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IRISH TAXATION 2006 and 2005
   

Click for Finfacts Tax Guide 2007

MAIN PERSONAL TAX CREDITS
 
 

2005
EURO

2006
EURO
Personal Tax Credit    
Single Person 1,580 1,630
Married Couple/Single Parent

3,160

3,260
Widow(er) with dependent child (1)

3,040

3,260
Widow(er) without dependent child

1,980

2130
Employee (PAYE) (2)

1,270

1,490
Incapacitated Child 1,000 1,500
     
(1) Additional credits due for Widow(er) with dependent children for first 5 years after bereavement    
(2) Not available to proprietory Directors and the self employed    
   
Age Credit    
Single/Widowed Person

205

250
Married

410

500
     
Blind Persons Credit    
Married (both spouses blind)

2,000

3,000
Single or married (one spouse blind)

1,000

1,500
     
Home Loans – Standard Rate    
*First-Time Buyer    
Single Max

800

800
Married Max

1,600

1,600
Widow(er) Max

1,600

1,600
* Now available for 7 years, previously 5 years    
     
Non-First Time Buyer    
Single Max

508

508
Married Max

1,016

1,016
Widow(er) Max

1,016

1,016
     
Rent Relief    
Under 55 - Single 300 330
Under 55 - Married/Widow(er) 600 660
Over 55 - Single 600 660
Over 55 - Married/Widow(er) 1,200 1,320
     
One income Family Credit    
Spouse caring for children, the aged or handicapped 770 770
     
Dependent Relative 60 80
     
Childcare Measures

The Minister for Finance has introduced :

  • a new childcare supplement for children under the age of six 

  • an increase in Maternity Benefit and extension to Maternity  Leave

  •  measures to increase the supply of childcare places.

In addition child benefit has been increased by €8.40 per month for each of the first and second qualifying children (to €150 per month) and by €7.70 per month for each of the third and subsequent qualifying children (to €185 per month).

The new rates are effective from April 2006.

This will be an additional new payment separate from the existing Child Benefit scheme. This new Early Childcare Supplement and the existing Child Benefit will bring the amount a family will receive next year, for each of the first two children under six years, to €2,800 per year, equivalent to over €50 per week in direct financial support.

Childminding relief

A new childminding relief is being introduced. Where an individual minds up to three children in the minder’s own home, no tax will be payable on the childminding earnings received, provided the amount is less than €10,000 per annum. Following the “Rent-a-Room” scheme model, if childminding income exceeds this, the total amount will be taxable, as normal, under self-assessment. An individual will be obliged to return their childminding income in their annual tax return and also to notify their County Childcare Committee that    they are providing a childminding service. Full details of the scheme will be set out in the Finance Bill.

All parents of children under the age of 6, regardless of their employment status. are entitled to a  direct payment of  €1,000 per year for each child (payable in quarterly instalments).

The first payment, covering the second quarter of 2006, will be    made in mid-2006. 

 

 

 

 

€10,000 per annum

   
INCOME TAX RATES Return to top
   

Single & Widowed Persons: No Dependent Children

2005
EURO

2004
EURO
20% on first 29,400 32,000
42% on balance    
     
Single & Widowed Persons: Dependent Children    
20% on first 33,400 46,000
42% on balance    
     
Married Couples: One Income    
20% on first 38,400 41,000
42% on balance    
     
Married Couples: Two Incomes*    
20% on first 58,800 64,000
42% on balance    
     
* Excess over Euro 41,000 non transferable between spouses    
     
Tax Allowance    
Cost of employing carer for incapacitated individual allowed at marginal rate of tax 30,000 50,000
   
BENEFIT-IN-KIND Return to top

Cars
Cash equivalent – 30% of original market value. BIK is calculated on 30% of the open market value of the car with a eduction for amounts borne by the employee in respect of the car costs.

The percentage which is now applied to the open market value of the company car will be determined based only on business mileage as follows:

Business Mileage  % of OMV
   
15,000 or less 30.0%
   
15,001-20,000 24.0%
   
20,001-25,000 18.0%
   
25,001-30,000 12.0%
   
Over 30,000 6%

Private Use of Employer Van

The charge to BIK for the private use of an employer’s van is calculated at 5% of the ‘original market value’ of the van with effect from 1 January 2004.

