9 November 2021
The 2022 Budget details were announced in the Dail by the Minister for Finance on 12th October 2021. We look at the main changes potentially impacting on clients.
The key points from the Budget 2022 speech:
- Income tax bands increased by €1,500 and main tax credits by €50.
- The 2% USC band increased from €8,675 to €9,283.
- Employees working at home will be able to claim tax relief on 30% of vouched home electricity, heating and broadband expenses for days spent working from home.
- No change in pension tax relief, the €115k NRE limit, or the €2m Standard Fund Threshold limit
- No change in the insurance levies
- No change in DIRT or life assurance exit tax rates
- No change in CGT or CAT The CAT Thresholds remains as before.
- From 1 January 2022 the weekly income threshold for the higher rate of employer’s PRSI will increase from €398 to €410
- State Pension & Social Welfare rates
- An increase of €5pw in most benefits and pensions
- An increase of €2pw for the qualified child increase for under 12’s and €3pw for children aged 12 and over.
- The Christmas bonus will be paid in early December 2021 at 100% of the weekly amount, e. a double weekly payment.
- The Help to Buy Scheme will be extended to end of 2022, providing a tax refund of up to
€30,000 in certain circumstances, but its operation will be fully reviewed during 2022.
- The Employment Investment Incentive (EII) scheme is extended to the end of 2024. However the range of investment funds through which EII investors can invest will be widened in 2022 (currently only a Designated Investment Fund), which could potentially include life company unit funds.
However it is possible that other taxation changes not announced in the Budget could be introduced in the Finance Bill 2021 when it is published in about 10 days.
Increase in income tax bands
There is no change in income tax rates for 2022, but the standard rate bands have been increased:
Income Tax rates and bands:
|Single person standard rate band||€35,300||€36,800|
|Married couple, one income standard rate band||€44,300||€45,800|
|Married couple, two incomes standard rate band||€44,300 plus increase for other spouse of lower of their income and
|€45,800 plus increase for other spouse of lower of their income and
Increase in income tax credits
Some income tax credits have been increased for 2022:
Income Tax credits:
|Employee tax credit||€1,650||€1,700|
|Earned income tax credit||€1,650||€1.700|
The 2.0% USC band will be increased in 2022 by €608, to allow for a planned increase in the minimum wage rate, with a corresponding decrease in the 4.5% band:
USC Rates and bands:
|First €12,012||0.5%||First €12,012||0.5%|
|Next €8,675||2.0%||Next €9,283||2.0%|
|Next €49,357||4.5%||Next €48,748||4.5%|
- USC does not apply to State Pensions
- Exemption from USC applies where total income (excluding the State Pension) in 2022 is less than €13,000.
- The self-employed additional 3% USC surcharge on non-PAYE incomes over €100,000 continues to apply for
- A 2% USC rate for those over 70 and medical card holders for total income (excluding the State Pension) in excess of €12,012 and under €60,000 continues to apply for 2022
Working from home expenses
Those working from home can in 2022 claim income tax relief on 30% of vouched home heat, light and broadband expenses in respect of those days spent working from home.
PRSI rates & bands
While the Pensions Commission has recommended significant increases over time in personal and employer PRSI rates, the only increase proposed for 2022 is in the weekly income threshold for the higher rate of employer’s PRSI which will increase on 1st January 2022 from €398 to €410 pw.
Employment Investment Incentive (EII) Scheme
The EII scheme is a 100% tax relief at marginal rate granted to investors in shares of unquoted micro, small and medium sized trading companies on investments of up to €250,000 in a year, provided the investment is held for at least 4 years. Investment currently can be made through direct investment in individual companies and/or through a Designated Investment Fund (DIF) which invests in a range of companies.
The EII scheme is extended to the end of 2024.
However the Minister for Finance also announced that : ‘I intend to open up the scheme to a wider range of investment funds and I am confident that this measure on its own will result in greater investment in early stage enterprises.’
It’s not clear at this stage what this wider range of investment funds may be, but it could potentially include life assurance unit linked funds? If so, this could provide some stiff competition to pension contributions for high income clients.
No change in life assurance exit tax
The DIRT rate has been being reduced in stages from 41% in 2016 to its current 33% which has applied since 1st January 2020. The DIRT rate is therefore now the same as the current Capital Gains Tax and Capital Acquisitions Tax rate, i.e. 33%.
However the exit tax rate applied to life assurance savings and investment policies remains at 41%. This exit tax rate is sometimes referred to as LAET (Life Assurance Exit Tax). The estimated tax revenue from LAET in 2020 was €124m and €37m from DIRT.
The Tax Strategy Group which advises the Minister for Finance discussed the different LAET and DIRT rates in September 2021 and estimated that reducing the LAET rate from 41% to 33%, the same as the CGT rate, would cost €24m in a year. The Group also concluded:
“While the debate over the last number of years has surrounded differentials between DIRT and LAET and subsequently CGT, the focus has since broadened into a debate surrounding the lack of neutrality in the current system particularly in relation to Exchange Traded Funds (ETFs).
This raises the question as to whether or not a more fundamental review of the neutrality of the tax system for individual savings and investors is needed. For example, are the current differential rates linked to savings and investment distorting behaviour and direct funds into less productive forms of assets or contribute to inflation in certain sectors e.g. housing.
Clearly this is not a discussion that can happen in isolation and any review of savings taxes needs to be considered in the context of the wider tax system, giving due consideration to the effective tax rate of investments including not just investor level taxes but also investment level and fund level taxes.”
As the Budget speech did not mention the exit tax or DIRT rates, it seems they will remain at current levels in 2022.
Insurance levies unchanged
The Budget speech did not mention the insurance levies, life and general, and hence it seems they remain at 1% and 3% respectively for 2022.
The Tax Strategy Group reviewed the insurance levy in a paper to the Minister for Finance in September 2021 and estimated that the combined life assurance and general insurance levies raised some €171m in 2020.
However the Group made no comment or recommendation with regard to the levies and so it seems they will continue at their current rates in 2022.
Increase in State Pension and Social Welfare benefit rates
Some increases in the maximum rate of State Pension and other Social Welfare benefits were announced for 2022, with proportionate increases for qualified adults and those on reduced rates of payment:
State Pension and Social Welfare rates
|Benefit||Maximum weekly rate 2021||Maximum weekly rate 2022|
|State Pension Contributory – under 80||€248.30||€253.30|
|State Pension (Non contributory) – under 801||€237.00||€242.00|
|Widows/Widowers Contributory – under 66||€208.50||€213.50|
|Jobseekers / Illness||€203.00||€208.00|
|Increase for a qualified child – under 12||€38.00||€40.00|
|Increase for a qualified child – Age 12+||€45.00||€48.00|
The Christmas Bonus for the State Pension & Social Welfare benefits will be paid in December 2021 at 100%, i.e. a double weekly payment.
Help to Buy Scheme extended to end of 2022
The Help to Buy Scheme for first time buyers of new properties was enhanced in July 2020 to increase the maximum tax refund to €30,000. This enhanced scheme has now been extended to the end of 2022.
However the Minister for Finance announced that ‘a full review of the scheme will be carried out in the course of next year’ (2022).
No change in pension tax relief
Pension tax relief was not mentioned in the Minister’s Budget Speech, so no change was announced in the level of relief, the €115,000 NRE limit, the €200,000 tax free lump sum limit, or the €2m Standard Fund Threshold limit.
Further changes could happen in the Finance Bill 2021
The Finance Bill 2021 which will implement the Budget 2022 changes and other measures will be published within the 10 days or so. It’s possible that other taxation changes not announced in the Budget could be introduced in the Bill at that stage.« Previous Post