Finance Act Summary 2011
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The Finance Act 2011 was signed into law on 6 February 2011.
Levies
2. Income levy. Ceases for 2011 and later tax years.
3. Universal social charge (USC). Applies for 2011 and later tax years as follows:
2%: first €10,036;
4%: next €5,980;
7% (4% if aged 70 or over): next €83,984;
10% (7% if aged 70 or over): remainder.
The USC applies to all income, including exempt income, before pension relief, but it does not apply to certain social welfare payments.
Income tax
4. Standard rate bands. For 2011 these are:
€32,800 (individual);
€36,800 (one parent family);
€41,800 (married couple) – in the case of a dual income couple, the €41,800 may be increased by the lower income, or €23,800, whichever is lower.
5. Age exemption limits. For 2011 these are:
€18,000 (individual aged 65 or over);
€36,000 (married couple, one of whom is aged 65 or over).
6. Personal tax credits. For 2011 these are:
Basic personal tax credit: €1,650 (individual); €3,300 (married couple).
One parent family: €1,650.
Aged 65 or over: €245 (individual); €490 (married couple).
Dependant relative: €70.
Home carer: €810.
Incapacitated child: €3,300.
Blind person: individual: €1,650; both spouses blind: €3,300.
Employee: €1,650.
Widowed person additional credit: €540.
Widowed person in year of bereavement: €1,650.
Widowed parent: €3,600 (first year); €3,150 (second year); €2,700 (third year), €2,250 (fourth year), €1,800 (fifth year).
7. Benefit in kind (BIK). Professional fees paid by employers, and childcare services provided by employers are now caught for BIK.
8. Termination payments. Imposes a lifetime limit of €200,000 on ex-gratia payments (other than payments made on account of death, injury or disability). Previous exempt payments reduce this limit. Effective 1 January 2011.
9. Health insurance age-related tax credit. Abolishes age-related tax credit for individuals aged 50-59. The tax credit for individuals aged 60 to 69 is increased to €625 (previously €525), the tax credit for individuals aged 70 to 79 is increased to €1,275 (previously €975), and the tax credit for individuals 80 and over increased to €1,725 (previously €1,250).
10. Share incentives. The following reliefs are abolished:
(a) employee share purchase scheme relief (effective 8 December 2010),
(b) reliefs in respect of gains arising on the grant or exercise of share options (effective 24 November 2010).
From 1 January 2011, share awards to employees are subject to PAYE.
11. Interest relief on money borrowed to invest in a trading company. This is being phased out as follows:
2011: 75% of the relief that would otherwise have applied.
2012: 50% of the relief that would otherwise have applied.
2013: 25% of the relief that would otherwise have applied.
2014: no relief.
Loans are made after 7 December 2010 do not qualify for any relief.
12. Trade union subscriptions relief. Abolished from 1 January 2011.
13. Expenditure on making homes energy efficient. Where approved by Revenue, expenditure of up to €10,000 (individual), or €20,000 (married couple), in conjunction with the Sustainable Energy Authority of Ireland, will qualify for relief. Effective from date of ministerial order.
14. Rent relief. This is to be phased out as follows:
Persons aged 55 or over:
2011: €3,200 (individual), €6,400 (married/widowed).
2012: €2,400 (individual), €4,800 (married/widowed).
2013: €2,000 (individual), €4,000 (married/widowed).
2014: €1,600 (individual), €3,200 (married/widowed).
2015: €1,200 (individual), €2,400 (married/widowed).
2016: €800 (individual), €1,600 (married/widowed).
2017: €400 (individual), €800 (married/widowed).
Persons aged under 55:
2011: €1,600 (individual), €3,200 (married/widowed).
2012: €1,200 (individual), €2,400 (married/widowed).
2013: €1,000 (individual), €2,000 (married/widowed).
2014: €800 (individual), €1,600 (married/widowed).
2015: €600 (individual), €1,200 (married/widowed).
2016: €400 (individual), €800 (married/widowed).
2017: €200 (individual), €400 (married/widowed).
15. Third level fees. The first €2,000 of a claim which includes a full-time student is disregarded. The first €1,000 of a claim consisting entirely of part-time students is disregarded.
16. Flight crew. Makes flight crew of Irish-based airlines subject to PAYE – even if the employee is not resident in the Republic of Ireland.
17. Artists’ exemption. Reduced to €40,000 per annum.
18. Professional services withholding tax. Adds six new bodies to the list of accountable persons.
19. Pension relief. A member of a “Defined Contribution” pension scheme may now, on retirement, opt to convert his pension into an Approved Retirement Fund (ARF). In such cases, the maximum lump sum available is 25% of the fund, subject to a lifetime limit of €200,000.
