The Budget 2008
SUMMARY OF 2008 BUDGET MEASURES - POLICY CHANGES
CONTENTS
- TAXATION MEASURES<//a>
INCOME TAX CHANGES
Personal Tax Package
The main elements, including associated costs, of the personal tax package, which take effect from 1 January 2008, are as follows:
Changes to Income Tax |
Personal Credits increased by 70 single/140 married to 1,830 single/3,660 married
Employee Tax Credit increased by 70 to 1,830 |
Home Carer Tax Credit increased by 130 to 900 |
New Standard Rate Bands from 1 January 2008: | Current | Proposed | Single | 34,000 | 35,400 | Married One Income | 43,000 | 44,400 | Married Two Incomes* | 68,000 | 70,800 |
*With a maximum transferability between spouses of 43,000 in 2007 and 44,400 in 2008 |
Age Exemption Limits (single/married)
increased from 19,000/38,000 to 20,000/40,000 Other Credits from 1 January 2008 | Current | Proposed |
Widowed parent: | | | Year 1 | 3,750 | 4,000 | Year 2 | 3,250 | 3,500 | Year 3 | 2,750 | 3,000 | Year 4 | 2,250 | 2,500 | Year 5 | 1,750 | 2,000 |
Blind Persons: | | | Single | 1,760 | 1,830 | Married (both blind) | 3,520 | 3,660 | Incapacitated Child | 3,000 | 3,660 | Age Credit: | | | Single | 275 | 325 | Married | 550 | 650 |
|
Health Levy thresholds increased from 480 per week to 500 per week and from 24,960 per annum to 26,000 per annum
PRSI threshold increased from 339 per week to 352 per week |
OTHER INCOME TAX<//a>
Mortgage Interest Relief
The current annual ceiling on the amount of interest that can be allowed on a mortgage is being increased with effect from 1 January 2008 for first-time buyers from 8,000/16,000 single/married to 10,000/20,000 single/married. The additional relief will be available for the first seven years for which there is an entitlement to mortgage interest relief.
Allowance for Rent Paid by Certain Tenants
The maximum level of rent paid for private rented accommodation on which tax relief can be claimed, at the standard rate of tax, is being increased. For those aged under 55 years of age, it is being increased from 1,800 to 2,000 per annum for a single person and from 3,600 to 4,000 per annum for widowed and married persons. This equates to a tax credit of 400 per annum for single persons and 800 for widowed and married persons under 55 years of age.
For those aged 55 years and over, the maximum level of rent paid on which tax relief can be claimed is being increased from 3,600 to 4,000 per annum for a single person and from 7,200 to 8,000 per annum for widowed and married persons. This equates to a tax credit of 800 per annum for a single person and 1,600 per annum for widowed and married persons over 55 years of age.
Rent-a-Room Scheme
The limit of the exemption from income tax which applies to rent received, where a person rents out a room or rooms in his or her principal private residence, is to be increased from 7,620 to 10,000.
Business Expansion Scheme
The requirement that recycling companies must have received grant assistance before availing of the Business Expansion Scheme (BES) is to be replaced by a requirement that their business proposals must be certified by an industrial development agency or County Enterprise Board before they avail of the scheme. As the BES is an approved State aid, it will be necessary to advise the European Commission of this proposed change.
Tax Relief on Trade Union Subscriptions
The standard-rated tax allowance in respect of subscriptions paid by members of trade unions is to be increased from 300 to 350 per annum. This is equivalent to a tax credit of 70 per annum.
Increase in the Specified Rates for Preferential Home Loans and Other Loans
An employee in receipt of a preferential loan is charged income tax on the difference between the interest actually paid and the amount which would have been payable at the specified rates of interest for the loans. To reflect increases in interest rates, the specified rate in respect of home loans is being increased from 4.5% to 5.5 % and the specified rate in respect of other loans is being increased from 12% to 13%. These changes will take effect from 1 January 2008.
EU Tax Issue
Following discussions with the European Commission, the tax treatment of investment income and income attributable to the exercise of foreign employments outside the State will extend to UK-sourced income. The Finance Bill will extend the relevant treatment from 1 January 2008.
