Budget 2021: Summary and Key Changes

Budget 2021 was announced in the context of a global pandemic and the increasing possibility of a hard Brexit. The total budget package announced in the Budget was €17.75bn, making it the largest budget package in the history of the State. With €14.6bn of the total package already pre-committed to spending arising from Covid-19 supports and policy decisions taken in previous years, there was little scope for tax cuts and changes to reliefs. 

There were no meaningful changes to income tax rates or bands, pension rules, capital tax rates, business tax rates or pensions.  While it is disappointing that some opportunities to reduce the burden for tax payers were missed, it is however welcomed that there was not a return to the fiscal austerity budgets of previous years. The Finance Bill (to be published on Thursday, 22nd October) will outline further details.

We welcome the measures which the government introduced to support the Small Medium Enterprise (SME) Sector in both the stimulus measures introduced in July and the Budget measures introduced yesterday.  

The stimulus measures which were introduced in July provided an unprecedented level of support to the sector. These included: 

• An Employment Wage Support Scheme to run into 2021  (a commitment was given in the Budget to replace it with a similar scheme when the current scheme ends in March 2021); 
• Further restart grants for enterprises; 
• The commercial rates waiver (extended in the Budget to include Q4); and
• A €2 billion Covid-19 Credit Guarantee Scheme.  

In recognition that the SME community will be central to the broader national recovery, Minister Donohue announced further levels of support for this sector including: 

• A technical amendment to the ordinary shareholding requirement of entrepreneur relief was announced, so that an individual who has owned at least 5% of the shares for a continuous period of any three years qualifies for this relief. Previously, a person had to own at least 5% for a continuous period of three years in the five years immediately prior to the disposal. The individual will still be required to work in the business for three out of the five years before disposal. 
• Introduction of a new scheme (Covid Restrictions Support Scheme) to provide targeted support for certain businesses whose trade has been significantly impacted or temporarily closed as a result of restrictions imposed under the Living with Covid Framework. The government will make a payment, based on their 2019 average weekly turnover, to provide support at a difficult time and subject to a maximum weekly payment of €5,000.  
• The extension of the tax warehousing scheme to include repayments of Temporary Wage Subsidy Scheme funds owed by employer and preliminary tax obligations for the adversely affected self-employed.
• A reduction in the VAT rate for the hospitality and tourism sector from 13.5% to 9% with effect from 1st November 2020. The reduction will run until December 2021.
• An assessment of how the Employment and Investment Incentive Scheme can be enhanced in light of the impact of the current crisis. 

Ireland has one of the highest Capital Gains Tax (CGT) rates of EU countries and we feel that the rate of CGT can influence investment behaviour and economic activity.  

In this context, there had been some suggestions that Budget 2021 could include a temporary reduction in the rate of CGT to promote economic activity and investment. It is disappointing that this opportunity was missed as this could potentially prompt an increase in transactions leading to more economic activity and potentially increasing the CGT yield. 

There were no changes to Fund Exit Tax which again is disappointing as the disparity between this tax and Deposit Interest Retention Tax (DIRT) increases.  Of course, given the fact that clients are not receiving any deposit interest rate and are increasingly being charged negative interest, the rate of DIRT is largely irrelevant.     

A technical anti-avoidance measure was introduced in relation to the tax treatment of gains or losses from currency speculation when funds are moved between bank accounts.  

Succession planning continues to be a key area of interest for our clients and the Budget did not offer anything in this regard with the CAT rate and all three relationship thresholds (Category A, Category B, and Category C) remaining the same.  

There were no updates to pensions in the Minister’s speech. There were no references to the tax treatment of pension benefits or reliefs. The earnings limit of €115,000 and age percentage for calculating tax relieved personal pension contributions, the Standard Fund Threshold (SFT) of €2 million and other tax reliefs for pension contributions appear to remain intact.  

It is worth noting that the Programme for Government 2020 stated that a Commission for Pensions will be set up to examine sustainability and eligibility issues with State pensions and the Social Insurance Fund.  Until the report of this Commission has been completed and the government has decided on its recommendations, the State pension age will remain at 66 and the proposed increase to 67 will be deferred. 

Another issue which is on our radar, is the introduction of an auto-enrolment scheme which was mentioned in the Programme for Government. This would mean that employees would be automatically enrolled in a pension when they start a job and employers would be compelled to make pension contributions for all their employees. However this does not appear to be currently a priority as thankfully there appears to be little appetite to impose another burden on employers, given the exceptional strain that they are now under.  

Summary 

We await the Finance Bill and Finance Act to determine the full impact of Budget 2021. We believe that the key to delivering the most appropriate financial planning solution to our clients is by gaining a deep understanding of their individual circumstances , including the potential impact of taxation on them and their financial goals. Our dedicated team will work to identify what really matters to each individual client. We then formulate a bespoke plan for each client and set an investment strategy designed to meet those goals.