The 2015 Finance Bill was signed on 9 December 2015, and the main changes will now be noticed in January pay packets. We can all enjoy the little boost in our net pay. With this in mind I thought it useful to select a few points in the recent budget which may not hit the media headlines and perhaps challenge the Government’s claim to tax and target the wealthy. I also leave you with another tax break that you may not realise you can claim and that has in fact been with us for some time.

There were favourable amendments to the USC calculation and no change to the income tax rates or bands. The Government commitment to retaining the tax rates has held. I cannot say well done, given the considerable indirect tax provisions that were introduced and remained; bin charges, water charges, property taxes and pension levy etc. Thankfully the pension levy is now abolished and was not re-introduced under another heading.

In all budgets, what is not announced is also important, as it leaves prior increases or decisions to carry into the next year.

Capital gains

Making gains on assets like shares has a capital gains tax rate of 33% (in 2008: 20%). The rate has suffered an increase of 65% since 2008. The Government claim they wish to tax the wealthy by this increase. There was no increase in the personal exemption (remains at €1,270 and not transferable between spouses) to give some break for the regular tax payer who might make a chargeable gain of say €5,000, and thus differentiate to large gains made by the very wealthy. Ironically the very wealthy typically change their residence status and pay no capital gains tax. On this basis, the 65% increase in the rate just taxes everybody else on their small windfall gains. Perhaps mention this to the next candidate who calls to your door for the up and coming election! A useful strategy is to hold any shareholding in joint names with your spouse, to avail of two exemptions limits on disposal. This can make a difference on small disposals.

Another subtle change happened in 2002 when after 28 years, indexation for CGT purposes ceased. By abolishing this multiplier, the inflation factor is ignored and you pay more tax. This is another way of increasing the tax take without hitting the headlines. This effects small and large disposals.

Inheritance Tax or Capital Acquisition Tax (CAT)

This tax is payable if you receive an inheritance. The rules have changed a lot over the years and the categorisation of the inheritances also had various amendments, in addition to mixing the aggregation rules. Keeping it simple, you get a tax free limit (also called the threshold limit) when you receive an inheritance from your parents, your uncle / aunt or a 3rd party. The threshold limit from your parents (group A) is the highest. There is no tax payable on inheritances between spouses.

What is interesting is that the threshold limit of group A was increased in the last budget by €55,000 to €280,000 for inheritances from parents. A welcome change on the face of it, but in my opinion, this is another indirect tax, as the Government falls well short of current market conditions. Basically the Government gave back €55,000 from the €318,000 taken away in prior years. Looking at market prices today, a typical house continues to be subject to CAT, where previously they were tax free. The table below illustrates the dramatic change in threshold limits and the tax rate. Based on the property index, the threshold should be €477,000[1] to keep in line with market pricing.

In 2009 the threshold was €543,000 and amounts received after this level would be taxed at 22%. The argument of location of your house (urban versus rural) will be argued again on who pays CAT. In reality, the approach should be more towards taxing the wealthy and not the typical family house.

Inheriting a house of say €350,000 in 2009 resulted in paying no capital acquisition tax. Today even with the favourable budget adjustment, you pay CAT of €23,100 [(€350k-€280k) x 33%]. This is a significant tax to pay and if I can recall there was no protest in Kildare Street. There were big protests and anti- Government protests for the €100 household charge or local property tax (LPT) when amounts quoted were in the region €650 p.a. for a typical household.

Capital Acquisition Tax Table for Group A 

Note threshold drop of 59% and increase in the tax rate of 50% between 2009 and 2015.

Chalk allowance

For those who have watched tennis over the years, you might remember John McEnroe winning Wimbledon in 1981. He was known for his outbursts and comments, “I see chalk dust” he would claim, saying the ball is on the line to win the point. Chalk dust was a winner for Mr McEnroe. Teachers in Ireland typically claim a chalk allowance, or at least this was what it was referred to. Apart from the name, what is significant is a claim to offset employment income (Schedule E). Every employment is subject to the PAYE system and everyone knows allowable deductible expenses are limited to medical costs and some schemes (e.g. bike to work etc.).

For employment expenses, cost deductions must be “wholly, exclusively and necessary”. For self-employed only “wholly and exclusively” need apply.

Well the good news and perhaps it’s not widely known, is that the Revenue have allowed expenses against employment income of up to €127 (100 punts). While not a large amount, it does add up over time. For a couple with two incomes, you save income tax and PRSI of up to €111.76 p.a. Ironically this saving is more than the €100 household charge. Remember you can claim the last 4 years. Now that’s worth thinking about!

[1] Based on the November 2015 CSO National Property Price Index.


This article is of an editorial nature and should not be construed as tax advice.
CPAS recommends you take the appropriate professional advice on financial matters.