- Budget 2007 - Summary

INCOME TAX CHANGES

OTHER INCOME TAX

PRSI CHANGES

CAPITAL ALLOWANCES AND TAX INCENTIVE SCHEMES

Personal Tax Package

The main elements of the personal tax package, which take effect from 1 January 2007, are as follows:

Changes to Income Tax
Personal Credits increased by €130 single/€260 married to €1,760 single/€3,520 married Employee Tax Credit increased by €270 to €1,760

New Standard Rate Bands from 1 January 2007:
	Proposed
Single	€34,000
Married One Income	€43,000
Married Two Incomes	€68,000
Higher Rate reduced by 1%	41%	186
Age Exemption Limits (single/married) increased from €17,000/€34,000 to €19,000/€38,000
Other Credits from 1 January 2007:
	Proposed
Widowed person	€550
Widowed parent:
Year 1	€3,750
Year 2	€3,250
Year 3	€2,750
Year 4	€2,250
Year 5	€1,750
Blind Persons:
Single	€3,000
Married (both blind)	€3,520
Incapacitated Child	€1,760
Age Credit:
Single	€275
Married	€550
Health Levy threshold increased from €440 per week to €480 per week
Rate increased by 0.5% to 2.5% for earners whose income is in excess of €1,925 per week (€100,100 per annum)
PRSI threshold increased from €300 per week to €339 per week

Mortgage Interest Relief

The current annual ceiling on the amount of interest that can be allowed on a mortgage is being doubled for first-time buyers from €4,000/€8,000 single/married to €8,000/€16,000 single/married. The increased relief will be available to all first-time buyers who are in the first seven years of their mortgage.

The ceiling for non-first-time buyers is also being increased, from €2,540/€5,080 single/married to €3,000/€6,000 single/married.

Business Expansion Scheme (BES) and Seed Capital Scheme (SCS)

The Business Expansion Scheme is being renewed from 1 January 2007 for a seven year period to 31 December 2013. The BES company limit is being increased from its current level of €1 million to €2 million, subject to a maximum of €1.5 million to be raised in a twelve month period. The investor limit is being increased from its current level of €31,750 to €150,000.

To provide sufficient time for BES designated funds to raise finance from investors, it is intended to provide that, where any amount raised by a Designated Fund up to 31 January 2007 is invested in qualifying companies before 31 December 2007, the individual investors who subscribed to the funds will have the option of claiming tax relief on their investment for either the 2006 or 2007 tax years. Similarly, in the case of direct investment by investors in qualifying BES companies, where eligible shares are issued before 31 January 2007, the investor will have the option of claiming tax relief on their investment for either 2006 or 2007.

The Seed Capital Scheme is also being renewed from 1 January 2007 for a seven year period to 31 December 2013. The SCS permits employees who leave employment to invest in certain new businesses and take up a job in the relevant business to claim a refund of tax for up to the previous six years. An unemployed person or a person who was made redundant may also claim the relief. The level of an individual’s tax refund depends on the level of the investment and the amount of tax the individual has paid in previous years.

The new BES limit of €2 million will also apply to the SCS, subject to a maximum of €1.5 million to be raised in a twelve month period. The investor limit is being increased from its current level of €31,750 to €100,000.

As the BES and the SCS are State aids, the continuation of the schemes and the proposed changes will require the approval of the European Commission and will be subject to assessment by the Commission under the new “Community Guidelines on State Aid to Promote Risk Capital Investments in Small and Medium-Sized Enterprises” (2006/C194/02) published in the Official Journal of the European Union on 18 August 2006.

Further technical amendments will be brought forward in the Finance Bill.

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, from €1,650 to €1,800 per annum for a single person and from €3,300 to €3,600 per annum for widowed and married persons. This equates to a tax credit of €360 per annum for single persons and €720 for widowed and married persons. For those aged 55 years and over, the maximum level of rent paid on which tax relief can be claimed is being increased from €3,300 to €3,600 per annum for a single person and from €6,600 to €7,200 per annum for widowed and married persons. This equates to a tax credit of €720 per annum for a single person and €1,440 per annum for widowed and married persons.

Childminding Relief

Budget 2006 introduced an exemption of up to €10,000 per annum on income from childminding where an individual minds up to three children, who are not their own, in the minder’s own home. If childminding income exceeds this the total amount is taxable, as normal, under self-assessment. The €10,000 limit is being increased to €15,000.

