NRP - The Personal Impact
We have set out below the implications of The National Recovery Plan 2011 - 2014 for taxpayers on a personal level.
We would start by cautioning against the skewed view put forward by the banner headlines of the newspapers. Yes there will be a rowing back of credits and standard rate bands and yes, the adjustment is front loaded in 2011 but net incomes will not be down €4,600 on 1 January 2011 as the representations in the daily newspapers suggests.
The government have clearly stated that the plan will be phased in over the next four years. That being said, 2/3rds of the adjustment is pencilled in to take place in 2011. The exact details of which are to be released in Budget 2010 on 7 December next. Please follow the click through link below for more information.
Income Tax Changes:
65% of adjustments to be made in 2011.
Rates and Rate Bands:
The Government have intimated that there will be no change to the marginal rates of tax and levies. This will mean that a “high earner” (somebody who pays tax at full marginal rates) taxed under the PAYE system will pay tax at 52% (41% income tax, 5% health levy and 6% income levy). A self employed high earner will pay tax at 55% (as above but with PRSI of 3%).
In order to raise the necessary revenues the Government intends to widen the tax base by decreasing the entry point for the payment of income tax by €3,000 by 2014 to €15,300 and reducing the threshold for payment of tax at the marginal rate back to €32,000 (2006 levels) by 2014. This will mean that an increased amount of your income will be subject to tax at the marginal rate. Please see below for the indicative calculation.
The age exemption for income tax will also be phased out over the period of the Plan.
Tax Credits:
Tax credits will also be pared back to 2006 levels over the period of the plan. This will mean that the current basic personal credit of €1,830 will be reduced to the 2006 level of €1,630 for a single person (married couples are entitled to two single credits).
The trade union subscription tax credit is to be abolished in 2011 with the rent tax credit for private residential accommodation being phased out over the period to 2017. The age tax credit will also be phased out over the four year period.
Universal Social Charge:
This was first alluded to in the 2010 Budget and while there were no details in the Plan, it indicates the Government’s commitment to the unification of PRSI, Health Levy and the Income Levy under a single charge known as the Universal Social Charge. Details on this are expected in the Budget on 7 December.
Tax Reliefs and Shelter Schemes:
Pensions:
The Government have finally heeded advice from the Commission on Taxation in relation to standard rating the tax relief allowable on pension contributions. There will be a phased approach to the reduction with the earnings cap immediately reduced to €115,000 and the tax relief available reduced to 34% for 2012, 27% for 2013 and 20% in 2014. Obviously this represents a significant incentive to place the maximum amount into your pension in 2010 and 2011. The maximum amounts contributable for 2011 are age dependent as follows:
• Up to age 29: €115,000 @ 15% = €17,250
• Age 30 - 39: €115,000 @ 20% = €23,000
• Age 40 - 49: €115,000 @ 25% = €28,750
• Age 50 - 54: €115,000 @ 30% = €34,500
• Age 55 -59: €115,000 @ 35% = €40,250
• Age 60+ : €115,000 @ 40% = €46,000
In
addition to the reduction in earnings cap, PRSI and Health Levy relief
for employee pension contributions has also been abolished for 2011.
Patent Royalties:
The
tax exemption for patent royalty income is to be abolished in 2011.
This will mean that income from this source will be taxable in full for
the recipient. Careful planning will be required surrounding possible
asset transfers to companies to mitigate the impact of the abolition of
this relief.
Approved Share Option Schemes:
Both
employers and employees will be affected by the abolition of this
relief. This measure is mentioned almost as an afterthought at the end
of the income tax section of the Plan. The logistics of eliminating
such a relief appear to be quite complex and we are expecting that a
significant portion of the legislation of the upcoming Budget will be
devoted to this area.
Calculations:
The Plan will have the following effect on individuals for 2011
