|This is a brief update to give you our views on a number of budget issues that highlight the need for comprehensive financial planning. It is not meant as an exhaustive guide to the budget. I’m sure you will get inundated with such guides today:
· Firstly the 0.5% reduction in the USC is welcome but it does nothing to bring down the punitive marginal rate of tax at the upper levels. If you are earning €70,045 or above, the marginal rate of tax on the extra euro you earn remains at 52%. For those self-employed and company directors earning above €100,000, the rate is even more extortionate at 55%. This makes effective tax planning a top priority.
· For our entrepreneur clients there was some good news. The Capital Gains Tax rate reduction from 20% to 10% will assist in planning a tax efficient retirement or business exit. Although business lobby groups are disappointed the relief is capped at only the first €1m of gains, for many LHW clients, this is an opportunity to see some reward for investment and risk-taking.
· There is also an increase in the self-employed tax credit of €550 which is welcome for those that do not qualify for the €1,650 tax credit.
The self employed and company directors will also qualify for the social welfare invalidity pension which is significant
· The Inheritance tax thresholds were increased. The increase in the class A threshold (gifts and inheritances received by children from parents), from €280,000 to €310,000 is a small but welcome measure. However many family homes particularly in Dublin will exceed this threshold and create a significant liability. There are a number of tax planning opportunities in this regard. It had been expected that the minister might curtail some abuses but surprisingly there have been no changes to date.
· DIRT will decrease from 41% to 39%. However there is so little deposit interest being earned by LHW clients these days, this measure makes very little difference. What will be of more significance is to see if the Finance Bill (Oct 20th) contains a measure to reduce the rate of investment fund “exit” tax by a corresponding amount. In previous years DIRT & Exit tax have been linked. A reduction in exit tax would help hard pressed savers and investors in this low return world.
· There was a welcome move to increase the amount of tax relief landlords can claim on interest payment on their Residential Investment Property mortgages. Although the increase from 75% to 80% will not make much difference, the minister made it clear that he hopes to phase in a full interest rate reduction over subsequent years. This will make property investment more attractive and hopefully improve supply of rental properties.
There were many other measures that are welcomed by us here at LHW but we just wanted to highlight a number that have potentially significant impacts on our client’s financial plans. What the above measures highlight is the importance of careful forward planning.
In summary, we believe our clients should pay their fair share of tax. However with our help and where required with the help of other 3rd party professionals we are confident that we can assist you in ensuring you shoulder no more than your fair share of the tax burden. On that note we remind you of the upcoming pension contribution deadlines and also the Eii investment opportunities which form part of prudent tax and financial planning.
Best wishes from all the LHW team.