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Budget 2004 

In a Nutshell!

Budget 2004, which was announced by Minister Charlie McCreevy in December, will not be remembered as one of the more eventful or exciting Budgets of recent years. The taxation impact of the Budget was largely overshadowed by the Minister’s announcement of the major Civil Service decentralisation programme. That said, it is important that taxpayers are aware of the various changes that may affect them. In this article we examine some of these issues.

Income Tax Rates, Bands & Credits

The existing Income Tax rates, bands and personal credits remain unchanged from their 2003 levels. As pay levels rise along with inflation, more taxpayers will now be paying the top tax rate of 42% on some or all of their income.

Income tax exemption limits

The annual income tax exemption limits for people aged 65 or over is raised to €15,500 for a single or widowed person and €31,000 for a married couple. Mr. McCreevy estimated in his Budget Speech that this measure will remove an additional 2,200 taxpayers from the tax net in 2004. Unfortunately the limits for those under 65 remain unchanged.

PAYE Tax Credit

The PAYE Tax Credit has been increased from €800 to €1,040 in 2004. While this increase is welcome, it is worth noting that it only applies to employees and is not available to self-employed individuals or company directors. In fact, a self-employed taxpayer will now pay tax on up to €5,200 more of their income than their PAYE counterpart with the same earnings in 2004. We can expect complaints from business groups in the next 12 months as this anomaly becomes more apparent.

Trade Unions

The maximum amount on which tax relief can be claimed on trade union subscriptions is increased from €130 to €200 per annum. This is now equivalent to a tax credit of €40 per annum.

Tax Relief for Dental Insurance

The tax system already allows for tax relief on medical insurance (VHI & BUPA) premiums. From 1^st January 2004 onwards, similar tax relief will apply to premiums paid for approved dental insurance policies.

Employees PRSI

From 1^st January 2004, the PRSI earnings ceiling for employee PRSI contributions will increase to €42,160.

Tax Incentives Schemes

The Minister announced extensions to the operation of certain property tax incentives, including the Rural Renewal, Town Renewal, Student Accommodation and Hotels & Holiday Camps Schemes. Each of these schemes was due to expire on 31^st December 2004. This is now extended to 31^st July 2006, on condition that the full Planning application for the development be received by the relevant planning authority by 31^st December 2004.

The Film Relief, Business Expansion Scheme & Seed Capital Scheme were each due to expire at the end of 2003 but are now being renewed.

Companies

A new 20% tax credit is being introduced for companies who undertake qualifying expenditure on research and development. This relief will allow companies to claim 20% of such expenditure against corporation tax in any given tax year.

Farmers

Farmers and landowners will welcome a valuable extension to the exemption for income from certain farmland leases. Annual rental income from leases of between 5 and 7 years, will be tax-exempt up to a maximum of €7,500 each year. For leases of seven or more years, the exemption is now €10,000.  From 1^st January 2004, landowners aged 40 years or more can avail of this exemption.

The farmers’ flat rate VAT addition is being increased to 4.4% for 2004.

The Control of Farmyard Pollution capital allowances scheme will now continue until 31^st December 2006. This was due to expire on 31^st December 2003

Construction Industry

Use these links for BUDGET 2003 & BUDGET 2002 Information