Taxation of Unemployment Benefit – Systematic Short-Time Workers

The special tax exemption for unemployment benefit paid to systematic short-time workers is being extended indefinitely.

Rent-a-Room Scheme

From 1 January 2007, it is proposed to close off use of the Rent-a-Room Scheme where the rent received is from connected persons who in turn are claiming rent relief.

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 3.5% to 4.5% and the specified rate in respect of other loans is being increased from 11% to 12%. These changes will take effect from 1 January 2007.

DIRT Administration Change

DIRT can currently be refunded to an individual who is exempt from income tax if the person or the person’s spouse is over 65 years of age or permanently incapacitated. The rules relating to such individuals are now being changed so that in future they may notify their financial institution of their status and receive the interest without deduction of DIRT. These changes will be included in the 2007 Finance Bill.

Administrative Changes to help Taxpayers Claim Reliefs

A number of changes in administrative procedures are being introduced which will make it easier for taxpayers to claim reliefs to which they are entitled. For 2007 all age-related tax credits will, where possible, be credited automatically to the taxpayer where a verified date of birth can be established through Revenue or Social Welfare records. A system will be implemented to credit tax relief on trade union subscriptions automatically, based on trade union membership lists. For 2008 it is planned to move, where possible, to automatic repayments in respect of non-reimbursed hospital expenses, prescribed drugs pharmacy costs and certain tuition fees to the extent that this is possible using information from appropriate third parties. Tax relief due on medical insurance paid by employers that has been subject to benefit-in-kind taxation will be automatically included in the employee tax credit. Work will be progressed on applying similar procedures in due course to nursing home and other medical expenses that qualify for tax relief.

Threshold for Tax Clearance Certificates

The transaction threshold which triggers the requirement for a tax clearance certificate for the award of a public sector contract or grant is being increased from the current €6,500 to €10,000, with effect from 1 January 2007. The new threshold will be provided for in Department of Finance circulars to be issued shortly. The circulars will also set out updated procedures for the operation of the tax clearance system.

Employee PRSI annual ceiling

As from 1 January 2007, the PRSI contribution ceiling will increase from €46,600 to €48,800.

Employee PRSI weekly threshold

As from 1 January 2007, the employee weekly threshold for liability to PRSI will increase from €300 to €339.

Tobacco Excise

The Excise Duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT) with a pro-rata increase on the other tobacco products, with effect from midnight on 6 December 2006.

Reduction in Excise Duty for Home Heating Oils (Kerosene & LPG)

The Excise Duty on Kerosene is being reduced from €16 per 1,000 litres to zero. The Excise Duty on LPG is being reduced from €10 per 1,000 litres to zero. These reductions are effective from 1 January, 2007. This follows through on the commitment in last year’s Budget when these rates were halved.

Introduction of a VRT Relief for Electric Cars

A VRT relief of 50% for electric cars – cars which can be propelled solely by a rechargeable battery – is being introduced on a pilot one year basis, with effect from 1 January, 2007.

Vehicle Registration Tax (VRT) - Public Consultation

It is planned to change the current VRT system to take greater account of environmental issues, in particular Carbon Dioxide (CO2) emissions. A public consultation will be undertaken in this regard with a view to making such a move with effect from a target date of 1 January 2008. Submissions are invited from interested parties by 1 March 2007.

Submissions are also being invited from interested parties, by 1 March 2007, in relation to the rebalancing of annual motor tax to provide an incentive for the motoring public to drive cleaner cars and to impose penalties in respect of cars with higher (CO2) emission levels.

VAT Registration Thresholds for SMEs

The VAT registration thresholds for small businesses are being increased from €27,500 to €35,000 in the case of services, and from €55,000 to €70,000 in the case of goods. These increases will take effect from 1 March 2007. This will reduce the administrative burden for small businesses and the Revenue authorities. It could remove some 8,000 companies from the VAT net.

VAT Cash Accounting Threshold

The annual VAT cash accounting threshold for small firms is being increased from €635,000 to €1,000,000 with effect from 1 March 2007. This will simplify administration and reduce working capital requirements.

