Minister for Finance and Public Expenditure and Reform, Paschal Donohoe T.D. delivered details of Budget 2020 on the 8th October 2019. It would be fair to say that Budget 2020 will be remembered for what it didn’t contain: no broad income tax cuts or increases in social payments such as pensions or child benefit or another huge €1bn rise in health spending. Against a backdrop of European political uncertainty Minister O’Donoghue decided to use a ‘no-deal’ Brexit scenario to frame this Budget. This compares to the previous assumption (set out in the Stability Programme Update from April and the Summer Economic Statement from June) of a softer form of Brexit i.e. that the UK leaves with a deal at the end of a transition period which ends at the end of 2020 Whilst a Hard Brexit is not a forgone conclusion e.g. current ‘odds’ put the probability of such an event this year at below 25%. Against this backdrop the Government has taken the decision to plan, at this juncture, on the basis of a disorderly departure in order to provide a degree of reassurance that policy is being framed to deal with what could be a very disruptive period. In light of such a position Irish GDP is estimated to grow by circa 0.7% in 2020, revised down from the 3.3% in April’s Stability Programme Update. Should a ‘no-deal’ Brexit be avoided, the Budget 2020 plans indicate the government will successfully build on its expected €600m surplus in 2019, towards the €1.2bn it had originally expected in April for 2020.

As expected, there were no pension related changes announced in the Budget speech. These types of changes tend to come through in the subsequent Finance or Social Welfare and Pensions Bills. It is understand that the Interdepartmental Pensions Reform & Taxation Group will publish a paper on their “Pension Simplification” consultation shortly. This may bring about changes to current pension and post-retirement rules, whether it will come in time for any recommendations to make their way into the relevant Bill, we will have to wait and see.

The following sets out details of the main changes which may be of most interest from a Pension & Investment perspective.

  1. The Budget included an increase in stamp duty on commercial property of 1.5% (from 6% to 7.5%), effective from midnight 8th October 2019. Considering the increase in Duty introduced two years ago, which served to increase the prevailing rate at that time by three-fold, from 2% to 6%, it was a surprise. With increased Commercial property Volumes in 2019, with in excess of Investors emanating from outside Ireland, this may dampen the attractiveness for new entrants into the Irish Market, although at 1.5%, the larger institutions may be willing to accept this.
  2. Pensions and Social Welfare State Pension (Contributory) There is no change to the single rate of State Pension (Contributory) this year. It will remain at €248.30 per week. The Minister has confirmed that the Christmas bonus will be paid in full again this year to eligible Social Welfare recipients. The Fuel Allowance will increase from €22.50 per week to €24.50 per week. The Living Alone Allowance, which has always counted towards specified income, will increase from €9 per week to €14 per week. This is paid in addition to an individual’s weekly Social Welfare payment. To qualify for this increase you must live completely alone, however, there are some exceptions. These changes will take effect from January 2020.
  3. Deposit Interest Retention Tax (DIRT) The rate of DIRT will decrease by 2% to 33% with effect from 1 January 2020.This is the last of the phased reductions in DIRT that sees the rate return to the level it was at in 2013.
  4. Exit Tax will remain at the current rate of 41% for personally owned life assurance policies effected on or after 1 January 2001 (known as gross roll-up policies)Exit Tax on any gains in a life assurance policy owned by an Irish company remains at 25%.
  5. No change to Income Tax rates or bands. The Earned Income Credit for the self-employed and certain proprietary directors has increased by €150 from €1,350 to €1,500.This is part of a 3 year move to bring this in line with the PAYE tax credit which is currently €1,650.There was also an increase in the Home Carer Tax Credit from €1,500 to €1,600.Typically these increases take effect from 1 January in the following year.
  6. For Universal Social Charge (USC) there is no change in rates or thresholds.
  7. For PRSI there is no change to personal PRSI rates. As announced in Budget 2019, the employer contribution to the National Training Fund Levy will increase from 0.9% to 1% of their employees’ reckonable earnings. The levy is collected through the PRSI system which means that Employer PRSI will increase to 8.8% for employees with reckonable earnings equal to or less than €386 per week and 11.05% for employees with reckonable earnings more than €386 per week. The increase is effective from 1 January 2020.
  8. There is no change to the Corporation Tax rates of 12.5% for trading income and 25% for non-trading income.
  9. Under Capital Acquisitions Tax (CAT) there is no change to the rate of 33%.The CAT threshold between children inheriting from their parents will increase by €15,000 to €335,000 with effect from 9 October 2019. There were no changes to other CAT thresholds. There is no change to the small gift exemption which remains at €3,000 per annum.
  10. There is no change to the CGT rate of 33%.8. Dividend Withholding Tax (DWT) this is the tax withheld on a dividend payment before it is paid to shareholders. The rate is increasing from 20% to 25% from the 1 January 2020. There will be further changes to the DWT regime from 1 January 2021 to allow for a personalised rate to be applied. Legislation, including the publication of the Finance and Social Welfare Bills, is expected in the near future. These may contain further changes not specifically announced in the Budget.