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Budget 2012 Update

Our latest TaxFlash reminds us all of the tax changes introduced in the 2012 Budget which came into effect from 1 January 2012. These range from the welcome (the amendments to the R & D tax credit) to the more contentious (the household charge).

As ever, our tax team is available to assist you with any queries you may have.

Personal Tax

Universal Social Charge
From 1 January 2012, the USC exemption level will be raised from €4,004 to €10,036. The Revenue will also collect the USC on a cumulative basis in 2012. This should reduce the risk of over or under payment of the USC.

Mortgage Interest Relief

• The rate of mortgage interest relief will be increased to 30% for first time buyers who took out their first mortgage between 2004 and 2008.
• Mortgage interest relief will be at 25% for other first time buyers in 2012 and at 15% for non – first time buyers.
• Mortgage interest relief will no longer be available to house purchasers who purchase a property after the end of 2012 and will be fully abolished from 2018.

Approved Retirement Funds
From 2012 onwards ARFs annual imputed distribution will be increased from 5% to 6% in respect of ARFs with asset values in excess of €2 million (or, where an individual owns more than one ARF, where the aggregate value of the assets in those ARFs exceeds €2 million). The increase will apply in respect of asset values in affected ARFs at 31 December 2012 and future years.

Section 23-type Reliefs and Accelerated Capital Allowances
A surcharge will be introduced for individuals with annual gross incomes over €100,000 with effect from 1 January 2012. The surcharge of 5% will apply on the amount of income sheltered by property reliefs in a given year.  It is unclear as to the details of the operation of this surcharge but the upcoming Finance Act will provide this information.

Tax on Savings
Deposit Interest Retention Tax and Exit Taxes on Life Assurance Policies and Investment Funds will be increased by 3% to 30% for payments made annually or more frequently and to 33% for payments made less frequently than annually. The increased rate will apply to payments, including deemed payments, made on or after 1 January 2012.

Household Charge
The Household Charge is an annual charge introduced by the Local Government (Household Charge) Act 2011which is payable by owners of residential property. It is a matter for owners of residential property to register and pay the household charge.

The Charge
The household charge of €100 is payable from 1 January 2012 and subject to a limited number of exemptions and waivers, must be paid by 31st of March 2012.  It is levied on each residential unit, regardless of whether or not the owner is occupying the unit. It applies to non principal private residences subject to the NPPR levy e.g. holiday homes.  Where a house is converted into flats or bedsits, the household charge will apply to each flat or bedsit.

How to Pay
An online system - www.householdcharge.ie - is in place to enable home owners to pay the household charge by credit card/debit card.   In addition, home owners can make the payment by cheque, postal order, etc through the post to the Local Government Management Agency who operate a bureau and administers the charge on a shared service/agency basis for all local authorities.  Payment will also be accepted in the offices of your County/City Council.

Direct Debit Option
Where a person opts to pay the household charge in instalments, the Direct Debit Mandate must be set up by 1st of March 2012. The household charge can be paid in four instalments of €25 by direct debit.

Dates for 2012 are as follows:

• Instalment number 1:    13th March 2012
• Instalment number 2:    14th May 2012
• Instalment number 3:    13th July 2012
• Instalment number 4:    10th September 2012

Late Payments
An owner of a residential property who does not pay a household charge or an instalment thereof by the due date will be subject to late payment fees and late payment interest. The late payment fee to apply in the case of a household charge paid:

• not later than 6 months after the due date, is 10% of the amount outstanding;
• later than 6 months and not later than 12 months after the due date, is 20 % of the amount outstanding; or
• later than 12 months after the due date, is 30 % of the amount outstanding.

In addition, late payment interest of 1% per month or part thereof will apply to unpaid amounts.

Indirect Taxes

VAT
The standard VAT rate was raised to 23% with effect from 1 January 2012.  Therefore, invoices raised from now on, must include the increased VAT rate, where appropriate.

Where services were provided prior to 1 January 2012 and invoices are being raised post 1 January 2012, the following VAT rates will apply:

• services to VAT registered businesses - the rate in force at the date of the invoice.  
• sales to private individuals or other non-registered persons - the rate in force at the time of the supply.

This treatment applies to traders operating the “invoice basis” of accounting for VAT.  Where traders using the “cash receipts” basis, the 21% rate will apply to supplies provided before 2012 and 23% will apply to supplies from 1 January 2012.

Motor Tax
Motor tax rates have been increased across the board with reference to both CO2 bands for cars registered after 1 July 2008 and engine size. The average increase based on engine size is 7.5%. The increases for the lower bands of the tax based on CO2 emissions ranges between 9 and 50%. CO2 bands (for cars registered post 1 July 2008):