In past years, Budget Day involved long hours in the office analysing endless briefings to identify the potential negative impact of the changes to our clients planning strategies as well as capturing all the new opportunities presented. The following days were filled with client presentations and client calls explaining the impact of these changes in context of their own personal situation. More often than not impending changes to legislation drove a hive of activity to ensure clients maximised all possible tax advantages before they became effective. This was especially evident where the Government’s austerity measures led to a gradual reduction in pension funding scope for tax purposes.
It is worth reminding ourselves that prior to 2014, Budget Day was held in the first week of December with rumour mills being as frenzied as the oncoming Christmas festivities. Since Budget 2014, the date has moved to early October to bring it in line with the EU budget dates. Given that this date falls just after the Dail’s summer holiday there is less time for leaks or rumours resulting in a somewhat more subdued experience.
There has been little impact on clients planning strategies in recent Budgets which although provides a sense of comfort and stability, it has not been as exciting as the tax planning opportunities during the ‘McCreevy’ days. The main changes to Budget 2017 are well known at this stage and it would not be practical to detail same here however we have noted some areas that we feel require more attention.
The state pension will rise by €5 per week from March next year, bringing the full rate state pension (contributory) to €12,651. The state pension continues to form an important part of client’s retirement planning strategies even though concerns remain on its long-term sustainability.
There has been much talk in the last few days of the pension imbalance whereby thousands of women lose out on payments. The Tánaiste confirmed that reversing this anomaly would cost the country €60 million next year and €10 million annually. One could argue that they should have levelled the pension playing field rather than giving a populous €5 per week increase.
No changes have been made to the current private pension regime and it continues to be one of the most efficient forms of long term investing where cash-flow permits.
We were somewhat surprised that no reference was made in the Budget speech to the Taoiseach’s recent announcement that before the end of the year, the Government will be publishing its 5 year roadmap for pensions including the proposal to introduce the pension scheme auto-enrolment in 2021.
The first likely steps are the introduction of legislation by January 2019 for increased governance requirements for trustees under the EU pension’s directive, IORPS II. This most likely will result in a continued trend where employers appoint professional trustees as opposed to themselves acting as trustees. While simplification is not part of the EU directive, the Pensions Authority is also looking at the rules governing Defined Contribution schemes, personal pensions and PRSAs. This is an area that we will be monitoring closely and will keep you updated as the situation becomes clearer.
Capital Acquisition Tax (gift and inheritance)
There have been significant changes to the CAT legislation over the last number of years. More recently some of the ‘more popular’ reliefs and exemptions have also been amended to restrict their usefulness, most notably the relief for agricultural property which was altered to ensure that it can only be availed of by actual ‘farmers’ and, just last year whilst the Dwelling House exemption was also significantly curtailed. No further move has been made to amend the CAT legislation governing how your gift or inheritance tax liability will be calculated.
The only CAT related change announced in the budget was a broadening of the conditions for agricultural relief to allow agricultural land placed under solar infrastructure to continue to be classified as agricultural land.
Government levy and Exit Tax
There has been no change to the government 1% ‘stamp duty’ charged on life assurance protection, savings or investment contracts despite lobbying from many of the industry bodies. Nor were there any changes to the current investment exit tax rates of 25% for corporate and 41% for personal investors.
This is hugely disappointing. The government levy was introduced at a time when it needed revenue and clearly remains a very lucrative tax collection. However this is at the expense of clients who wish to protect and save for their desired lifestyle. The exit tax sometimes results in clients applying a more aggressive direct investing approach with a view to chasing the preferential CGT tax regime. In our view the life assurance industry and lobbyists need to shout louder to ensure their voices are heard.
It is important to note that the Finance Bill followed on Thursday 19th October. We will update any amendments or impacts as they emerge.
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