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12th October, 2021
Budget 2022 was announced in the context of a continuing global pandemic and the reality of Brexit. The total budget package announced in the Budget was €4.7bn which is in line with the Summer Economic Statement and was not amended despite some indications of an improvement in public finances.
The budget package is split between expenditure measures worth €4.2bn and tax measures worth €500m, including revenue raising measures of approximately €230m. The Minister also announced the establishment of a contingency fund amounting to €4bn.
While it is disappointing that some opportunities to reduce the burden for taxpayers were missed, it is welcomed that there was not a return to the fiscal austerity budgets of previous years. The Finance Bill (to be published on Thursday 21st October) will outline further detail.
There was no change to the Capital Gains Tax (CGT) rate and Ireland continues to have one of the highest CGT rates of EU countries.
There was no change to Fund Exit Tax. The large gap between this tax and Deposit Interest Retention Tax (DIRT) remains. However, given that clients are increasingly being charged negative interest, the rate of DIRT is largely irrelevant.
As announced previously, Ireland will apply the new minimum effective corporation tax rate of 15 per cent. However, Ireland will continue to offer the 12.5 per cent rate for businesses with revenues less than €750m. This means that there will be no change in the tax rate for 160,000 businesses which employ 1.8m people.
Other measures announced include:
The total income tax package is worth €520m leaving little scope for any substantial changes:
It is the Government’s policy to facilitate and support remote working. Therefore, it was not surprising to see the introduction of an income tax deduction amounting to 30% of the cost of vouched expenses for broadband, electricity and heat in respect of those costs incurred while working from home.
Succession planning remains a key area of focus for our clients. As anticipated, the Budget did not offer anything in this regard. The CAT rate and all three relationship thresholds (Category A, Category B, and Category C) have remained the same.
Pensions emerged untouched in this year’s Budget. The tax treatment of pension benefits and reliefs remained unchanged. The earnings limit of €115,000 and age percentage for calculating tax relieved personal pension contributions, the Standard Fund Threshold (SFT) of €2m and other tax reliefs for pension contributions appear to remain intact.
As widely reported in the media recently, State expenditure on the State Pension is projected to increase significantly over time with an annual deficit in the Social Insurance Fund predicted to reach €2.3bn in 2030 and increase to €13.4bn by 2050 if nothing changes. The funding of the State pension is a key area of focus for the government. However no measures have been introduced to remediate this, nor was there any reference to the proposed introduction of an auto-enrolment scheme which was mentioned in a previous Programme for Government.
Separate to yesterday’s Budget, the Pension Commission released a report last week which recommended a number of measures in order to deal with the growing cost of State pensions:
The Pension Commission report is currently under review by the Tax and Welfare Commission who are due to report back next March 2022.
We await the Finance Bill and Finance Act to determine the full impact of Budget 2022. Irrespective of any specific tax changes our view remains the same. We believe that the key to delivering the most appropriate solution is to work with you to understand your individual circumstances and your financial goals, incorporating the potential impact of taxation to assist you in meeting your goals efficiently. In essence, our dedicated team will help you to formulate a personalised plan and investment strategy based on your unique needs and circumstances.
This article is based on our understanding of Budget 2022 as presented by the Minister for Finance, which is due to be implemented in the forthcoming Finance Act. Changes may be made by the Minister prior to implementation. This article is general in nature and is not intended to constitute tax, financial or legal advice. It does not take account of your financial situation or investment objectives. Prior to making any decisions which have tax, legal or other financial implications, you should seek independent professional advice.
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