In Minister Brian Lenihan’s 2011 Budget speech, he outlined the Government’s planned budgetary adjustments for 2011 and gave some further details on some of the measures announced in the National Recovery Plan.
- From 1st January 2011, an employee’s contribution to an occupational pension scheme and other pension arrangements will be subject to employee PRSI and the new Universal Social Charge. The PRSI change will be legislated for in the Social Welfare Bill. Therefore, the cost of pension provision will increase for those currently paying into a personal/occupational pension plan and AVC’s/PRSA’s.
- The annual earnings limit is being reduced from €150,000 (2010) to €115,000 for 2011. Therefore, tax relief will only be granted on earnings up to €115,000 and no relief granted on earning exceeding this figure.
- The overall lifetime limit on the amount of tax-free retirement lump sums that an individual can draw down from pension arrangements is being reduced to €200,000. The excess of this amount will be taxed at the standard income tax rate (currently 20%) up to an amount equal to 25% of the new Standard Fund Threshold (up to €575,000). The excess of retirement lump payments over that amount will be taxed at the taxpayer’s marginal rate of income tax. Tax-free retirement lump sums taken on or after 7 December 2005 will count towards “using up” the new tax free amount so if an individual has already taken tax free retirement lump sums of €200,000 or more since 7 December 2005, any further retirement lump sums paid to the individual on or after 1 January 2011 will be taxable.
- DIRT – The rate of DIRT is being increased from 25% to 27% and from 28% to 30% for other longer term deposit accounts. The increased rates will apply to all payments including deemed payments made on or after 1 January 2011. DIRT only applies to interest payments on financial institution (i.e. bank) deposits.
- The Health Levy and Income Levy are to be abolished and replaced by a new Universal Social Charge on a revenue neutral basis, in 2011.
|Rate of USC||Income|
|2%||€0 – €10,036|
|4%||€10,037 – €16,016|
Annual income below the lower threshold of €4,004 will not be chargeable to the USC but once this amount has been exceeded the USC will be applied to the entire income. This is similar to the current basis of calculation of the income levy and health levy.
- A Reduction in the Standard Rate Bands and all tax credits by 10% for 2011. However, the Minister has detailed in the Four Year Plan his proposals to reduce the value of tax credits and bands by 16.5% by 2014. As set out in the Plan these measures were to be frontloaded and the Budget confirms reductions of circa 10% for 2011 in the bands and the credits. Therefore the standard rate bands will be:
|Married Couple, one income||€41,800||€45,400|
|Married couple, two incomes||€65,600||€72,800|
- The following tax credits are also being reduced by 10% – personal credit, PAYE, home carer, age credit and one-parent family credit.
- The Age Exemption limits (for over 65s) are being reduced from 2011. This means a decrease of €2,000 for single persons (to €18,000) and a decrease of €4,000 (to €36,000) for married couples.
- The PRSI ceiling of €75,036 for employees is being abolished. Therefore PRSI will now be payable by employees at 4% without any cap.
- The rate of PRSI for the self-employed is being increased from 3% to 4%. The proposed USC reform does not include PRSI for now.
- Fundamental reform of Stamp Duty on homes to stimulate the property market by introducing a flat 1% rate for all transactions of residential property valued up to €1 million with 2% applying to amounts above €1 million. Also, all existing reliefs and exemptions for Stamp Duty on residential properties have been abolished.
- Public service pensions above €12,000 cut by an average of 4%.
- Maximum salary rate of €250,000 in the public sector, including State Agencies.
- Various reliefs to be abolished and other reliefs to be restricted from 1 January 2011, for example:
- Rent Relief to be phased out over 8 years; the same timeline as previously announced for Mortgage Interest Relief.
- Relief for membership of Trade Unions abolished
- DIRT – The rate of DIRT is being increased from 25% to 27% and from 28% to 30% for other longer term deposit accounts. The increased rates will apply to all payments including deemed payments made on or after 1st January 2011. DIRT only applies to interest payments on financial institution (i.e. bank) deposits.
The above is just a summary of some of the changes announced by the Minister on December 7th. Should you wish to discuss any aspect of the Budget that affects your own personal circumstances, please contact either Brendan or Jim who will be happy to outline the Budget implications for you.