Finance Bill 2012

The Finance Bill was published yesterday. It implements the provisions announced in Budget 2012 but a number of additional measures were introduced.

Stamp duty

As announced in the Budget:

• The rate of stamp duty on non-residential property is 2% from 7th December 2011;
• Consanguinity relief will not be available on the transfer of non-residential property from 31st December 2014;
• Transitional relief applies to deeds signed before 1st July 2012 if there was a pre-budget contract.

Capital Gains Tax

Retirement relief from CGT on disposals of business or agricultural assets has been amended. The ceiling for relief will remain at €750,000 for those aged between 55 and 65 years. However for disposals made on or after 1st January 2014 by taxpayers who are aged 65 or more, the ceiling will be reduced to €500,000 (with provision for marginal relief).

CGT new property relief

The relief announced in the Budget for gains on disposal of properties acquired between 7th December 2011 and 31st December 2013 has been introduced.

The relief applies to land or buildings in the EEA (including Ireland) where the property is owned by the purchaser for at least 7 years from the date of acquisition.

The relief exempts the portion of the gain for 7 years from CGT. So for example, if a property is held for ten years, then 7/10 of the gain will be exempt. Anti-avoidance provisions have been included to prevent arrangements which are made solely to secure a tax advantage.

Capital Acquisitions Tax

Rates and thresholds

The CAT rate is 30% from 7th December 2011.

The class (a) threshold has been significantly reduced while the other two thresholds have been slightly increased.

Indexation has been abolished from 2012.

Changes have been made to the effective date of creation of discretionary trusts.

A loan associated with the purchase, repair or improvement of an off-farm main residence may now be deducted when establishing whether agricultural relief is available.

A claw-back of agricultural relief will no longer apply if the beneficiary ceases to be resident in Ireland.

The CAT filing date has been changed to 31st October, to bring it into line with other forms of taxation.

Student fees

Tax relief for fees paid for third-level education has been reduced.

The first €2,250 (previously €2,000) of fees paid for full-time courses is now disregarded while for part-time courses the first €1,125 is disregarded (previously €1,000).

5% charge for certain property investors

As announced in the Budget, a 5% charge has been introduced for large-scale investors (those with total income of €100,000 or more) by way of an additional USC charge on the amount of aggregate income which has been sheltered by a “specified property relief”.

New capital allowance provisions apply to passive investors (i.e. not active partners or traders).

Where the tax life has already ended, capital allowances can continue to be claimed until the end of 2014 and will then be lost. If the tax life ends in 2015 or later years the capital allowances cannot be claimed after the year in which the tax life ends. Unused capital allowances can be offset against any subsequent balancing charge.

Mortgage interest relief

A new rate of mortgage interest relief of 30% has been introduced for first-time buyers who purchased their homed between 2004 and 2008 (inclusive). The relief can be claimed even if the property has been replaced by a second home.

Business Development Initiatives

Research and development

As announced in the Budget, and R&D credit will now be available on the first €100,000 of relevant expenditure without reference to a 2003 base year. Relief on expenditure over €100,000 will continue to be calculated by reference to the 2003 base year. The definition of expenditure on R&D has been amended to ensure that the activities are carried on by the company itself. Where a company which was claiming an R&D credit ceases to trade and another company in the same group takes over the trade, the successor company can now claim any previously unused credits.

BRICS foreign earnings deduction

Where an individual is carrying out duties of an office or employment in Brazil, Russia, India, China or South Africa and is present for a total of at least 60 days in any 12 month period (counting only days which form part of a visit of 10 days or more) they can claim an income tax deduction of a proportion of their income from that employment, up to a maximum deduction of €35,000. The deduction will be restricted where a double tax agreement claim (DTA) is also made.

Special assignee relief

The relief has been introduced for employees who are assigned to work in Ireland by an employer company located in a State which has a double tax agreement with Ireland. The employee is allowed to deduct up to 30% of their remuneration, subject to a maximum deduction of €127,500. The employee must have worked outside Ireland for the foreign employer for at least 12 months, must not have been resident in Ireland in the previous five years, and the assignment to Ireland must be for at least 12 months.

Key R&D employees’ relief

Key employees may receive income tax relief where they are engaged in R&D work. The employer company must surrender its right to claim the equivalent R&D credit. The employee can then claim an income tax deduction, which is capped to ensure that the employee pays a minimum income tax rate of 23%.

VAT

From 1st May 2012 a connected party in receipt of construction services must account for the VAT.

A security deposit may be required for fiduciary taxes by the Collector General from a person carrying on business, where they had a previous business which ceased to trade, owing taxes.

Stamp duty

The rate of stamp duty applicable to non-residential property purchases will be 2% and consanguinity relief on such property is only to apply until 31st December 2014.

A new stamp duty exemption has been introduced for company mergers.

Stamp duty will be on a self-assessment basis at a future unspecified date. The adjudication process will be abolished, a penalty of €3,000 will apply for failure to make a return and a surcharge of 5%/10% will apply for failure to make a return.

Pensions – ARFs

The annual imputed distribution applying to the assets in an approved retirement fund (ARF) has increased from 5% to 6% in respect of ARFs with asset values in excess of €2 million.

The rate of income tax applying to a “post-death” distribution from an ARF to a child is to be increased from 20% to 30%.

DIRT

The rate of DIRT increased to 30% (33% for long-term savings) from 1st January 2012.

Deposit interest from EU countries will be taxed at 30% if the income is returned on time or 41% if returned late.

A taxpayer earning deposit interest from non-EU countries will pay tax at 41% unless they are a standard rate taxpayer and the interest is returned on time, in which case the rate will be 30%.

Health insurance

An increased levy of €285 (adults) and €95 (under-18) applies to all health insurance contracts with effect from 1st January 2012.

Other measures

Exit tax: The rate for investment funds and similar products has been increased by 3%;

USC:      The level at which USC applies increased from €4,004 to €10,036 with effect from 1st January 2012;

PRSI:      Employer’s PRSI relief of 50% on employee pensions has been abolished;

                PRSI will be charged on unearned income (rent, investment income) from 2013.

Domicile levy:   The levy will apply to all tax exiles, not just Irish citizens.

CT relief for start-up companies:              The relief has been extended to 31st December 2014.

VAT:      The standard rate of VAT increased from 21% to 23% from 1st January 2012