By Sean McSweeney, Tax Director at Quintas
The only certainty in the upcoming budget on the 5th December is that in 2013 there will be further taxes increases (direct and indirect) and public spending cuts of approximately € 3.5bn to € 4bn. This will leave the budgeted deficit of the exchequer in 2013 of circa € 10.5 bn.
We have compiled below some of our predictions of the likely tax changes in the budget and some of our suggestions that we feel would assist the economy and in turn businesses recover in 2013.
- Capital Gains Tax – Retirement relief and the tax free threshold of € 750,000 may be reduced.
- Capital Acquisitions Tax – for Business and Agricultural relief it is likely that both of these maybe reduced or restricted (current relief at 90%).
- Pension Fund limit – the current ceiling of € 2.3m will be reduced and there maybe a reduction in the current 25% tax free lump sum that can be taken on retirement.
- Higher Income Earners – given the governments commitment not to increase income tax rates, there could be further increases in the USC for incomes above € 100,000/€ 150,000
- New tax on high value pensions – this could involve an increase in the current pension levy or a tax/surcharge on pensions over a certain value.
- Capital Gains Tax losses – given the losses incurred on investments over the last few years there maybe a restriction on the carry forward of losses against future capital gains.
- Property Tax – this will be in place in 2013 with a projected start date of 1st July 2013. There is currently a debate as regards how this will be calculated but it will probably be based on a valuation of the property with bands of approx € 50,000. To view the current value of properties sold in your area click the link to the Residential Property Register website .
- Old Reliables – increases in excise on alcohol, tobacco, petrol/diesel, carbon tax. Given the continued contraction in the domestic economy in 2012 it would be surprising if the VAT rates were increased but this could be on the table.
Suggestions For Positive Changes
- Stamp Duty exemption – on commercial property transactions where this involves the transfer of a personal property to a limited company as part of a debt re-structure.
- Property Tax exemption – for purchasers of new residential property for three years. Given that a large portion of the sales proceeds of each house sale goes to the exchequer this would be an incentive for the property sector.
- House extension grants/tax credits – provide a grant/additional tax credits for house extensions/home improvements. This would involve pre approval of the grants and include all original documentation for the renovation before the grant is paid. This would reduce the level of loss to the exchequer due to the black economy.
- EII – Employment Incentive Investment – the inclusion of relief under the EIIS in the list of “specified reliefs” for the High Earners’ Restriction may be counter-productive. The EII scheme provides much needed funding to the economy which allows businesses to expand, export and employ the additional staff necessary to grow their business.
It maybe advisable to follow the UK model that has decided not to include business reliefs in their new cap on income tax reliefs, on the basis that business reliefs are already capped and further limitations simply prevent investors from taking business risks. The three year investment term is also felt to be to short a timeframe for the company to build reserves to repay the EII investment.
- Job Creation Grants – this would be an annual grant for a new employee currently on the live register that will be paid on a monthly basis over 12 months. This will reduce the Social Welfare bill and also incentivise businesses to expand and employ new staff in 2013.
- Retain/reduce Employers PRSI at 10.75%.
- Merge the new Property Tax with the current NPPR charge – they are basically the same charge on property.
- Temporary Pension fund withdrawals – Consider allowing a once off drawdown from an individual’s pension fund. Both of these pension fund drawdowns will be subject to tax, PRSI and USC.
- VAT Cash receipts basis – increase the current threshold from € 1m to € 2m.
- Tax relief on investment in SME’s – allow tax relief for individuals providing an investment loan to a business.
- Entrepreneurial Tax – introduce a reduced rate of Capital Gains Tax (10%) for gains on entrepreneurship to incentivise business start-ups and job creation.
- SME Lending – this is an area that needs significant assistance as the level of lending is not sufficient and it is having a direct impact on the sustainability of businesses that need working capital during a period of significant change.
- Apply the current Capital Gains Tax rate to dividends from trading Limited companies. This would hopefully release funds into the economy that is currently tied up in Limited companies.
All views expressed are that of Sean McSweeney, Tax Director at Quintas and are predictions and suggestions rather than an actual indication of Budget 2013.