Extension of S481 Film Relief
The current provisions in relation to the tax relief for investment in films are due to terminate on 31 December 2008. The scheme will be renewed for another 4 years to 31 December 2012. Any revisions that may be necessary to the scheme will be provided for in Finance Bill 2008.
PRSI CHANGES
Employee PRSI annual ceiling
As from 1 January 2008, the PRSI contribution ceiling will increase from 48,800 to 50,700.
Employee PRSI weekly threshold
As from 1 January 2008, the employee weekly threshold for liability to PRSI will increase from 339 to 352.
VAT
VAT Registration Thresholds for SMEs
The VAT registration thresholds for small businesses are being increased from 35,000 to 37,500 in the case of services, and from 70,000 to 75,000 in the case of goods. These increases will take effect from 1 May 2008. This will reduce the administrative burden for small businesses. It could remove some 2,700 companies from the VAT net.
Reduced VAT rate for certain agricultural inputs used to produce bio fuel
The VAT rate on the supply of elephant grass rhizomes, seeds, bulbs, roots and similar supplies used for the agricultural production of bio-fuels will be reduced from 21% to 13.5% with effect from 1 March 2008. The measure will assist in the development of agricultural production of such fuels.
Review of VAT on Property Transactions
A review of the current system of applying VAT on property transactions has been carried out. Provision will be made in the Finance Bill for the introduction of a new system for applying VAT to property transactions. The changes are designed to simplify the rules for VAT on property, while ensuring a more equitable treatment for taxpayers. The new rules will apply to both commercial and residential property supplied in the course of business. The VAT charge on sales of residential property is unchanged. The new system will take effect from 1 July 2008.
Reverse charge mechanism in the Construction Sector
A reverse charge mechanism for VAT on supplies made by a subcontractor to a principal contractor in the construction sector is being introduced with effect from 1 September 2008. This is a simplification measure. This measure will be the subject of consultation with the construction sector and the details will be outlined in the Finance Bill.
TAXATION IN RELATION TO CARS
Vehicle Registration Tax (VRT) to take greater account of CO2 emission levels
The current VRT system uses engine size as the criterion to determine the VRT rate to be applied to a car. Under the revised VRT system the CO2 emissions of a car will replace engine size as the criterion to determine the VRT rate payable on the car at point of registration. Lower emission cars will attract reduced VRT rates and higher emission cars will be liable to higher rates. The VRT rates will continue to be applied to the Open Market Selling Price of the car. The revised VRT system will take effect on 1 July 2008.
The following Table sets out the CO2 Emission Bands and the relevant VRT rates under the revised VRT system.
CO2 Emissions Bands | g CO2/km | VRT Rates |
A | 0 - 120g | 14% |
B | 121 - 140g | 16% |
C | 141 - 155g | 20% |
D | 156 - 170g | 24% |
E | 171 - 190 g | 28% |
F | 191 - 225g | 32% |
G | 226g and over | 36% |
Vehicle Registration Tax (VRT) Relief Scheme for Hybrid Electric and Flexible Fuel Vehicles and VRT exemption for Electric Vehicles.
The existing 50% VRT relief scheme for series production hybrid electric vehicles and flexible fuel vehicles expires on 31 December 2007. The scheme is being extended in its current form from 1 January 2008 until 30 June 2008, at which point the revised VRT scheme based on CO2 emissions will be implemented. From 1 July 2008 the relief for series production hybrid electric and flexible fuel cars will be adjusted to provide a relief of up to 2,500 on the VRT payable, in addition to the benefit of the new VRT CO2 emission related system. This relief will apply until 31 December 2010.
Series production electric cars (i.e. cars which can be propelled solely by a rechargeable battery) and electric/battery-assisted bicycles are being exempted from VRT with effect from 1 January 2008.
