Lucas Financial Consulting Ltd

In this section we summarise the main changes in the budget 2011……

1) Tax Bands remain at 20% and 41%

2) Our 12.5% corporation tax relief remains. The 3 year Tax Exemption for Start Up Companies is being extended to include start up companies which commence a new trade in 2011.

3) Deposit interest Retention tax and Exit tax are being increased by 2% to 27% for interest payments made annually or more frequently and 30% for Exit Tax ( ie life assurance policies).

4) Employee Tax Credit reduced from €1,830 to €1,650 (single) from €3,660 to €3,300 (married). One parent family credit from €1,830 to €1,650.

5).Tax bands have been reduced as folllows:

Single /widowed from €36,400 to €32,800.

Married one income from €45,400 to €41,800

Married two incomes from €72,800 to €65,600

One Parent/widowed parent from €40,400 to €36,800

6) Age Exemption ( income exempt for persons aged 65) has been reduced as follows:

Single from €20,000 to €18,000

Married from €40,000 to €36,000.

7) Health levy and Income levy to be abolished and replaced by a new Universal Social Charge (USC) at the following rates. These figures relate to persons under age 70:

0% < €4,004

2% 0 to €10,036

4% €10,037 to €16,016

7% > €16,016.

So reference to tax rate of 52% refers to 41% income tax rate , PRSI 4% and USC of 7%.

Persons aged 70 or over

0% < €4,004

2% 0 to €10,036

4% over €10,036

Removal of the ceiling on employee (Class A) PRSI currently €75,036. This will be a serious increase cost for high earners. The self employed (Class S) PRSI will be increased from 3% to 4%.

9) The PRSI and Health levy reliefs previously available for employee pension contributions are to be abolished. So from 01/1/11 employee contributions will be subject to employee PRSI and USC.

Employer PRSI relief on pensions contributions made by employees is being reduced by 50% from 01/01/11.

10) The annual earnings limit is being reduced from €150,000 to €115,000 for 2011. The annual earnings limit for the 2010 will also be deemed to be €115,000 ie when a contribution is paid in 2011 and tax relief elected to be backdated to 2010.

11) The maximum allowable pension fund on retirement for tax purposes is to be set at €2.3 million with effect from 7 Dec 2010.

Individuals with pension rights in excess of this lower SFT on Budget Day will be able to protect the capital value by claiming a Personal Fund Threshold (PFT). The higher threshold applies if on 7 Dec 2010, the capital value of an individual’s pension rights drawn down on or after 7 Dec 2005 (ie crystallised pension rights) when added to any uncrystallised pension rights as valued on 7 Dec 2010 are greater than €2.3 million and lower than €5,418,085. Individuals will have six months from Budget day to send details to the Revenue Commissioners. The factor to be used for DB schemes is 20. If the higher PFT above €5m has already been granted (under the earlier legislation that introduced lifetime limits in Dec 2005), then it still applies.

12) The annual imputed distribution on Approved Retirement Funds (ARF’s) of 3% is being increased to 5% in respect of asset values at 31 Dec 2010.

13) A Restriction of Pension tax free lump sum will come into effect from 01/01/11. The rates are as follows:

Amounts up to  €200,000 will be taxed free.( down from €1.35m)

Sums between €200,001 and €575,000 ( being 25% of the €2.3m threshold) will be liable to tax at 20%.

Sums above €575,000 will be liable to marginal rate of tax.

Tax Free lump sums taken on or after 7 Dec 2005 will count towards using up the new tax free amount. So if an individual has already taken tax free lumps sums of €200,000 since 7 Dec 2005 any further lump sums will be taxable.

The tax benefits available to individuals retiring on or before 31 Dec 2010 would appear to be more advantageous that those that will apply from 01 January 2011.

14) ARF options will be made available to all members of DC schemes but new requirements have been set.

The AMRF option is being retained but the set aside requirement of €63,500 will now be the lesser of 10 times the maximum rate of the of the State Pension Contributory about €120,000 or the remainder of the fund after taking the tax free lump sum.

The guaranteed income requirement of €12,700 pa is being increased to 1.5 times the State Pension Contributory bringing the specified income close to €18,000 pa.

The guaranteed income level can be satisfied after retirement so an ARMF becomes an ARF.

As a transitional measure the guaranteed income requirement of €12,700 pa will continue for a 3 year period for those who have already retired. If individuals satisfy the existing requirement within 3 years (of the 2011 Finance Bill becoming law) their AMRF becomes an ARF. After this 3 year period the new higher guaranteed income test will have to be satisfied.

The deferral of annuity purchase arrangements for DC members is to be extended by the Revenue Commissioners.

15) Ex gratia payments – The Budget included a cap of €200,000 on tax free ex-gratia termination payments made on or after 01/01/2011.

16) Capital Acquisitions Tax ( inheritance and gift tax) have been reduced by 20%. The following rates now apply:

Group A ( parent to child) from €414,799 to €331,839.

Group B ( related persons from €41,481 to €33,185

Group C (non related persons) from €20,740 to €16,592.

Business relief and Agricultural relief of 90% remain. Tax rate is 25%.

17) Abolition of tax relief for Trade Union Subscriptions

18) A flat 1% for all transactions of residential property valued up to €1million with 2% applying to amounts above €1million. Abolishing all existing reliefs and exemptions for Stamp Duty on residential property ie, first time buyer relief. This applies to instruments executed on or after 8 Dec 2010.

Rent relief to be phased out over 8 years.

19) Excise duty – duty on petrol will increase by 4cent per litre. and duty on auto diesel will increase by 2cent per litre.

Car scrappage scheme is being extended for the period 01/01/11 to 30/06/11.

20) Air travel tax of €3 will be levied from 01/03/11. This replaces the previous two – tier system of €10 for flights over 300km, and €2 for lower.

21) Social Welfare payments

The State Pension (contributory ) remains unaltered. Under 80 (€230.30), Person with qualified adult under 66 (€383.80) Person with qualified adult aged 66 or over €436.60. However other social welfare benefits have suffered a reduction of about €8 per week.

22) Child Benefit reductions for first and second child are reducing from €150 to €140 per month. The benefit for the  third child will be reduced from €187 to €167 per month with fourth and subsequent children reducing from €187 to €177.

23) Sovereign Annuities. This refers to Irish pension funds having the opportunity to invest in longer term Irish bonds at higher yields than are available elsewhere and to price their liabilities to pensioners on the basis of those higher yields. Details of this measure will be announced in the future.

24) A New Four Year National Solidarity Bond is being proposed. Further details will be introduced in the New Year.

Contact Your Local Independent Financial Adviser

Lucas Financial Consulting Ltd is based near Carrickmacross Co Monaghan. As we straddle four counties – Louth, Monaghan, Cavan and Meath we are ideally placed to become your new Local Independent Financial Adviser.

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