Budget 2012 – Summary

December 7, 2011

Please find below a useful summary of the major relevant changes from Budget 2012 delivered Monday 5th and Tuesday 6th December 2011.  This summary was compiled and written by New Ireland Assurance.

1. Pensions.

In his speech the Minister for Finance recognised the “sizeable contribution” made by the pension sector in the last year and which will continue in the coming years as a result of changes in last year’s budget, the Finance Act 2011 and the subsequent temporary Pension Fund Levy. As a result there has been only a relatively small number of pension changes announced in the budget which we outline below. Tax relief in respect of pension contributions at an individual’s marginal rate has been maintained but the Minister has flagged that the current incentive regime for supplementary pension provision will have to be reformed”.

With this in mind the Department of Finance and the Revenue will work with the various stakeholders during 2012 to develop workable solutions. Interestingly one suggestion put forward as part of this consultation is the possibility of Pension Funds investing more in Ireland than abroad.

New Ireland welcomes the Minister’s comments and looks forward to participating in this review through the industry representative bodies.

Employer PRSI Relief on employee pension contributions

As you are aware an employer could as a consequence of the net pay arrangement, potentially save paying employer PRSI of 5.375% on employee pension/PRSA contributions. This relief has been removed with effect from 1 January 2012.

ARFs greater than €2M

The deemed annual distribution of 5% of the value of the fund as at 31 December each year has been increased to 6% for an individual whose aggregate value of assets in an ARF (or combination of ARFs) exceeds €2m. This increase will start to take effect for deemed distributions based on asset values as at 31 December 2012. We await clarification (in the Finance Bill) as to whether the value of an individual’s AMRF (currently a maximum of €119,800) will be taken into account when calculating the €2m ARF limit.

Vested PRSAs

The deemed annual distribution provisions that apply to ARFs will be extended to vested PRSAs. We expect this change to take effect from 31 December 2012. The new provision above in relation to ARFs in excess of €2m will also apply to vested PRSAs and will apply to the aggregate value of all PRSAs an individual holds once any one of them is vested.

ARF distribution on death to a Child aged 21 or over

To date the transfer of ARF assets on death to a child aged 21 or over has been subject to a final liability tax at the standard rate of income tax in force at the time (currently 20%). It is proposed to apply a higher final liability tax rate of 30% to such transfers. Further details on this provision will be set out in the Finance Bill.

 

2. Exit Tax

At present exit tax on life assurance policies effected on or after 1 January 2001 (which are also called gross roll-up policies) amounts to 30% and applies to any gains on the policy. This rate is being increased by 3% and will therefore be charged at a rate of 33%. The increased rates will apply to payments, including deemed payments, made on or after 1 January 2012.

 

3. DIRT

Deposit Interest Retention Tax (DIRT) on bank and building society accounts will also increase by 3% to 30% where interest is credited at least annually and increase to 33% where interest is not credited at least annually. These changes will take effect from 1 January 2012.

 

4. Universal Social Charge (USC)

The exemption level for USC will be raised from €4,004 to €10,036 with effect from 1 January 2012. Income tax rates, tax bands and tax credits are unchanged.

 

5. Capital Acquisitions Tax

With effect from midnight on 6 December 2011 the capital acquisitions tax rate will increase from 25% to 30% and the tax free thresholds which are available in respect of gifts or inheritances are being reduced as follows:

Group A: Son / Daughter  Group threshold in 2011: €332,084  Group threshold in 2012: €250,000

6. Capital Gains Tax (CGT)

CGT is to increase from 25% to 30% for all disposals made from midnight on 6 December 2011.

 

7. VAT

The standard rate of VAT is increasing from 21% to 23% with effect from 1 January 2012.

 

8. Mortgage interest relief

Mortgage interest relief is increased to 30% for first time buyers who purchased their property between 2004 and 2008. Mortgage interest relief of 25% for first time buyers and 15% for non first time buyers will apply for properties purchased in 2012. No relief will be available for any purchases from 2013 onwards.

 

9. Stamp Duty

A single rate of stamp duty of 2% on non-residential property transactions will apply from midnight 6 December 2011.

 

10. State Pension (Contributory)

The personal rate of the State Pension (Contributory) remains at €230.30 per week. Therefore the ARF/taxable cash options on retirement remain dependent on having a minimum guaranteed lifetime income of €18,000 p.a., or using €119,800 to invest in an AMRF or to purchase an annuity. However the Minister for Public Expenditure and Reform announced, for new claimants, new payment rates of State Pensions where the yearly average number of contributions and credits is less than 48 contributions (from September 2012). He also announced an increase in the minimum number of contributions required to qualify for a Widow/er’s Contributory Pension from 156 to 520 in July 2013.

 

Conclusion

 

The Finance and Social Welfare Bills are expected to be published in the New Year and we wait to see if they contain further changes not specifically announced in the Budget.

This publication is intended only as a general guide and not as a detailed analysis. In the interests of brevity and clarity, detailed information may have been omitted which may be directly relevant to an individual’s or an organisation’s circumstances. It should not be used as a substitute for appropriate professional advice. The information is provided “as is” without warranties of any kind, express or implied, including accuracy, timeliness and completeness. In no event shall New Ireland or its employees be liable for any direct, indirect, incidental, special, exemplary, punitive, consequential or other damages whatsoever (including but not limited to, liability for loss of income and/or profits), arising out of or in connection with the information provided in this publication.

 

© New Ireland Assurance 2011. New Ireland Assurance Company plc is regulated by the Central Bank of Ireland. A Member of Bank of Ireland Group. 7th December 2011.