Less Frequent VAT Returns for Small Businesses

The frequency of VAT payments, currently six per year, for smaller businesses is being reduced with effect from July 2007. For businesses with a yearly liability of €3,000 or less, the option of filing returns on a half-yearly basis will be available. For businesses with a yearly liability between €3,001 and €14,400, the option of filing returns every four months will be available. This will reduce compliance costs for the firms in question.

VAT Relief for Conferences

A specific measure which will allow deductibility of VAT on conference-related accommodation expenses will be introduced during 2007.

Reduction of VAT rate on Child Car Seats

The VAT rate on child car seats will be reduced from 21% to 13.5% with effect from 1 May 2007. The option of cutting the rate to zero is not permitted under EU Law.

Review of VAT on Property Transactions - Public Consultation

The Revenue Commissioners, over the last two years, have carried out a review of the current system of applying VAT on property transactions. The review recommends significant changes to the system. The complexity of this area of taxation needs to be addressed, but given its importance, it is planned to engage in a wide consultation process with interested parties before deciding on any changes which might appropriately be implemented in the 2008 Finance Act.

Farmers’ VAT Flat-rate Addition

The farmers’ VAT flat-rate addition is being increased from 4.8% to 5.2% with effect from 1 January 2007. The flat-rate is designed to recoup non-VAT registered farmers for the VAT they incur on their inputs.

Livestock VAT Rate

The rate of VAT charged by registered farmers and other businesses on the supply of livestock, live greyhounds and the hire of horses remains unchanged at 4.8%.

Farmer Stock Relief

The existing general 25 per cent stock relief for farmers and the special incentive stock relief of 100 per cent for certain young trained farmers are being extended from 1 January 2007 for a further two years subject to clearance with the European Commission under State aid rules.

Leased Land Exemption

Certain tax exemptions apply for income derived from certain leases of farmland. From 1 January 2007, a new exemption of €20,000 per annum will be introduced for leases of 10 years or more duration. This measure is subject to clearance with the European Commission under State aid rules.

Scheme of Capital Allowances for Milk Quota

The scheme of capital allowances for milk quota is being amended to ensure this relief is available for quota purchased underthenew Milk Quota Trading System.

Extension of Stamp Duty Relief for Farm Consolidation

Stamp duty relief for exchanges of farmland between two farmers for the purposes of consolidating each farmer’s holdings was introduced on 1 July 2005 for a period of two years. The relief is being extended for a further two years to 30 June 2009. The relief will also be extended to qualifying exchanges of land where only one farmer is consolidating his/her holding. In such cases both farmers can qualify for relief, provided both farmers meet all other conditions of the relief. These changes will be included in the 2007 Finance Bill. However, commencement of these changes will be dependent on State Aid approval from the European Commission.

Changes to the Stamp Duty Relief for Young Trained Farmers

Stamp duty relief is available for farmers acquiring land, who are aged under 35 and have specific agricultural training. Amendments are now being made to the education criteria and refunds procedure in this relief. Firstly, the FETAC Level 6 Advanced Certificate in Agriculture will become the new minimum education requirement from 31 March 2008; secondly, the qualifying third-level course titles are being updated; and finally, the refunds procedure is being simplified. The changes being made to the refunds procedure are as follows:

the time limit within which young trained farmers can complete their education following the transfer is being extended from 3 to 4 years,
the current requirement for specific minimum education attainments at the date of transfer is being abolished,
the requirement that the refund claim be made within 6 months of qualification is also being abolished, and
the 5 year period during which a young trained farmer is required to retain and farm the land will commence from the date of the claim for refund.

These changes will be included in the 2007 Finance Bill.

Capital Gains Tax Retirement Relief – Disposals of Leased Land

An exemption from CGT applies in the case of individuals aged 55 and over who dispose of qualifying business or farming assets. In order for a farming asset to qualify under the relief it must have been owned and used for farming purposes for at least ten years prior to disposal. The relief is now being extended, in certain circumstances, to disposals of land where the land had been leased prior to disposal. In order for such disposals to qualify under the relief, the following three conditions must be met: (a) the land in question must have been leased for no longer than 5 years prior to disposal, (b) the land must have been owned and used by the farmer for ten years prior to the initial letting of the land and (c) the land must be disposed of to the person who was leasing the land. These changes will be included in the 2007 Finance Bill.

