Budget 2019 – Life, Pension & Investment Update
Yesterday, Finance Minister Paschal Donohoe delivered Budget 2019. Like previous years many of the key elements were leaked well in advance so there were no surprises. From a financial services point of view, there were no significant changes.
This post outlines the changes which are relevant to the Life, Pensions and Investments market.
1. Pensions
In line with welfare increases, the State Pension is to increase by €5 a week. Also, The Minister has confirmed that the Christmas bonus will be fully restored this year to eligible social welfare recipients. The bonus will represent 100% of the weekly social welfare payment rate.
An upside of this increase is that the Christmas bonus can be taken into account when determining an individual’s “specified income” for ARF purposes.
This means that anyone in receipt of the maximum personal rate of State Pension (Contributory) will now meet the requirements for minimum specified income (currently €12,700 per annum).
As a result, if that person holds an AMRF, then their AMRF should now convert to an ARF. Customers holding AMRFs who may be impacted by this should contact their Financial Advisor. Remember that the Living Alone Allowance also counts toward the specified income for ARF purposes.
2. Deposit Interest Retention Tax (DIRT)
The rate of DIRT will decrease by 2% to 35% with effect from 1 January 2019. The last of the phased reductions in DIRT will take place on 1 January 2020 when DIRT rate will decrease to 33%.
3. Income Tax, PRSI, and USC
Income Tax
There has been an increase in income tax bands. The single person standard rate band will increase by €750 from €34,550 to €35,300, and from €43,550 to €44,300 for married “one earner” couples.
There was no change to income tax rates. The higher rate of income tax remains at 40% with the standard rate of income tax unchanged at 20%.
However, there were further changes to the Earned Income Credit for the self-employed and certain proprietary directors which increased by €200 from €1,150 to €1,350. This forms part of a 3-year move to bring into line the treatment between the self-employed and the PAYE sector. The PAYE tax credit is currently €1,650 and remains unchanged.
There was also an increase in the Home Carer Tax Credit from €1,200 to €1,500.
These changes are effective from 1 January 2019.
Universal Social Charge (USC)
The Government has announced a number of changes to the USC to take effect from 1 January 2019:
- 75% USC rate reduced to 4.50%
- A €502 increase to the ceiling for the 2% USC rate raising it from €19,372 to €19,874
Total income of €13,000 or less per annum is exempt from the USC.
The following USC rates will apply if total income is in excess of €13,000:
| Rate | Threshold |
| 0.50% | €0 – €12,012 |
| 2% | €12,012 – €19874 |
| 4.50% | €19874 – €70,044 |
| 8% | €70,045 + |
Self-employed income over €100,000 will continue to incur an additional 3%.
The USC rate on self-employed income in excess of €100,000 remains at 11%.
Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 pay a maximum USC rate of 2%.
These further reductions in the USC are the first steps towards the process of harmonising the USC and PRSI.
PRSI
The employer’s PRSI Class A rate will increase from its current 10.85% to 10.95% in 2019, for employees earning more than €386 p.w.
For lower earners, the employer’s PRSI Class A rate will increase from 8.6% to 8.7% in 2019.
4. Corporation Tax
There is no change to the Corporation Tax rate of 12.5% for trading income and 25% for non-trading income.
5. Capital Acquisitions Tax (CAT)
CAT threshold that applies to children inheriting from their parents will increase by €10,000 to €320,000 with effect from 10 October 2018. Group B and Group C Threshold remain unchanged and CAT rate remains at 33%. CAT thresholds are as follows:
| Capital Acquisitions Tax | |
| Group A: €320,000 | Child, or, minor child of a deceased child |
| Group B: €32,500 | Brother, sister, niece, nephew, lineal ancestor or descendant |
| Group C: €16,250 | Applies in all other cases |
There was no increase or decrease to the small gift exemption, which currently stands at €3,000 a year.
7. Capital Gains Tax (CGT)
The rate of CGT remains unchanged at 33%.
8. Mortgage Relief
Loan Interest paid by owners of buy-to-let properties will be deductible in full for tax purposes from 2019. This is an increase from the current allowance of 85% of interest paid.
Legislation including the Finance and Social Welfare Bills are expected to be published in the near future and we wait to see if they contain further changes not specifically announced in the Budget.
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