5 things to likely to affect your tax bills in Budget 2017

Earned Income Tax Credit

This tax credit was introduced in last years budget in an attempt by the Government to equalise the tax credits system for self employed individuals who were not able to avail of the PAYE tax credit, worth €1,650 per year, which is available to PAYE workers only.

Introduced on a phased basis last year it was worth €550 to the self employed in 2016 and indications are that Michael Noonan will increase this again further in 2017. The expectation is that it will be increased by a further €550 in 2017 to €1,100 with Budget 2018 bringing an additional €550 increase which will bring it in line with the existing PAYE tax credit.

Changes to Universal Social Charge

It has been heavily signposted in recent times that Minister Noonan is expected to cut the three lowest rates of USC by 0.5% each.

This will mean that in 2017 you will pay 0.5% on the first €12,012 you earn, 2.5% on the next €6,656 with a rate of 5% applying to any income over €18,668 up to €70,044.

You will continue to pay at 8% on income over €70,044 with the 3% surcharge, effectively bringing the rate to 11%, still applying to income over €100,000 earned by the self employed.

These changes to USC alone will mean in the region of €183 of a tax saving for someone earning the average industrial wage which is currently just over €36,500.

Residential Landlords – Mortgage Interest Relief

Since April 2009, when Brian Lenihan introduced his supplementary budget, residential landlords have only been able to deduct 75% of the mortgage interest that they pay on residential investment properties against their tax bill.

Budget 2017 is expected to signal the reintroduction of full 100% relief for this cost on a phased basis over 5 years.

What this means in 2017 is that you will be able to deduct 80% of the mortgage interest paid rather than 75%. In monetary terms this equates to an additional tax deduction of €5 for every €100 you pay in mortgage interest or a tax saving of approximately €2.45 for every €100 paid if you are paying tax at the higher rate.

Entrepreneur Relief

In this era of post Brexit uncertainty there is much speculation as to the consequences of the UK decision to exit the EU earlier this year.

It has been widely suggested that there will be a tug of war between Britain and Ireland as the location of choice for the best and brightest entrepreneurs to establish their businesses.

With this in mind the Government are moving to amend further the relief from Capital Gains Tax called Entrepreneur Relief which we currently have in our tax code.

The suggestion is that Ireland will move to reduce the tax on gains made on the sale of certain business assets to 10%. The standard rate of Capital Gains Tax is currently 33%.

This will bring it in line with a similar provision currently in force in the UK which is hoped will assist in keeping entrepreneurs invested in Ireland.

Gift/Inheritance Tax Changes

Given the rebound in property prices around the country in the past 24 months, and in particular the greater Dublin area, there has been a lot of pressure placed on the government to address the increasingly common issue of children being left with sizeable tax bills when inheriting or being gifted the family home from their parents.

Currently a child can receive gifts/inheritances with a combined value of up to €280,000 in their lifetime without paying any tax.

The indications are that this threshold is going to be increased by €40,000 to €320,000 to help to avoid situations where children are being forced to sell the original family home in order to meet the inheritance tax bill.

Date published 7 Oct 2016

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.