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BUDGET 2007

Minister for Finance Brian Cowen introduced the 2007 Budget, the third of his term as Finance Minister, on 6 December 2006. In the run-up to the Budget, it was widely expected that the Minister would present a “Giveaway Budget”, given the strong state of the Government finances. The Minister ultimately opted for a more restrained approach, introducing a Budget containing a mix of tax reductions, welfare increases and incentives for first-time homebuyers. In this issue we review the main tax changes introduced in the Budget.

Income Tax

There is no change to the standard Income Tax rate of 20% but the higher rate has been reduced by 1% to 41%. Minister Cowen in his Budget speech stated that it is the Government’s intention to reduce this to 40% in the 2008 Budget. The standard rate tax bands were increased, as follows:

All income in excess of these amounts is taxable at 42%.

The Budget included increases in the main Income tax credits, as follows:

This latest increase highlights a number of curious inequities in the tax system. A parent who ceases PAYE employment to look after children in the home will now immediately lose a tax credit of up to €146 per month. The same effective penalty will apply to anyone who leaves a PAYE job to enter self-employment. They will now pay tax on up to €8,800 more of their income annually than their counterparts who remain in the PAYE sector. It is surprising that these anomalies have not generated more attention in the aftermath of the Budget

Income tax exemption limits

The annual income tax exemption limits for over-65s is raised by €2,000 to €19,000 for single or widowed persons and by €4,000 to €38,000 for married couples. This move is designed to remove more elderly taxpayers from the tax net in 2007.

Childminding Relief

The special tax exemption for childminders has been extended. From January  2007 onwards, no tax will be payable on childminding earnings up to a ceiling of €15,000 per annum, where an individual minds up to three children in the minder’s own home. The income ceiling for the exemption was previously €10,000.

Individuals claiming this relief must declare their childminding income in their annual tax return and register with their County Childcare Committee.

First Time Home Buyers

The Budget included a doubling of the maximum tax relief mortgage interest paid by first-time buyers. Tax Relief can now be claimed by  first-time buyers on mortgage interest of up to €8,000 per year. There were minor increases in the relief available to non-first time buyer homeowners.

Farmers

The Farming community enjoyed a number of benefits in the Budget. These include an extension, to 30 June 2009, of the Stamp Duty exemption for land exchanges between farmers. The qualifying criteria for this relief have also been relaxed somewhat.  In addition the farmers’ flat rate VAT addition has been increased from 4.8% to 5.2%, and there have been extensions to farmers Stock Relief and to the tax exemption on long-term land leasing income

Business

The Small Business sector welcomed an increase in the VAT registration thresholds, to €35,000 for service businesses and to €70,000 for suppliers of goods. The Minister also announced the introduction of  4-month & 6-month VAT returns for small businesses, replacing the existing 2-month returns. A special VAT relief for business conferences has also been introduced.

Capital Gains Tax

A valuable extension of Retirement Relief from Capital Gains Tax was also announced . This relief only applies to the sale of business assets by individuals aged 55 years or over. The maximum value of assets qualifying for the relief has been extended from €500,000 to €750,000. This restriction does not apply to transfers to qualifying family members.

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