefit to those seeking to purchase their own home. Also, the relief will only apply to DIRT charged on savings in the 48 months prior to purchase.
Water charges: In a move by the Government to take the sting out of the unpopular charges, income tax relief at the standard rate of 20 per cent will be available on water charges up to a maximum of €500 per household, i.e. a tax relief of €100 per household, given on a prior-year basis.
Rent-a-room relief: Curr-ently, where an individual lets a room or rooms in their main residence there is an exemption on the aggregate amounts received up to €10,000. This threshold is being increased to €12,000.
To be continued next week
Chartered Tax Advisor,
Trust and Estate Planning,
HLB Ryan & Co,
Tel: 01 6311200