Taxation Changes – Budget 2017

October 28th, 2015 - Pat Breen

TAXATION

• Under the Tax Credit system, Tax payable = Gross Tax Liability minus Tax Credits. Gross tax liability is calculated on your total income (after deduction of superannuation and permanent health benefit) by applying 20% to income up to your standard rate cut-off point and 40% on the remainder. The cut-off points in 2017 will be:
Standard Rate Cut-off Income 2017
Weekly 12 Month Value
Single/Widowed e650.00 e33,800
Single Person Child Carer e726.92 e37,800
Married (one income) e823.08 e42,800
Married (two incomes) e1,300.00 e67,600

If you rent rooms in your own home for less than e14,000 gross, this will be exempt from income tax and USC, provided the tenant is not your own child, and the rent is not being paid by your employer to facilitate, for example, clients using the room in your home. Short term rentals are also excluded.
If you care for up to 3 children in your home and receive less than e15,000, this income will be exempt from tax but a minimum e500 Social Insurance is payable. If you exceed these amounts, the exemption is lost and the whole lot is taxed. You must be registered as a self-employed person.

• Your Tax Certificate will show the annual value of all your Tax Credits and the equivalent weekly or monthly amount which are subtracted from this gross liability to yield the tax payable:
Tax Credits 2017
Single Person e1,650 Self-Employed e950
Married Couple e3,300 Age Tax Credit (per individual) e245
Widowed (no children) e2,190 Incapacitated Child e3,300
Single Person Child Carer e1,650 Home Carer’s Tax Credit e1,100
PAYE Credit (per individual) e1,650 Dependent Relative e70

— The Home Carer’s Tax Credit is available to a spouse in a one-earner family who is caring in the home for a child who is eligible for Child Benefit, or for an aged or disabled person. You must apply for this allowance.

The home carer is allowed to have up to e7,200 income of their own, thereafter the credit is reduced, reaching zero if income exceeds e9,200.

Carer’s Allowance is not counted as income in this means test, nor is income from childminding under e15,000.

— Single Person Child Carer Credit applies to a single or widowed person if you are the principal carer of a child aged under 18, over 18 in full-time education, or permanently incapacitated.

— Dependent Relative Credit is claimable if you support a widowed mother or incapacitated relative whose income does not exceed the contributory OAP.

— A parent with dependent children who is widowed gets an additional tax credit in each of the 5 subsequent tax years of e3,600, e3,150, e2,700, e2,250 and e1,800 respectively.

Tax credits which are unused are not refundable. They will be carried forward from week to week during a tax year, but if unused after the end of the tax year, they are lost.

• Age Exemption: Persons aged 65 or over are exempt from income tax if their gross incomes from all sources is under e18,000 (single), e36,000 (married).

• An Incapacitated Person, or one or more of their family, can deduct up to e75,000 from their taxable income to employ a home carer.

• Certain expenses carry a 20% Tax Credit:

All unreimbursed Medical Expenses (excluding Nursing Home expenses which are allowed at your marginal rate);
Maternity care; a Psychological Assessment and Speech Therapy for children. You can also claim for the medical expenses
of a close relative or any incapacitated or elderly person regardless of their means. Routine Dental or Optical Care don’t qualify.
• Health Insurance This relief is now granted at source and deducted from your premium by the insurer. Relief is confined to the
first e1,000 per adult, e500 per child.
• Insurance to cover long-term care costs in the event of serious disability, and to cover non-routine dental costs.
• Mortgage Relief for those who purchased their homes before 31 December 2012 will continue to be available until 2020.
• College Fees (including Tuition Fee and Student Contribution) of up to e7,000 for each student for full or part-time undergraduate or postgraduate courses in accredited courses. However, the first €3,000 of a claim is disregarded (i.e. for parents paying only the Student Contribution of e3,000 per student, relief only applies for the second and subsequent child in college).
• Course Fees between e315 and e1,270 per course for foreign language or ICT courses (approved by SOLAS).
Employer provided childcare is subject to income tax as Benefit in Kind.
• A Universal Social Charge applies to gross income from whatever source (excluding only Social Welfare Payments) and without
deduction of pension contributions. USC rates were reduced in Budget 2017 and are now:
— 0.5% up to e12,012
— 2.5% on the next e6,760
— 5% on the next e51,272
— 8% on the remainder
An exemption applies to persons whose total income is under €13,000. The self-employed pay 11% on income over €100,000.
Persons aged 70 or over and Medical Card holders whose aggregate income does not exceed €60,000 pay a maximum 2.5%.
• Pay Related Social Insurance (PRSI) applies to gross income (with no deduction for pension contributions) of workers and the self-
employed aged 16-66. A single rate of 4% now applies to both categories with no ceiling. Public servants on the modified rate
pay 4% on their income in excess of €75,036. All workers are exempt from Social Insurance if they earn less than €352 per week. Between e352 and e424 tapered relief applies. The minimum contribution by a self-employed person is €500 per year. From 2014 PRSI applies to unearned income of persons who are required to make a tax return. Insignificant income (e.g. bank interest) of a PAYE tax payer is not affected.
• Pensions: A certain portion of gross earnings under €115,000 can be put into a pension tax free. It is up to 15% (under 30 years)
rising in steps to 40% (60 years or over), allowable at your top rate of tax. However, a ceiling of €2 million applies to the total value of a person’s pension plan. Any benefit that accrues over that value will have a 40% retention charge, before ordinary tax is applied to the balance.
• DIRT Tax: A single retention tax of 39% applies to interest earned on ordinary deposit accounts, investment accounts and all Credit Union accounts. It is planned to reduce this to 33% over the next 4 years. Persons who are 65 and over, or permanently incapacitated, can, if your total income is not sufficient to make you taxable, notify your bank and receive the interest without deduction of DIRT. From 14 Oct 2014 until end 2017, First Time Buyers can get a refund of up to 48 months of DIRT on savings to make up a deposit of up to 20% on the purchase of a home.
• Local Property Tax is chargeable to the owner of a residential property at a rate of 0.18% of the market value on 1 May 2013 as fairly assessed by that owner (a higher 0.25% applies to the excess over €1 million). This valuation will not change before 1 November 2019. For 2017 the Dublin Councils reduced the tax due under this calculation by 15%. LPT Exemptions include:
• Houses with significant pyrite damage.
• Vacant Houses, where the occupant can no longer live alone due to long-term infirmity.
An owner may defer the entire payment:
• For an indefinite period where gross income does not exceed €15,000 (single) or €25,000 (couple).
• Up to 2017 where gross incomes less 80% mortgage interest falls below €15,000 (single) or €25,000 (couple) and may
defer half the payment under these tests up to €25,000 (single), €35,000 (couple). Interest of 4% of the deferred tax will be added each year to be recovered from the sale/transfer of the property.
• Home Renovation Incentive: An income tax credit of 13.5% applies to home renovations up to a maximum expenditure of €30,000 (before VAT) undertaken before 31 December 2018 and will be refunded over the two years following the year in which the works are carried out. To qualify, at least €5,000 (inclusive of VAT) must be spent. Both homeowners and landlords can avail of this credit. The tax credit is only available where Local Property Tax and Household Charge are up to date.
• Capital Acquisitions Tax: Gifts or inheritance bear a 33% tax on the market value of the assets received in excess
of certain thresholds, which vary according to your relationship with the giver – €310,000 for a Son/Daughter;
€32,500 Grandchild/Brother/Sister/Niece/Nephew/Parent; €16,250 all others.