I have provided below a review of the main points of the Budget 2014 as it applies to investment, savings and pensions. I contrast previous allowances / rules that applied to individuals to illustrate the importance of reviewing your financial, insurance and pension position to ensure that you are aware of possible implications.

More people will leave behind / have to pay an inheritance tax bill

In 2009

• Child could inherit €542,544 from parents. Excess of this was taxed at 22%

In 2014

• Child can inherit €225,000 from parents. Excess of this is taxed at 33%

Obviously many more people are being brought into the inheritance tax net. As a result inheritance tax planning is more important to more people. You should be aware of possible ways in mitigating / avoiding / funding tax bills which will generally be significant.

Saving / Investments are less attractive due to changes in DIRT

In 2009

• DIRT rate was 23%
• Exit tax on investments was 26%

In 2014

• DIRT rate is 41%
• Exit tax is 41%

The relative unattractive nature of tax treatment of saving / investing means that people are faced with the choice to either seek higher returns (and therefore take higher risks) to make it worthwhile, or else simply spend. Perhaps options of increasing contribution to pension, prize bonds, settling for Post Office returns, or buying property (see below) may be considered.

The extension of relief from CGT for property purchase (once property is held for 7 years …the property can be in the EU) may make property speculation relatively attractive for Irish people again…..

Pension Planning has changed,…...for  better or worse?

In 2009

• Maximum an individual (45) could shelter from personal income tax to pension was €37,500.
• An individual got PRSI relief on his pension contribution.
• Maximum pension fund of €5,418,085.
• ARF options open only to self-employed and shareholding directors

In 2014

• Maximum an individual (45) can shelter from personal income tax to pension is €28,750.
• An individual does not get PRSI relief on his own pension contributions.
• An individual does not get USC relief on his own pension contributions.
• Pension levy 0.75% in 2014, reducing to 0.15% in 2015
• Maximum pension fund of €2,000,000.
• ARF options open to defined contribution employees as well as self-employed and shareholding directors

Undoubtedly pension planning is not as attractive as it once was, in terms of the amount of tax relief and amount of money that can be sheltered. However, it remains one or the most attractive means of avoiding tax, and, given the comparatively unattractive taxation on savings, is arguably relatively more attractive than ever before. Furthermore, the increased options at retirement widens the appeal of pensions that was the case in 2009.

Other Key Measures Announced in Budget 2014

• There will be no change to Income tax in the current budget with no increase in the rates, no narrowing of bands and no reduction in personal credits.
• Free GP care will be made available to all children 5 and under.
• Maternity benefit is to be standardised at €230.00 per week.
• From 16 October 2013, tax relief for medical insurance premiums will be restricted to the first €1,000 per adult insured and the first €500 per child insured.
• Top slicing relief will no longer be available from 1 January 2014 in respect of all ex-gratia lump sum payments.
• Renovation relief – a scheme of tax relief for home renovation work is being introduced for a period of two years, effectively VAT (13.5%) refunded.
• Start Your Own Business (SYOB) – an exemption from income tax up to a maximum of €40,000 per annum will be provided for a period of two years, to individuals who set up a qualifying, unincorporated business, having been unemployed for a period of at least 15 months prior to establishing the business.
• The excise duty on a packet of 20 cigarettes is being increased by 10 cents (including VAT) with a pro-rata increase on other tobacco products, with effect from midnight on 15 October.
• The excise duty on a pint of beer or cider, and a standard measure of spirits is being increased by 10 cents (including VAT); the duty on a 75cl bottle of wine is being increased by 50 cents (including VAT), with effect from midnight on 15 October.
• There will be no increase in excise duty on petrol or diesel.
• The Air Travel Tax is being reduced to zero with effect from 1 April 2014.
• The 9% VAT rate in the tourism sector is set to continue.

This summary has been produced by Gilmore Insurance & Financial Services based on its understanding of laws and practice current in October 2013. While great care has been taken to ensure the accuracy of the information it contains, the firm cannot accept responsibility for its interpretation, nor does it provide legal or tax advice.