   
Preferential Loans  
   
Specified rate for home loans  3.5% 
Specified rate for other loans 11% 

From 1 January 2004 employers are obliged to operate PAYE on non cash benefits provided to employees. These benefits are also liable to PRSI and Health Levy.

The main areas of benefit involved are as follows:

• Company cars.

• Company loans.

• Tax paid vouchers.

• Expense payments on behalf of employees/directors.

Small Benefits in Kind

An employer can provide an employee with a small benefit to a value not exceeding €250 without applying PAYE and PRSI to that benefit.

   
PRSI Return to top
 
 

Contribution
Rate

Earnings
Ceiling 2005 Euro

Earnings
Ceiling 2006 Euro

Social Insurance      
Employer Class A1      
Employer Contribution (including training fund levy)    

10.75% (1)

No Ceiling

No Ceiling

Employee

Earning over Euro 356 per week or equivalent)  

Class A1
     
PRSI

(First Euro127 of weekly earnings exempt)

4%

44,180

46,600
Health Contribution

    2% (2)

No Ceiling

No Ceiling
Total for Employee

6%

   
 
Self Employed Contributions      
PRSI

   3%(3)

No Ceiling

No Ceiling
Health Contribution

    2% (2)

No Ceiling

No Ceiling
Total

5%

   
 
(1) 8.5% where weekly earnings are less than Euro 356
(2) Does not apply where aggregate earnings are less than Euro 22,880
(3) 3% subject to minimum payment of Euro 254
   
CORPORATION TAX Return to top
   
Standard Rate on Trading Income 12.5% from 1 January 2003
Investment/Rental Income 25%
Manufacturing Rate 10% (only for established qualifying companies)
Special rates apply to dealings in land  

The payment date for preliminary tax, which must be at least 90% of the final liability, has been brought forward, to one month before the end of the accounting period. Preliminary tax is based on the current year’s liability. However, small companies can base the preliminary tax payment on the previous year’s liability. 

A small company is a company with a Corporation Tax liability of less than €50,000 in the preceding year. The first instalment is due one month before the end of the accounting period as follows:

Accounting Periods Ending on or after % of current liability  % of previous year's liability (Small Company)*
1 January 2006 and after 90 100

The final balance of tax (10%) is payable nine months after the end of the accounting period.
   
CAPITAL GAINS TAX Return to top
 
Per Individual  
   
Annual exemption Euro 1,270
   
Rate 20%
   
Retirement Relief exemption limit Euro 500,000
The due date for payments of Capital Gains Tax for disposals of 1 January and 30 September is 31 October in the same tax year. Where the disposal is between 1 October and 31 December the due date for payment is 31 January in the following tax year.

Dave Fennell Tax Director of Ernst & Young, says that on 11November 2005, the Irish authorities entered into a protocol to the Ireland/ Portugal double taxation agreement.

The protocol primarily affects Irish Capital GainsTax (CGT) and is expected to take effect from 1 January 2006 (assuming the Portuguese authorities complete ratification formalities by the year end).

The Irish authorities sought the amendment following several high-profile media reports of Irish resident individuals moving to Portugal to avoid Irish CGTon the disposal of Irish shares.

The existing double taxation agreement provides that Portugal retains exclusive taxing rights on gains derived fromthe disposal of shares by Portuguese residents provided these shares are not held in companies whose assets consist principally of Irish property.

However, CGT is not normally payable in Portugal provided certain conditions are met, so the gain is effectively tax-free.

The protocol seeks to ensure that Ireland will retain taxing rights in certain circumstances.

These are where:

  • the gain arises on the disposal of shares in, securities of, or ‘debt claims’on, an Irish resident company and such gainis not subject to tax in Portugal; and 

  • the individual realising the gain was a resident of Ireland at any time during the three years immediately preceding the disposal; and

either

(i) the individual realising the gain has held, at any time, either alone or with his or her spouse or relations (by blood or marriage but otherwise not defined), directly or indirectly at least 5% of the issued share capital of a particular class of shares in that company; or

(ii) the value of the participation exceeds e500,000.

This amendment seeks to ensure that an individual cannot move to Portugal for the purpose of disposing of Irish shares shortly thereafter without incurring Irish CGT (currently imposed at 20%).

