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Budget 2022: Summary and Key Changes

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.

Budget Investment Tax

Investment tax changes

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.

Budget Investment Tax

Tax changes for business

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 weekly income threshold for the higher rate of employer’s PRSI increasing from €398 to €410 from 1 January 2022.
  • The employment wage subsidiary scheme remaining in place in a graduated form until 30 April 2022.
  • The extension of the Pandemic Unemployment Payment (“PUP”) until the end of January 2022.
  • The tax debt warehousing scheme will be expanded to allow self-assessed income taxpayers who have a material interest in their employer company to warehouse income tax liabilities relating to their Schedule E income from that employer company.
  • The commercial rates waiver was extended until 31 December 2021 for specific sectors including the hospitality, arts and tourism-related sectors.
  • The retention of the reduced VAT rate of 9 per cent for the hospitality sector to the end of August 2022.
  • The extension of the Employment and Investment Incentive Scheme (“EIIS”) for a further three years. The scheme will also be amended to make it more attractive to investors. This will ultimately benefit companies in their start-up years and the economy through job creation. These amendments include opening the scheme to a wider range of investment funds, removal of the 30 per cent expenditure rule and subject to certain conditions relaxing the rules around the “capital redemption window” for investors.
  • The Benefit in Kind exemption for battery electric vehicles was extended to 2025 with a tapering effect on the vehicle value.
  • The EU Alcohol Directive permits the granting of up to 50 per cent excise relief to independent small producers of cider and other fermented drinks products. In the light of this, the Minister requested that his officials engage with the sector to allow the implementation of this relief in next year’s Finance Bill.
  • The introduction of a new tax credit for the digital gaming sector. The relief will be available at a rate of 32% on eligible expenditure of up to a maximum limit of €25m per project.
Budget Personal Tax

Personal tax changes

The total income tax package is worth €520m leaving little scope for any substantial changes:

  • The standard rate band was increased by €1,500.
  • The personal, employee and earned income tax credits have each increased by €50.
  • The ceiling of the second USC rate band (currently €20,687) will be increased to €21,295.

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.

Budget Succession Planning

Sucession planning changes

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.

Budget Investment Tax

Pension changes

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:

  • Increase of State pension gradually to age 68 – raising to 67 in 2031 and would increase by three months every two years from 2033.
  • Increase rate of PRSI on self-employed contributors from 4% to 11% over the coming years.
  • Remove exemption from PRSI for over 65 year olds on their non-state income.

The Pension Commission report is currently under review by the Tax and Welfare Commission who are due to report back next March 2022.

Summary

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.

Request a call

If you want to discuss how budget 2022 may affect you, why not request a no-obligation call with one of our Advisers today?

Talk to us

Request a call

If you want to discuss how budget 2022 may affect you, why not request a no-obligation call with one of our Advisers today?

Talk to us

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