Capital Allowances (and Expenses) for Business Cars
A revised scheme of capital allowances and leasing expenses for cars used for business purposes is being introduced. The revision will link the availability of such allowances and expenses to the CO2 emission levels of the vehicles. Cars will be categorised by reference to CO2 emissions with the emissions bands being broadly consistent with the new VRT system, as follows:
Category A Vehicles | Category B/C Vehicles | Category D/E Vehicles | Category F/G Vehicles |
0-120g/km | 121-155 g/km | 156-190g/km | 191g/km + |
Cars with CO2 emission levels in Category A/B/C above will benefit from capital allowances at the current car value threshold under the existing scheme of 24,000, regardless of the cost of the car. Cars in Category D/E will receive allowances of 50% of the current car value threshold or 50% of the cost of the car, if lower. Cars in Category F/G will not qualify for capital allowances.
As regards leasing expenses, cars in Category A/B/C will benefit from a proportionately higher deduction than the actual leasing expenses where the cost of the car is less than 24,000. Cars in Category D/E will get 50% of the leasing expenses they would otherwise benefit from under the current scheme. Cars in Category F/G will not qualify for a deduction for leasing expenses.
The revised scheme will come into effect in respect of cars purchased or leased on or after 1 July 2008.
New Motor Tax Rates and Fees for Trade Licence Plates
In order to support funding for local authorities, the Budget provides for increases in motor tax rates and fees for trade licence plates. The most recent increase in motor tax rates took effect from January 2004. It is significant, therefore, that it has been four years since that increase.
The proposed increases are 9.5% for cars below 2.5 litres and 11% for cars above that threshold. Goods and all other vehicles will also increase by 9.5% with no increase for electric vehicles. Trade plate licences will also increase by 9.5%. The increases in motor tax rates must be viewed against the background that since the beginning of 2004, inflation has increased by over 15%. The increases provided for in the Budget are clearly well below inflation over the four year intervening period. The new rates will apply to motor tax discs and trade licences taken out for periods beginning on or after 1 February 2008.
The proceeds of motor tax are paid directly into the Local Government Fund. This Fund, which was established under the Local Government Act 1998, is ring-fenced exclusively for local government. The motor tax paid into the Fund is supplemented on an annual basis by an Exchequer contribution. The Fund is used primarily to finance non-national roads and the general purpose needs of local authorities.
Details of the new rates are set out in Annex F.
EXCISES
Tobacco Excise
The Excise Duty on a packet of 20 cigarettes is being increased by 30 cents (including VAT) with a pro-rata increase on other tobacco products, with effect from midnight on 5 December 2007.
Alcohol Licensing Regime
Licensing fees for Off-licences are being increased from 250 per licence to 300 per licence with effect from 1 October 2008.
Excise on Electricity
Under the EU Energy Tax Directive all Member States are required to introduce an excise tax on electricity. In Irelands case this must be done in 2008. From 1 October 2008 the following EU minimum rates will apply; 50 cents per megawatt hour (MWh or 1,000 units) for business use and 1 per megawatt hour for non-business use. However, electricity used by households will be exempt from the new charge as will electricity produced from renewables and combined heat and power generation. Energy products and electricity used to produce electricity are also being exempted from excise taxation. The overall cost and impact on electricity prices for business will be marginal.
FARMER TAXATION
Farmers flat rate addition
The farmers flat rate addition is being maintained at 5.2% for 2008. The flat rate is designed to recoup non-VAT registered farmers for the VAT they incur on their inputs.
Tax Relief on the Dissolution of Farm Partnerships
A new relief from Capital Gains Tax on the dissolution of farm partnerships will be introduced in the Finance Bill. The relief will run for a period of 5 years and full details will be contained in the Finance Bill.
Milk Production Partnerships
Where a farmer on income averaging enters a milk production partnership the provisions that can result in a clawback of income tax will no longer apply.
Sugar Beet Diversification
Provision is being made to allow farmers in receipt of the Diversification Aid element of the Sugar Beet Compensation Package to spread these payments over six years for the purposes of calculating taxable income.
CORPORATION TAX
Preliminary Tax payment arrangements for Small Companies
Small companies have the option of paying their preliminary tax at the lower of 90% of the final liability of the current accounting period or 100% of the final liability of the previous accounting period. The Corporation Tax liability threshold for treatment as a small company is being increased from 150,000 to 200,000. This will be effective from preliminary tax payment dates arising after 5 December 2007.