It complements existing antiavoidance measures that in certain circumstances apply an ‘exit charge’ to gains realised by individuals who are temporarily non-resident.

While the existing provision can apply if the taxpayer does not remain non-resident for at least five years before returning to Ireland, there are some doubts as to whether or not the measure is compatible with Irish international treaty obligations.

The protocol seeks to remove any doubts. Individuals contemplating a move to Portugal will need to consider their position carefully and perhaps explore possible alternatives.

The protocol also updates the existing taxing right over Irish immovable property. It will allow Ireland to tax gains realised by nonresidents on the disposal of unquoted shares or comparable interests if more than 50% of their value derives from immovable property situated in Ireland.

This seeks to put beyond doubt that Ireland can tax gains arising fromthe disposal of shares where the immovable property is held by a sub-subsidiary of the company whose shares were disposed of.

In a separate development the protocol clarifies that thenon-discrimination rules contained in the treaty cannot be used to prevent the application of (presumably Portuguese) thin-capitalisation provisions. 

   
CAPITAL ALLOWANCES Return to top
 
  Motor Vehicles(1) Plant & Machinery(1) Industrial Buildings Hotels(2)

 

  Year 1 – 8 Year 1 - 8  

Writing Down Allowance 12.5 % per annum 12.5 % per annum 4% per annum 4% p.a

Note 1
These allowances apply to expenditure incurred on or after 4 December 2002, except where a written contract is in place before that date and the expenditure is incurred by 31 January 2003.

Note 2
The special regime of capital allowances of 15% per annum over 7 years was terminated as and from 4 December 2002. Transitional provisions provide for the continued availability of the special regime where an application for planning permission in respect of building work has been made to the local authority on or before 31 December 2004 and the expenditure is incurred by 31 July 2006.

 
Motor Vehicles
Maximum allowable capital cost for new and second hand private cars, purchased on or after 1 January, 2006, is Euro 23,000.
   
PROPERTY INCENTIVES Return to top
 

Certain property based tax incentive schemes are to be discontinued:

Urban, Rural and Town Renewal Schemes, Multi Storey Car Parks, Student

Accommodation, Hotels and Holiday Cottages.

Transitional arrangements will apply to pipeline projects.

Relief for Park and Ride facilities and the Living Over the Shop Scheme will be reintroduced in a more focused way.

Tax relief for investment in Childcare Facilities, Private Hospitals and Private Nursing Homes are to be continued.

   
PENSIONS
Return to top
 
Contribution level deductible for tax purposes as follows:  
Age %
Up to 30 15
30 to 39 20
40 to 49 25
50 and Over 30

30% also applies to individuals with limited earnings span e.g. athletes, entertainers.

There is a cap of €254,000 per annum on the amount of earnings on which tax relief may be obtained for contributions by individuals to Retirement Annuity Contracts and Personal

Retirement Savings Account. This cap also applies for employee contributions to occupational pensions schemes. The contribution level limits will be adjusted annually from the tax year 2007 in line with an earnings index.

The budget introduced a maximum allowable pension fund limit of €5m or, if higher, thevalue of the fund on 7 December 2007, both sums will be adjusted annually from the tax year 2007 in line with an earnings index.

   
VAT Return to top
 
 
VAT Registration Thresholds:

Euro
Supply of taxable goods in Ireland.(1)

(90% of turnover must be from the sale goods for this threshold to apply)

51,000 (55,000 with effect from 1 May 2006)
Provision of taxable services in Ireland (1)

25,500 (27,500 with effect from 1 May 2006)

Note 1.
These thresholds do not apply to traders established outside Ireland who must register irrespective of turnover.

Note 2.
A registration threshold of EURO 41,000 also applies to certain persons acquiring goods in Ireland from other EU member states (other than new means of transport or goods subject to a duty of excise).

Note 3.
A registration threshold of EURO 35,000 applies in relation to "Distance Selling" – i.e. persons supplying certain goods to non-taxable persons in Ireland from other EU member states.
     
VAT rates:    

21%

This standard rate applies to all supplies not chargeable at other rates.

Examples - Cars, Petrol / Diesel, Telephone services, soft drinks and alcohol, computers and software, consultancy services.