Capital Acquisitions Tax Agricultural Relief – Off-farm Principal Private Residences

CAT agricultural relief provides relief from CAT on 90% of the value of a gift or inheritance. In order to qualify for the relief, 80% of a farmer’s total assets (after receipt of the gift/inheritance) must consist of qualifying agricultural assets. Off-farm principal private residences are not considered such assets for the purposes of this relief. This provision is now being amended so that an individual may off-set borrowings on an off-farm principal private residence against the property’s value, for the purpose of the 80% test. These changes will be included in the 2007 Finance Bill.

Increase in Threshold for CGT Retirement Relief

An exemption from CGT applies in the case of individuals aged 55 and over who dispose of qualifying business or farming assets subject to certain conditions. Disposals made to a child or favourite niece/nephew are relieved in full. All other disposals are relieved up to the threshold of €500,000. This threshold is being increased from €500,000 to €750,000 from 1 January 2007.

Tax Credit scheme for Research and Development Expenditure

The base year expenditure against which qualifying incremental expenditure on research and development (R& D) is measured under the tax credit scheme is being fixed at 2003 for a further 3 years to 2009. This will provide an additional incentive for increased expenditure on R& D in 2007, 2008 and 2009. The 2003 base year had originally been fixed for the first three years of the scheme (2004 to 2006) and was due to roll forward to 2004 for the purpose of calculating the 20% tax credit for 2007.

From 1 January 2007, expenditure by companies on sub-contracting R& D work to unconnected parties will qualify under the tax credit scheme up to a limit of 10% of qualifying R& D expenditure in any one year. This is in addition to the existing provision in the scheme in relation to subcontracting to universities.

It will be necessary to inform the European Commission about these changes from a state aid perspective.

Preliminary Tax payment arrangements for Corporation Tax

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 €50,000 to €150,000. This will be effective from preliminary taxpayment dates arising after 6 December 2006.

New or start-up companies with a corporation tax liability of €150,000 or less for their first accounting period will not be required to pay preliminary tax in respect of that first accounting period and will instead be required to pay their final corporation tax liability for that accounting period at the same time as they are required to submit their tax returns (9 months after the end of the accounting period). This measure will come into effect from preliminary tax payment dates arising after 6 December 2006.

Stamp Duty on Mortgage Deeds

Mortgage deeds, as with many legal documents, are liable to stamp duty (this is a separate stamp duty from that which is applied to the conveyance of property). Primary mortgages are currently exempt up to the value of €254,000, and those at higher values are subject to stamp duty of 0.1% subject to a maximum duty of €630 whether in respect of residential or non-residential property. The duty currently applied to collateral or additional mortgages is generally a €12.50 fixed duty and in the case of equitable mortgages and transfers of mortgages, generally 0.05%, subject to a maximum of €630. The stamp duty head of charge for mortgages is being abolished for mortgage deeds executed on or after 7 December 2006.

New Stamp Duty Relief for Stock Exchange Members

It is proposed to consider the introduction, in the context of the Finance Bill 2007, of a new stamp duty relief for members of stock exchanges which would consolidate and replace existing reliefs. The new relief for these stock market intermediaries will better reflect modern share dealing practices. The details of this relief will be outlined in the Finance Bill.

New Stamp Duty Exemption for Sporting Bodies

A new exemption from stamp duty is being introduced for those sporting bodies covered by Section 235 of the Taxes Consolidation Act 1997, which are already entitled to relief from income tax and capital gains tax, subject to certain conditions. The exemption will relate to purchases of land for the purposes of promoting games or sports. The provisions of the exemption will be included in the Finance Bill 2007.

Capital Allowances (and Expenses) for Business Cars

The car value threshold for business cars is being increased from €23,000 to €24,000. The new threshold will apply to capital allowances and leasing charges for new and second-hand cars used in the course of a trade, profession or employment.

In the case of corporation tax, the new threshold will apply for expenditure incurred in an accounting period ending on or after 1 January 2007. In the case of income tax, the new threshold will apply for expenditure incurred in the basis period for the tax year 2007 and subsequent tax years.

Corporate Tax Relief for Investment in Renewable Energy Generation

The qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects is being extended from 31 December 2006 to 31 December 2011. The extension is subject to clearance by the European Commission from a State aid perspective, and will come into operation by way of a Commencement Order to be made by the Minister for Finance following such clearance.