Budget 2016 has been announced and commentators have had time to digest its contents.
The economic and fiscal background to Budget 2016 was the best seen since 2007. The aim of the budget was to make it more attractive to work, by making work pay and to help entrepreneurs, particularly in the SME sector. At Metis Ireland, we were eagerly awaiting Minister Noonan’s Budget speech, to see what changes might affect our industry and ultimately, our clients.
Pensions Levy Abolished
The big news was that the Pension Levy has ceased and it will not apply in 2016. The minister repeated the commitment of the last two budgets that 2015 is the last year of the Pension Levy. This is encouraging for all those who are in private sector pensions and should restore some confidence that pension savings will no longer be targeted. The levy has come at a significant cost though as pension savings have taken a hit in excess of €2bn over the last 5 years, as the Levy had been as high as 0.75% per annum.
Tax Treatment of Pensions
It was a case of ‘no news is good news’ where tax relief on contributions and the Standard Fund Threshold are concerned. Marginal rate tax relief has been retained. Making provision for retirement through a private pension arrangement remains the most tax efficient form of long term saving.
The Standard Fund Threshold (SFT) remains at €2m for 2016. This has steadily reduced during austerity budgets of previous years and will be welcomed particularly by those in Defined Benefit pension schemes. Linked to this, the tax treatment of the Retirement Lump Sum remains unchanged, with the first €200,000 being tax free.
State Pension Increased
The State Pension was increased by €3 per week to €233.30, effective from January 2016. A modest increase, but a sure sign that an election isn’t far away!
Exit Tax & DIRT Unchanged
Exit Tax on life assurance investment policies remains at 41%, and 25% where the investor is a company. Deposit Interest Retention Tax (DIRT) on deposits also remains unchanged at 41%, continuing to take a chunk out of already low deposit rates.
Changes to CAT & CGT
The rate of CGT remains unchanged at 33%. A reduced CGT rate of 20% is being introduced for entrepreneurs on the disposal in whole or part of a business up to an overall limit of €1m in chargeable gains. This is effective from 1 January 2016.
There was no mention in the Budget of a change to the current CAT rate of 33%. The CAT threshold for Group A (Parent to Child) has increased from €225,000 to €280,000 with effect from 14 October 2015.
USC Rates Reduced
Changes to the Universal Social Charge are also to be welcomed. The rates have been reduced and there has been an increase in the USC entry point and bands. This will put more money in the pockets of the ‘squeezed middle’ who have been affected by fiscal adjustments since 2008.
The Finance Bill which followed Budget 2015 contained changes to the ARF/AMRF regime which were not announced in the Budget speech, so there may still be some surprises on the way. For now however, we can breathe a collective sigh of relief.
Yvonne O’Brien CFP
Certified Financial Planner
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