13˝%

With effect from 1st January 2003  Examples - Heating fuel, electricity, restaurant services, newspapers, hotel and B&B lettings, property.

0%

  Examples - Exports, certain food and drink, oral human medicine, books, children's clothing and footwear.
4.8%   Examples - Livestock, live greyhounds , hire of horses and the "Flat Rate Addition" .
VAT Exempt Services   Examples - Financial, insurance, educational, training, medical, optical, and dental and passenger transport services.
   
GIFT/INHERITANCE TAX Return to top
 
  2005
Euro
2006
Euro
     
Threshold amount Nil Nil
Excess

20% for gifts and inheritances

20% for gifts and inheritances
Thresholds    
Parents to child or minor child of a deceased child/Child to parent* 456,438** 466,725
Blood relative 45,644** 46,673
Others 22,822** 23,336
     
* Applies only to inheritances taken on the date of death.
** Threshold amount for 2006 will be increased in line with inflation. The relevant details will not be available until January 2006.
No gift/inheritance tax is payable between spouses.

Annual gift exemption €3,000 per individual.

   
   
CAPITAL DUTY (with effect from 2/12/2004)                                0.5%
 
STAMP DUTY Return to top
 
       
Main Rates     %
       
Stocks & Shares     1
       
Land/Commercial Buildings/Goodwill      
       
Consideration      
Up to Euro 10,000     Exempt
Euro 10,001 - Euro 20,000     1%
Euro 20,001 - Euro 30,000     2%
Euro 30,001 - Euro 40,000     3%
Euro 40,001 - Euro 70,000     4%
Euro 70,001 - Euro 80,000     5%
Euro 80,001 - Euro 100,000     6%
Euro 100,001 - Euro 120,000     7%
Euro 120,001 - Euro 150,000     8%
Over Euro 150,000     9%
       
Residential Property

Consideration

  FirstTime Buyer Other Owner
Occupiers
Investors – New & Second hand Properties
Up to Euro 127,000   Exempt Exempt Exempt
Euro 127,001 – Euro 190,500   Exempt 3% 3%
Euro 190,501 – Euro 254,000   Exempt 4% 4%
Euro 254,001 – Euro 317,500   Exempt 5% 5%
Euro 317,501 – Euro 381,000   4.5% 6% 6%
Euro 381,001 – Euro 635,000   7.5% 7.5% 7.5%
Over Euro 635,001   9% 9% 9%
   
DEADLINES Return to top
 

Capital Gains Tax:
 
Disposals made between 1 January 2006 & 30 September 2006 31 October 2006
Disposals made between 1 October 2006 & 31 December 2006 31 January 2007
   
Income Tax:  
Preliminary Income Tax Payment for 2006 31 October 2006
Pay Balance of Tax for 2005 31 October 2006
File Personal Tax Return for 2005 31 October 2006
   
Corporation Tax:  
Company Tax Payments
90% due one month before year end (by the 21st day of that month).
3. Balance of tax to be paid within nine months of year end
Company Tax Returns Nine months after year end

RESTRICTION OF TAX RELIEFS FOR HIGH INCOME TAXPAYERS

Return to top
 

The 2006 Budget brought in restrictions on reliefs for high income taxpayers.

Ernst & Young says that the intended effect of this restriction is to ensure that the effective rate of income tax payable by such high income taxpayers is at least 20%.

From 1 January 2007, individuals with income in excess of €250,000 who have specified tax reliefs available to them will be restricted in the amount of tax relief they canclaimeach year.

The specified reliefs that a person will be able to apply against their taxable income will be restricted to 50% of their gross income in any one tax year.

Any excess reliefs will however be available for ‘carry-forward’ to the following and subsequent years, subject to the 50% income cap.

The specified reliefs will be identified in the Finance Bill 2006 and will include property based incentive reliefs in general and various other reliefs, including the exempt portion of an artist’s income.

Tapering relief will apply to those with a gross income between €250,000 and €500,000 so that the actual restriction for persons in this category will be less than 50% of gross income.

However, the actual amount which can be relieved will not exceed e250,000 until an individual’s income exceeds €500,000

The maximum relief for individuals with gross income in excess of €500,000 will be restricted to 50% of income.

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