Irish Budget 2013: Taxation of Individuals
Important measures for international investors in Ireland and investment managers with Irish investment funds and SPVs
On Wednesday 5 December 2012, the Irish Minister for Finance presented Budget 2013, the Irish government’s fiscal programme of measures for the coming year, against an improving but still challenging economic backdrop.
This update summarises the relevant budget measures for international investors in Ireland, domestic companies and banks and multinational corporations with operations in Ireland and investment managers and arrangers with Irish investment funds and capital markets SPVs.
Taxation of Income
There are no changes to the rates of income tax or the universal social charge for the vast majority of Irish taxpayers.
There are a number of important changes to the Pay Related Social Insurance ("PRSI") regime which will impact on both employees and the self-employed over the next two years. From January 2013, full PRSI rate employees and public sector staff paying the modified rate will lose their weekly PRSI allowance of €127 per week. The minimum annual PRSI contribution for self employed earners will increase to €500. PRSI is being extended to unearned income of all employees from 2014 with the result that there will be PRSI on rental income, investment income, dividends and interest on savings.
The rate of interest used to calculate the taxable benefit from most employment related loans will increase to 13.5%. For loans related to homes, the rate will decrease to 4%.
From 1 January 2013, the rate of Deposit Interest Retention Tax ("DIRT") will be increased to 33% for interest payable at least annually and 36% for other interest.
Tax relief on pension contributions will be limited to pensions of €60,000 or less from 2014. While many will welcome the preservation of relief at marginal rates of tax, this change will impact on many higher-paid employees. The details of this cap will be published in the Finance Bill. The pension levy, introduced in 2010, will not be renewed after 2014.
Top-slicing relief, which applied to ex-gratia termination payments will cease from 1 January 2013 in respect of payments of over €200,000.
The rate of capital gains tax ("CGT") has been increased by 3% to 33% from 6 December 2012 onwards. In two years, the rate of CGT has increased by almost a third from 25% to 33%. The rate of capital acquisition tax is also increased to 33%.
The Irish carried interest provisions, which provide for a 15% CGT rate in limited circumstances, will be reviewed. Although few details are given, it is hoped that any reform will increase the ability of investors and owners to access this beneficial rate.
Charitable Giving and Philanthropy
Reform of the tax relief available for charitable donations will lead to a simplified tax relief regime where 31% relief will apply to donations by individuals. A number of changes will be made to the administrative procedure for securing the relief and identifying donors. Interestingly, the Minister announced further work on reform of Ireland’s charity tax regime in order to promote philanthropy.