Preliminary Tax payment arrangements for Start-up Companies
Under the measure introduced in last years Budget, new or start-up companies with a Corporation Tax liability of 150,000 or less, for their first accounting period are not required to pay preliminary tax in respect of that first accounting period. The tax liability threshold under this arrangement for new or start-up companies is also being increased to 200,000 and this change will also be effective from preliminary tax payment dates arising after 5 December 2007.
International Financial Reporting Standards (IFRS) Rule
Transitional arrangements which relax the interest charge on underpaid preliminary Corporation Tax for companies in very specific circumstances for certain companies whose accounts are based on International Financial Reporting Standards (IFRS) will be changed in the Finance Bill so that these arrangements can be used on a permanent basis.
Tax Credit scheme for Research and Development Expenditure
The base year for expenditure which is used to calculate the qualifying incremental expenditure on research and development (R&D) under the tax credit scheme is being fixed at 2003 for a further 4 years to 2013. The change will provide an additional incentive for increased expenditure on R&D in future years and it will offer more certainty to industry in relation to the tax credit scheme.
It will be necessary to inform the European Commission about these changes from a State Aid perspective.
STAMP DUTY
Reform of the Charge to Stamp Duty on Residential Property
The current Stamp Duty system applicable to residential property is being reformed.
A simplified system, incorporating an exemption of 125,000 with 2 progressive rates instead of the existing 6 rate bands, is being introduced with immediate effect.
Transactions not exceeding the 125,000 exemption level will not be liable to Stamp Duty. For amounts above this 125,000 exemption level, but not exceeding 1 million, Stamp Duty will be charged at 7% on the excess over 125,000. Where the property exceeds 1 million, the part in excess of 1 million will be charged at 9% with the remainder between 125,000 and 1 million subject to a 7% charge.
In addition, properties with a value in excess of 125,000 but not exceeding 127,000 will not be liable for stamp duty.
This change will take effect in respect of instruments which are required to be presented to the Revenue Commissioners for stamping no later than 5 December 2007. Instruments which are executed in the 30 days prior to 5 December 2007 will therefore benefit from this change.
Current exemptions in relation to first time buyers and buyers of new homes will continue to apply.
More information on this reform is contained in Annex G.
Claw-back of Relief for First-time Purchasers and other Owner-Occupiers
An exemption from Stamp Duty is generally available for first-time owner-occupying purchasers of new or second-hand dwelling houses or apartments. There is also an exemption available for other owner-occupying purchasers of new dwelling houses or apartments under 125m2. In addition, partial relief is also available to owner-occupying purchasers of new dwelling houses or apartments over 125m2. These exemptions/reliefs are clawed-back where the purchaser rents out the dwelling house or apartment, other than under rent-a-room arrangements, within 5 years of the date of the deed of transfer giving effect to the purchase.
This claw-back period is being reduced for all three reliefs from 5 to 2 years for deeds of transfer executed on, or after, 5 December 2007. For deeds of transfer executed before 5 December 2007, to the extent that a dwelling house or apartment is rented out on, or after, 5 December 2007, it will not involve a claw-back of relief where this happens in the third, fourth or fifth year of ownership.
Financial Cards
Changes are being made to the Stamp Duties applicable to ATM/Debit cards, charge cards and credit card accounts. The rate changes are summarised as follows:
Description | Current | New |
Charge cards & credit card accounts | 40 | 30 |
ATM cards | 10 | 5 |
Debit cards | 10 | 5 |
Combined ATM/Debit cards | 20 | 10 |
The charges for ATM/Debit/Combined cards will take effect on the year ending 31 December 2007 and for Credit cards for the year ending 1 April 2008.
In addition, commencing in 2008, financial institutions will be required to make a preliminary payment in December of each year, of the Stamp Duties on financial cards due to be paid in the following year. This payment will be based on 80% of their Stamp Duty liability for the previous year. The date on which customers are charged will not be changed.
Bills of Exchange (including Cheques)
The Stamp Duty rate on Bills of Exchange is being increased from 15 cent to 30 cent in respect of Bills of Exchange drawn on, or after, 6 December 2007. In the case of cheques, the increase will apply in respect of cheques supplied by financial institutions to customers on, or after, 6 December 2007.
