Budget 2016, announced on 13th October, is the final Budget of the 31st Dáil. In light of an improving economic outlook with a robust rate of growth, increased employment and rising tax revenues, the Government was in a position to lay the groundwork for its re-election campaign with a populist Budget designed to increase the income of every household in the State.
Minister Noonan forecasted that General Government Debt will fall to just under 93% of GDP by the end of 2016 but he cautioned that, “This debt level, while sustainable, remains too high and remains our biggest internal risk.” Accordingly, he continued to emphasise the need for prudent management of public finances and the economy and aimed to avoid an “excessively expansionary” Budget.
We have reviewed Budget 2016 and have outlined below the Top 10 Highlights for individuals and businesses:
1. Personal Income Tax
- Earned Income Tax Credit of €550 introduced for self-employed and business owners who are ineligible for a PAYE credit
- Home Carer Tax Credit (which applies to married couples or civil partners where one spouse or civil partner works in the home caring for a dependent person) increasing from €810 to €1,000 for 2016. Home carer’s income threshold is increasing from €5,080 to €7,200
2. Pay Related Social Insurance (PRSI) and Universal Social Charge (USC)
- A new weekly tapered PRSI credit of €12 introduced for employees earning between €352.01 and €424 a week
- Lower 8.5% Class A rate of employer PRSI to apply to weekly earnings up to €376 (increased from €356) from January 2016
3. Universal Social Charge (USC)
- USC bands and rates amended as follows:
From 2016 incomes of €13,000 (increased from €12,012) or less will be exempt from USC. For incomes over €13,000, USC is chargeable as follows:
|Pre Budget 2016||USC %||Post Budget 2016||USC %|
|Income above €70,044||8%||Income above €70,044||8%|
|Surcharge on non-PAYE income over €100,000||3%||Surcharge on non-PAYE income over €100,000|
Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will pay a reduced rate as follows:
The first €12,012 @ 1% (Currently 1.5%)
Income above €12,012 @ 3% (Currently 3.5%)
4. Corporation Tax
- 12.5% headline rate to be maintained
- 3 Year Corporation Tax Relief for New Start-Up Companies extended to companies commencing to trade in the next 3 years
- Film Relief cap on eligible expenditure to be increased to €70 million
5. Knowledge Development Box (KDB)
- Effective Corporation Tax rate of 6.25% for profits arising from certain patents and copyright resulting from research and development activities in Ireland
6. Reliefs for Entrepreneurs
- Capital Gains Tax (CGT) Relief for Entrepreneurs from 1st January 2016 – Reduced CGT rate of 20% to apply to chargeable gains on the disposal of the whole or part of a business up to a limit of €1 million
- Employment & Investment Incentive Scheme changes announced last year to come into effect from 14th October 2015 and scheme extended to include expansion works on existing nursing homes
- 9% rate for Tourism Sector retained
8. Capital Acquisitions Tax (CAT)
- Increase in the tax-free threshold for gifts/inheritances between parents and their children from €225,000 to €280,000 from 14th October 2015
- Home Renovation Incentive (HRI) (including works on rented properties) extended for one more year to 31st December 2016
- Local Property Tax (LPT) valuation date postponed from 2016 to 2019. Homeowners will continue to pay LPT based on the original valuations on 1st May 2013 which have formed the basis of the calculation of the tax from 2013 to 2016 inclusive
- General Stock Relief, Stock Relief for Young Trained Farmers and Stock Relief for Registered Farm Partnerships extended until 31st December 2018
- Stamp Duty Exemption for Young Trained Farmers extended until 31st December 2018
- A tax credit of up to €5,000 per annum for five years to be made available to “succession farm partnerships” provided that ownership of the farm is to pass to the Young Trained Farmer partner within 10 years
Minister Noonan announced that the effect of the Budget would be that people will gain “a full extra week’s wages at all points of income.” This, coupled with the increases in Social Welfare and public services expenditure has resulted in general approval from the electorate. The Budget speech included some measure of election promises not least Minister Noonan’s promise to “progressively abolish USC to reward work”.
We have yet to experience a “give away” Budget in the post austerity era and only time will tell as to whether Minister Noonan’s pre-election package is enough to secure success at the upcoming General Election.
If you have any queries in relation to Budget 2016 please do not hesitate to contact us here.