Nelson Life Budget 2016 Summary
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Nelson Life Budget Summary 13 October 2016
This summary has been produced by Nelson Life based on its understanding of the laws and practice current in October 2015.While great care has been taken to ensure the accuracy of the information it contains, the company cannot accept responsibility for its interpretation, nor does it provide legal or tax advice.
Ireland is on course to be the fastest growing economy in the Eurozone for the second year in a row, with growth of 6.2% in 2015
The Department of Finance is forecasting growth of 4.3% for next year
Personal savings
With regards to Savings and Investment, unfortunately the Minister did not make any changes to DIRT and Exit Taxes on Life Assurance Policies , which remain at 41% and Investment Funds or in the standard Capital Gains Tax rate of 33%.In addition, the “Insurance Levy” on Protection policies, investment & savings policies remains unaltered.NOTE : Where the life policy is owned by a company the exit tax rate of 25% still applies
PENSIONS CHANGES ANNOUNCED:
Confirmation that the “pension levy” has ended
The Pensions Levy of 0.6% p.a. was introduced in 2011 for 4 years to fund the Jobs Initiative.
Last year the Minister confirmed that the additional levy of 0.15% p.a (for 2014 and 2015) would expire at the end of 2015.
Social Welfare Pensions
This means that the weekly rate of State Pension (Contributory) – Personal Rate will increase from €230.30 per week to €233.30 per week from 1 January 2016.The qualifying age for the State Pension will rise to 67 in 2021 and 68 in 2028.
If you were born on or after 1 January 1955,minimum qualifying State pension age will be 67
If you were born on or after 1 January 1961, minimum qualifying State pension age will be 68
NO CHANGES TO THE FOLLOWING:
No change in pension tax relief limits
Tax Relief - Employer Pension Contributions - Corporation Tax relief will continue to be available on employer pension contributions - subject to the overall maximum pension limit. Tax Relief - Employee Pension Contributions - This will continue at the marginal rate of tax but subject to:
Age Related Contribution Limits and Earnings Cap, if applicable
Overall maximum pension limit
Employer Corporation Tax - rate to remain at 12.5%.
Earnings Cap - amount to remain at €115,000.
Retirement Lump Sum - up to €200,000 remains tax-free and amounts from €200,000 to €500,000 will be taxed at 20%.
AMRF Specified Income & AMRF Specified Amount
These amounts are due to increase automatically to their previous levels (of €119,800 and €18,000p.a. respectively) in March 2016 unless there is further legislation to keep the limits at the lower levels.
NOTE : We await further details in the Finance Bill as to whether these will be kept at their current levels (€12,700 p.a. and €63,500 respectively) or indeed whether there are any further changes to the AMRF requirements (or whether the AMRF is to be abolished altogether).
ARF (and AMRF) Imputed Distribution Rates and Requirements
The requirement for ARF Policyholders to withdraw a minimum amount from their ARF (and Vested-PRSA) was reduced in 2015 from 5% to 4%. The current rate for 2016 is likely to remain unchanged, as follows:
Age Attained during 2016 Total ARF & Vested-PRSA funds is €2m or less Total ARF and Vested-PRSA funds greater than €2m
Less than 61 Nil Nil 61 to 70 4% 6% 71 and over 5% 6%
In relation to AMRFs, from 2015 it has been possible to withdraw up to 4% p.a. of the value of an AMRF each year. This withdrawal replaced the previous option which allowed the drawdown of any growth within the AMRF (but not the original AMRF Capital invested).There is NO compulsory requirement to take a withdrawal from an AMRF – it is completely Voluntary (unlike the minimum ARF withdrawal, which is Compulsory)There was no amendment to the rules relating to Vested-PRSA-AMRFs.
Standard Fund Threshold
The Taxes Consolidation Act (Chapter 2C of Part 30) imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw in their lifetime from tax-relieved pension products, where those benefits come into payment for the first time on or after 7 December 2005.There are significant additional tax liabilities where the limit is exceeded.
Budget 2014 reduced the maximum allowable pension fund at retirement for tax purposes (the Standard Fund Threshold - SFT) from €2.3m to €2m. This measure further restricts the capacity of higher earners to fund large pensions through tax-subsidised sources.
We await to see whether the Minister for Finance will amend the SFT from 2016 in line with an earnings adjustment factor.
Other Life & Taxation announcements
Income tax rate No increase in the standard rate bands or change to the income tax rates
Increase in CAT Class A Threshold from €225k to €280k While welcome, Inheritance Tax liabilities are still significantly higher than in 2009.The Class B and C thresholds of €30,150 and €15,075 respectively have not been increased. No change in the CAT tax rate of 33% This reinforces the continued need for clients to consider a Section 72 policy
Introduction of an income tax credit for the self-employed & proprietary directors Proprietary directors and their spouses/civil partners have traditionally been denied the PAYE tax credit of €1,650, despite paying taxes under PAYE like other employees.
A maximum €550 income tax credit for earned income is being introduced in 2016 for the self-employed and proprietary directors, equivalent to increasing the standard rate band for these taxpayers by €2,750.
Reduced CGT rate of 20% to apply to the sale of businesses
A reduced CGT rate of 20% is to apply from the 1st of January 2016 onwards on the sale in whole or in part of a business up to an overall limit of €1 million in chargeable gains.
Reduction in USC rates and bands will deliver additional net income of up to €900 pa
Some USC bands have been increased and some rates reduced, meaning an increase in net income of up to €900 pa
Capital Gains Tax (CGT)
Capital Gains Tax rate remains at 33%. This summary has been produced by Nelson Life based on its understanding of the laws and practice current in October 2015.
While great care has been taken to ensure the accuracy of the information it contains, the company cannot accept responsibility for its interpretation, nor does it provide legal or tax advice.
Want to know more? We are available to discuss your options, and we look forward to hearing from you.
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telephone | 091441188 and/or email | office@nelsonlife.ie
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