The 2020 Budget details were announced in the Dail by the Minister for Finance on 8th October 2019.
We look at the main changes impacting on clients.
No change in income tax & USC bands or rates
There is no change in income tax and USC rates and bands for 2020:
Income Tax rates and bands
USC Rates and bands
|First €12,012||0.5%||First €12,012||0.5%|
|Next €7,862||2.0%||Next €7,862||2.0%|
|Next €50,170||4.5%||Next €50,170||4.5%|
The self-employed 3% surcharge on non-PAYE incomes over €100,000 continues to apply.
Small increase in self employed and home carer tax credits
- The Earned Income tax credit provided to the self-employed and proprietary directors who can not qualify for the PAYE tax credit, will be increased by €150 in 2020 to €1,500. This will mean a minor income tax saving of €150 pa for most self employed and proprietary directors.
- The home carer tax credit will be increased in 2020 to €1,600. This credit can be claimed by a married couple who are jointly assessed for income tax where one spouse works in the home caring for a dependent person, e.g. a child.
Income tax credits
Increase in the child CAT Threshold
The CAT Threshold which applies to gifts & inheritances taken by children from their parent has been increased by €15,000 to €335,000 with effect from 9th October 2019. There is no change in the other Thresholds or in the CAT rate of 33%.
The maximum Inheritance Tax saving from the increase is €4,950.
Dividend withholding tax to increase to 25%
Dividend Withholding Tax (DWT) is currently levied at standard rate, 20%, on dividends paid by Irish resident companies with exemption for pension and ARF investors.
The DWT rate will be increased to 25% with effect from 1st January 2020. This will have a cash flow impact on private investors and proprietary directors taking dividends from Irish companies by deducing more tax up front, 25% instead of the current 20%.
However, the change won’t change the ultimate tax liability for the private investor or proprietary director, as DWT is allowed as a tax credit against the income tax liability on the gross dividend.
The plan is to move to a ‘personalised’ DWT rate, i.e. based on the circumstances of the individual investor, with effect from 1st January 2021.
It is anticipated that these changes will have no impact on pension and ARF investors, who will continue to be exempted from DWT.
DIRT reduces again but no change in exit tax
The DIRT rate has been being reduced in stages from 41% in 2016. This means the DIRT rate in 2020 will reduce from its current 35% rate to 33%, which will be the same as the Capital Gains Tax and Capital Acquisitions Tax rate.
Unfortunately, no change has been announced in the Budget speech in the exit tax rate of 41% which is now well out of line with the DIRT, CGT and CAT rate of 33%.
No increase in State Pension
After several years of increasing the State Pension by €5pw, there is no increase this year in the personal rate of the State Pension.
However, the Living Alone allowance will be increased by €5 pw from €9pw to €14 pw from March 2020.
The Christmas Bonus for the State Pension will be paid in December 2019 at 100%.
In June 2018 the Revenue confirmed that the State Pension Christmas Bonus could, once received, be counted as income for the purposes of the €12,700 specified income test to avoid having to invest €63,500 of retirement funds in an AMRF or annuity or to unlock an AMRF already held.
Because no change was announced in the AMRF amount or specified income test of €12,700, the current position in relation to the State Pension and the ARF option is as follows:
|Those receiving more than €238.80 pw of State Pension Contributory||They are deemed to meet the €12,700 specified income requirement and hence are not required to meet the €63,500 AMRF/annuity requirement or hold an AMRF.|
|Those receiving less than €238.80 pw of State Pension Contributory||They are not deemed to meet the €12,700 specified income requirement, unless they have other pension or annuity income, and hence may be required to meet the €63,500 AMRF/annuity requirement and to hold an AMRF if they already have one.|
|Holding an AMRF but under the State Pension Age.||Their AMRF will automatically convert to an ARF when they start to receive the State Pension Contributory of at least €238.80 pw.|
|A new retiree under the State Pension Age||They must still invest €63,500 in an AMRF or annuity at the point of taking their benefits, if not then in receipt of pension & annuity income of at least €12,700 pa. However, their AMRF will automatically convert to an ARF when they start to receive the State Pension (including the Christmas bonus) of at least €238.80 pw.|
Increase in Social Welfare rates for children
Social Welfare benefit rates are increased where the recipient has a qualified child. The rates are being increased in 2020 as follows:
Increase for Qualified Child
Increase in employer’s PRSI rates
Because of a 0.1% increase in the National Training Fund Levy (which is collected with PRSI) the employer’s PRSI Class A rate will increase from its current 10.95% to 11.05% in 2020, for employees earning more than €386 pw. For lower earners, the employer’s PRSI Class A rate will increase from 8.7% to 8.8% in 2020.
No change in pension tax relief
Pension tax relief was not mentioned in the Minister’s Budget Speech, so no change was announced.
Increase in the EII investment limit
The EII (Employment and Investment Incentive Scheme) relief is one of the few remaining ‘all income’ tax relief schemes, where investors can get full income tax relief (subject to certain conditions) for investment in qualifying small and medium sized trading companies.
The current €150,000 limit on investment in the EII scheme will be increased to €250,000 from 8th October 2019 and tax relief will now be available in the year of investment rather than splitting it over two instalments as at present.
The annual limit will be increase to €500,000 for those investors who are prepared to invest in EII for ten years or more.
Help to Buy scheme extended for another two years
The Help to Buy scheme gives a rebate of income tax paid over the previous 4 years to first time buyers of 5% of the purchase price/value of their new home up to €500,000, subject to a maximum rebate of €20,000 per property. The scheme only applies where the mortgage is at least 70% of the home value.
The scheme was due to end at the end of 2019 but it has now been extended to the end of 2021.
Increase in Stamp Duty for commercial property
The Stamp Duty rate payable on the purchase of non-residential property will be increased from its current 6% rate to 7.5% with effect from 9th October 2019.
This will impact on pension investors investing in non-residential Irish property after 9th October 2019.
However, the increase is subject to transitional arrangements whereby the existing 6% rate will apply to instruments executed before 1 January 2020 where a binding contract existed prior to Budget day (8th October 2019).
Further changes could happen in the Finance Bill
The Finance Bill 2019 which will implement the Budget 2020 changes will be published within the 10 days or so. It’s possible that other taxation changes not announced in the Budget could be introduced in the Bill at that stage.