To avail of the ARF option, and avoid going the Approved Minimum Retirement Fund (AMRF) route, an individual must have guaranteed income of 1.5 times the contributory State pension, i.e., approximately €18,000 per annum (previously €12,700). The amount which must be placed in the AMRF is the lower of:
(a) 10 times the maximum State contributory pension at the time the ARF option is exercised (currently approximately €120,000), or
(b) the remainder of the pension fund after taking the lump sum.
An individual who does not satisfy this guaranteed income requirement on retirement can do so at any time before age 75, at which time the AMRF becomes an ARF.
The annual imputed distribution from ARFs is increased to 5% (previously 3%) of the value of the ARF assets on 31 December 2010 and future anniversaries of that date.
The maximum tax-relieved pension fund an individual may hold (the Standard Fund Threshold – SFT) is reduced to €2.3m (previously €5,418,085). An individual with a pension fund in excess of the new SFT on 7 December 2010 can claim a higher Personal Fund Threshold (PFT) based on the capital value of pension benefits, plus uncrystallised pension right, as at 7 December 2010.
The standard capitalisation factor for defined benefit pension rights is 20.
The above changes take effect from 7 December 2010.
From 1 January 2011:
(a) The annual earnings limit for pension contributions is reduced to €115,000 (previously €150,000).
(b) The maximum tax-free lump sum that may be taken on retirement is reduced to €200,000 (previously €1.35m). Tax-free lump sums taken since 7 December 2005 count toward using up the €200,000.
Income tax, corporation tax and capital gains tax
20. Relevant contracts tax (RCT). Current C2 holders will be subject to 0% RCT. Subcontractors with an established compliance record will be subject to 20% RCT. All other subcontractors will be subject to 35% RCT.
The monthly repayment system will be abolished and replaced with an offset system. Principal contractors will have increased reporting requirements.
Effective from date of Ministerial Order.
21. False claims. Any person who makes, or assists in making, a false claim will be subject to a €3,000 penalty. The beneficiary of a false claim will be charged interest from the date of the refund to the date the tax is repaid to Revenue.
22. Financial resolutions. The resolutions which relate to restriction of property incentives (see below) are rescinded pending the publication of the impact assessment.
23. Accelerated capital allowances on tax incentive properties. These restrictions which apply only to passive investors, cannot take effect any earlier than 60 days after the publication of the impact assessment mentioned in Budget 2011 (the relevant day).
For the tax year following the year in which the relevant day falls:
(a) in the case of a property used in a trade, the allowance may only be used against income from the trade,
(b) in the case of a lessor, the allowance may only be used against rental income from the property itself, and
(c) depending on whether the period over which allowances may be claimed is seven or 10 years, unused allowances may be carried forward to the seventh or tenth chargeable period after the period in which allowances were first claimed.
24. “Section 23” relief. For chargeable periods ending on or after a date to be specified by the Minister for Finance (the relevant day), the relief may only be claimed against rental income from the “Section 23” property.
Unused relief carried forward beyond the normal 10 year holding perod is lost. If a property is sold after the relevant day, relief does not pass to the purchaser. As is the case with the restriction applicable to accelerated capital allowances, the relevant day cannot be earlier than 60 days after the publication of the impact assessment mentioned in Budget 2011.
25. Stock relief. Extended to 31 December 2012.
26. Patent exemption. Abolished as regards qualifying patent income paid on or after 24 November 2010.
27. Mineral exploration investment allowance. Abolished from 1 January 2011.
28. Schedule F – anti-avoidance. Extended to payments made by associated companies.
29. Settlements - anti-avoidance. From 21 January 2011:
(a) Amounts settled by a close company are treated as a distribution to the trustees of the settlement.
(b) An individual who receives payment from assets comprised in a settlement is taxed under Schedule D Case IV on the net amount received.
30. Deposit interest retention tax. From 1 January 2011, the rate is increased to:
(a) 27% (previously 25%) in respect of interest that is payable annually or more frequently, and
(b) 30% (previously 28%) in respect of interest payable less frequently than annually.
31. Exit tax. From 1 January 2011, the rate is increased to:
(a) 27% (previously 25%) in respect of payments made annually or more frequently in respect of foreign life policies, and
(b) 30% (previously 28%) in respect of growth in the value of life assurance investments.
32. Film relief. Extended to 31 December 2015.
33. Employment and investment incentive scheme. Replaces the Business Expansion Scheme and the Seed Capital Scheme with a new scheme open to all types of trades. The lifetime limit for any company is €10m, and the annual limit is €2.5m. Shares must be held by the investor for not less than three years. The maximum rate of relief is 30%, but this may be increased to 41% at the end of the holding period provided the company has increased its employment or expenditure on research and development. Subject to approval by the EU.
