Higher earners could see an increase in their personal tax burden in the upcoming budget as a way of funding tax cuts for those on lower incomes, one of the leading accounting firms has said.
According to Deloitte, while a more favourable income tax regime is "an absolute requirement" in terms of attracting talent from other countries, and sustaining or increasing labour market participation, there is unlikely to be too much movement in cutting the personal tax burden in October's budget. It's understood that unless it raises revenues from other sources, the Government has about €233 million to spend on tax cuts next year.
However, Deloitte is nonetheless predicting a reduction in universal social charge (USC) rates applicable to low earners, or those earning about €20,000 a year. This could mean either increasing the entry band to USC from the current level of €13,000, or cutting the lower rates of USC. A one percentage point cut in the 2 per cent USC rate for example, would cost the exchequer almost €200 million a year, figures from Revenue show.
To fund this, Deloitte said it could be offset by a reduction in PAYE credits available to high earners. A PAYE credit of €1,650 is available to all employees, but a reduction, or tapering of this, would increase the overall tax burden of a worker earning €100,000 or more.
Deloitte would also like to see the marginal rate of tax reduced from its current level of 52 per cent and the entry to the higher rate of tax increased, although it acknowledges the budgetary constraints.
"At the very least a road map should be put in place to demonstrate to workers when this burden will be reduced,"said tax partner Daryl Hanberry.
Deloitte also expects “a slight increase” of about €10,000 to €20,000 in the tax exempt threshold enjoyed by children on inheritances and gifts from their parents. Currently standing at €320,000, an increase in the threshold will bring it closer – albeit only marginally – to the Government ’s promise of reaching a €500,000 lifetime exemption.
Self-employed/entrepreneurs
Ahead of Brexit, Lorraine Griffin, head of tax at Deloitte, said "it is more important than ever that our tax system encourages entrepreneurship and incentivises entrepreneurs to continue to invest in and expand Irish businesses".
As such, Deloitte would like to see further enhancements to the Employment and Investment Incentive Scheme and Capital Gains Tax Entrepreneur Relief, adding that any legislative amendments to remove the SME exemption from the scope of our transfer pricing rules “would be unwelcome”.
In order to equalise the tax burden on those who are self-employed and those in the PAYE sector, Deloitte would also like to see the earned income credit enjoyed by the self-employed increased from €1,350 to €1,650, as well as ending the 3 per cent surcharge on self employed income over €100,000.
Property
Extending incentives to help first-time buyers get on the property ladder, leaving stamp duty alone, and cutting tax rates for smaller landlords are some of the recommendations Deloitte has for the property sector.
On Help to Buy, tax partner Padraic Whelan said that this needs to be extended ahead of the budget "as it's working successfully".
The Government should also look to encourage investors back to the rental market by offering a lower rate of tax.
“The reality is that fund investors and real estate investment trusts have an effective 20 per cent [tax] rate so why not match that for those in the population who can afford to help rebuild and rehouse our fellow citizens. It would be a fair measure,” he said.
Of a mooted increase in stamp duty on build-to-rent transactions, Mr Whelan said that one “to do” is not to change stamp duty rates for the foreseeable future, as this could deter investment.
