With Irelands’ three year EU/IMF programme shortly coming to an end, there will have been considerable international attention on Budget 2014, introduced to the Dail on 15th October. In line with expectations, the measures introduced are intended to bring in a deficit of 4.8% in 2014, with circa €2.5 billion taken out of the economy through a combination of tax hikes and spending cuts.
THE MAIN MEASURES
At first glance, the fact that there are no increases in general income tax or capital tax rates will be seen as evidence of a “soft” Budget, at least compared to prior years.
• A new capital gains tax relief applicable on the sale of assets used in new productive activities in cases where the assets were initially acquired in the period 1 January 2014 to 31 December 2018, and were held for three years prior to sale. The taxpayer must previously have made a disposal of assets and the relief will be the lower of:
i. The capital gains tax already paid on the previous sale, OR
ii. 50% of the tax due on the sale of the new assets
• An extension of the general capital gains tax relief applicable to individuals and companies on gains on the sale of property. As a result of the Budget, property acquired any time before 31 December 2014 and held for at least 7 years will now qualify for exemption. The land can be located anywhere in the European Economic Area.
It is proposed that this very valuable relief will be extended to farmers who dispose of leased land once certain conditions are met, including one specifying that the lease term is for at least 5 years and the sale is not to a child of the farmer.
There were no other specific changes under this heading. However, it should be noted that under changes previously announced a cap of €3 million will apply to Retirement Relief for individuals aged over 66 selling qualifying business or farm assets
However, it is estimated that at least 50% of private medical insurance customers will be affected by the proposed capping of tax relief, to a ceiling of €500 per child and €1,000 per adult insured. In addition, the one parent family tax credit that was previously available to almost all single parents will in future only be available to the “principal carer”, a move that is likely to be a source of contention in cases of dual custody of children in many separation cases.
Self-employed business people including many partners of legal and accounting firms will be disappointed with the proposed elimination of tax relief on interest on loans taken out to invest in a partnership, although it should be noted that this will be on a phased basis over a number of years in relation to pre-existing loans.
On a more positive note there are welcome measures aimed at promoting entrepreneurial spirit, especially in the SME sector, including:
• A removal of the 30% tax relief under the EII scheme from the scope of the high earners restriction on the use of certain tax reliefs over and above specified income limits. It is hoped that this will further encourage investment in SME activities by allowing unrestricted tax relief at the 30% relief on amounts invested in qualifying business activities up to €150,000 per annum.
• An exemption from income tax, up to a maximum of €40,000 per annum for two years for individuals who set up a new unincorporated business and who were previously on the live register for 15 months.
after 1 January 2014 to family members. Also persons aged 66 or over will see a reduction in the general exemption from €750,000 to €500,000 after 1 January 2014.
The maximum retirement fund or standard fund threshold that a taxpayer may have is reduced from €2.3 million to €2 million from 1 January 2014, although provision is included to protect the capital value of existing pension funds by election before that date.
On a related matter, top slicing relief, which could be quite valuable to certain employees obtaining lump sums from their employers will not apply to payments in 2014 or subsequent years.
After some lobbying, the 9% VAT rate is retained for the Tourism sector. The valuable Film Relief Scheme changes will now be brought forward to 2015.