Corporation tax
34. New start-up company relief. This relief applies to companies commencing to trade on 2011, but the relief is linked to the amount of employer’s PRSI paid by a company, subject to a maximum of €5,000 per employee, and an overall limit of €40,000. The relief does not apply to trades carried on by associated companies. Effective 1 January 2011.
35. Foreign tax credit relief. Restricts the allocation of relevant trading charges when computing credit for foreign tax paid.
36. Interest relief. Disallows interest on intra-group borrowing, i.e., where a loan from one group company is used to acquire assets from another group company. Relief is not disallowed if the acquired assets generate income that is within the charge to corporation tax.
37. Charges. For interest to qualify as a charge:
(a) the borrowed money must be used for the purposes of a trade or property rental,
(b) the lender must have a material interest in, and a common director with, the borrowing company, and
(c) the borrowing company must be within the charge to Irish corporation tax.
Borrowed money used for a trade will be relieved at the 12.5% rate.
38. Energy efficient equipment. 100% capital allowances extended to 31 December 2014.
39. Farm relief services. Exemption abolished from 1 January 2011.
40. Securitisation companies. Extends the list of qualifying assets to include plant and machinery, commodities and carbon offsets; disallows an expenses deduction for interest and other payments to certain non-resident persons. Effective 31 January 2011.
41. Research and development relief. Expenditure on a “specified intangible asset” does not qualify as expenditure on machinery or plant for the purposes of the R & D credit.
Value-added tax (VAT)
55. Definitions.
56. Premises providers. If a foreign-established mobile trader supplies goods from an Irish premises for up to seven days, the owner of the premises provider must notify Revenue 14 days in advance. The seven day period is now increased to 28 days, so that Revenue are notified of longer events.
57. Public authority housing. If the housing was acquired or developed before 1 July 2010 and sold on or after that date, the authority is entitled to a deductibility adjustment (i.e., input credit) up to the amount of VAT due on the sale.
58. Penalties. These will apply where a person does not:
(a) supply a statement of Intra-Community supplies,
(b) create a capital goods record or issue such record to the transferee under the capital goods scheme,
(c) notify Revenue where a business ceases to qualify for zero-rating applicable to export businesses,
(d) provide documentation on the assignment or surrender of a legacy leace.
59. Scrap metal businesses. The “reverse charge” mechanism will apply, i.e., the scrap metal dealer will account for VAT on supplies received from other traders.
60. Exempted activities. The public postal service is broadened to apply to both An Post and any other designated provider of the service.
Although public authorities are chargeable to VAT on certain services e.g., car-parking and sports facilities, cultural services provided by bodies governed by public law remain exempt.
Remote betting which is subject to excise duty is exempt from VAT.
61. Post-consolidation amendments.
Stamp duties
62. Interpretation.
63. Termination of reliefs. The following reliefs cease from 8 December 2010:
(a) transfer of a site to a child,
(b) consanguinity relief,
(c) owner-occupier relief,
(d) first-time buyer relief.
64. Housing authorities and affordable homes partnership.
65. Health insurance levy. Brings forward the due date for payment.
66. Rates. For transfers of residential property on or after 8 December 2010, stamp duty applies at 1% to the first €1m of consideration and at 2% to the balance.
Capital acquisitions tax (CAT)
67. Interpretation.
68. Clawback of agricultural relief and business relief. Corrects drafting errors.
69. Thresholds. From 7 December 2010, the new thresholds are:
Group A: €332,084
Group B: €33,208
Group C: €16,604
70. Pay and file. The pay and file date is 30 September in the tax year following the year in which the gift on inheritance was received. Effective 21 January 2011.
Miscellaneous
71. Definitions.
72. Mandatory disclosure of tax avoidance transactions. Client details need not be disclosed to Revenue if the promoter is satisfied that the transaction has not been undertaken by the client.
73. Mandatory disclosure: commencement date. The new rules come into effect on 17 January 2011 – the same date as the regulations.
74. Notice of attachment. Revenue may now attach an individual’s wages/salary and may provide for the attachment to be spread over a period of time.
75. Revenue offences. The use of computer hardware or software to alter or suppress transactions without preserving the original data is an offence.
76. Publication of names. A defaulter’s name is to be published if he agrees, but does not pay, a settlement amount.
77. Taxpayer confidentiality. This is now provided for in legislation.
78. Receipts. The Collector-General is not obliged to issue physical receipts for tax paid.
79. Payment of tax. Revenue can now accept payment by credit card and debit card and they may make regulations regarding such payment methods.
80. Double tax relief. Updates treaty list and provisions.
81. Technical amendments.
82. Capital services redemption account.
83. Care and management.
84. Short title and construction, commencement.