STAMP DUTY & CAPITAL GAINS TAX
Increase in Site to Child Exemption from Stamp Duty and Capital Gains Tax
The existing Site to Child relief from Stamp Duty and Capital Gains Tax provides an exemption under both taxes on sites with a market value not exceeding 254,000, where a parent transfers the site to a child for the purposes of constructing the childs principal private residence. The exemption threshold of 254,000 is being increased to 500,000. This change will take effect in respect of disposals made on or after Budget day.
FISHING INDUSTRY
Tax Relief on Fishing Vessel Decommissioning Payments
Provision will be made for amending the taxation code to assist the take-up of the decommissioning scheme to support the restructuring of Irelands fishing fleet. Details will be contained in the Finance Bill.
SECTION II - EXPENDITURE MEASURES
SOCIAL & FAMILY AFFAIRS
Social Welfare Weekly Rates
Maximum weekly personal rates for all State Pension (Contributory), State Pension (Transition) and related social insurance pensions will increase by 14 per week from the first week of January 2008. For the State Pension (Non-Contributory), the maximum personal weekly rate will increase by 12 per week from the first week in January. Proportionate increases will apply for pensioners on reduced rates.
The maximum personal rate for Carers Allowance, Carers Benefit and Death Benefit Pension will increase by 14 per week and all other maximum personal rates will increase by 12 per week. There will be proportionate increases for people on reduced rates, from the first week of January 2008.
Maximum Qualified Adult Allowances (QAAs) will increase as follows:
· 11.60 per week for State Pension (Contributory), State Pension (Transition) and Invalidity Pension where the qualified adult is aged 66 or over. In addition, there is a further special increase for these persons (see item on Pensioners below);
· 9.30 per week for State Pension (Contributory) and State Pension (Transition) where the qualified adult is aged under 66;
· 7.90 per week for State Pension (Non-Contributory);
· 8.60 per week for Invalidity Pension where the qualified adult is aged under 66;
· 8 per week for all other QAA payments.
Proportionate increases will be applied where persons are in receipt of reduced rate QAA payments.
There will also be an increase of 14 per week, to 221.80, in the minimum rate of Maternity Benefit and Adoptive Benefit from January 2008.
Children
Child Benefit rates will increase by 6 per month for each of the first and second qualifying children, to 166 per month, and by 8 per month for each subsequent qualifying child, to 203 per month, effective from April 2008.
Maximum child dependant allowance rates will increase by 2 per week to 24 per week from January 2008. Proportionate increases will be applied where persons are in receipt of a reduced child dependant allowance payment.
Family Income Supplement income thresholds will increase by 10 per week in respect of each child, from January 2008.
The Back to School Clothing and Footwear Allowance will increase by 20 to 200 in respect of each child aged 2 to 11 years and by 20 to 305 in respect of each child aged 12 to 22 years where appropriate. This will be effective from June 2008.
The Widowed Parent Grant is being increased by 2,000 to 6,000 with immediate effect.
Additional funding is provided for the School Meals Programme.
Pensioners
An additional special increase of a maximum of 15.40 per week in the maximum rate of the Qualified Adult Allowance (where the qualified adult is aged 66 or over), to bring the rate to 200 per week, will be paid with a State Pension (Contributory), State Pension (Transition) or Invalidity Pension from January 2008.
The duration of payment of the National Fuel Scheme will increase by one week to thirty weeks commencing from April 2008.
People of Working Age
The Respite Care Grant will increase by 200 to 1,700 from June 2008.
The weekly income disregard for means assessment for the Carers Allowance scheme will increase to 332.50 (single)/ 665 (couple) respectively, from April 2008.
The upper income threshold for entitlement to the One Parent Family Payment will increase by 25 per week to 425 from May 2008.
A single reformed method for assessing Benefit and Privilege from parents income for the Jobseekers Allowance will be introduced from April 2008.
The annual grant payable as part of the Back to Education Allowance scheme will increase by 100 to 500 from September 2008.
Other miscellaneous measures, including an increase of 20 per week to 300 in the upper ceiling for entitlement to a tapered qualified adult payment for relevant schemes, will be introduced during the course of 2008.
