Cuts in the universal social charge (USC) will be the key tax measure that delivers changes to people’s income. Below are the changes and what they will mean for your pocket.
It is important note that no one earning less than €13,000 pays any USC at all; for those earning above this level, all their income is caught by the charge. Also, like PRSI, it is a straight charge on what you earn and is not affected by whether you are assessed as an individual taxpayer or jointly with a partner.
1. The lower 1 per cent USC rate which applies on the first €12,012 of income has been cut by 0.5 of a point. This is worth arpund€60 a year to anyone who pays USC.
The 3 per cent rate which applies on the next €6,660 of income up to €18,772 has also been cut by half a point to 2.5 per cent. This will deliver another €34 a year to anyone earning €18,722 or more a year. Adding the gains from the cut in the lower rate brings their total gains from these two cuts to just under €100 a year for anyone earning €18,772 a year or more. ( Minimum wage increases may also have an affect at around this income level)
The main USC rate of 5.5 per cent has also been cut by half a point to 5 per cent. This rate applies on incomes between €18,772 and just over €70,000. This delivers more substantial gains to middle and higher earners. The maximum gain from this cut, coming to someone earning just over €70,000, is just over €256 a year.
Add the €100 gain from the cut in the two lower USC rates and the total gain for someone earning €70,000 from the USC cuts to around €355 a year.
The gains for people earning less than €70,000 are lower. For example, someone earning €45,000 a year gains just over €131 a year from the cut in the main USC rate. Add in the gains from the cut in the two lower rates and their total increase comes to just a little more than €230 a year.
2. The increase in the self-employed tax credit will deliver €400 a year to the self-employed. An increase in the tax credit is effectively a straight cash gain for the people who benefit.
The expectation had been that this group would get a €550 increase in the credit as part of a three-year move to equalise it with the PAYE tax credit. The tightness of the budget numbers and a desire to appear “fair” is presumably behind the lower figure.
A self-employed person earning €70,000 will gain more than €750 a year in total from the increased tax credit and the USC cut.
3. The other changes are more specific and the impact will depend on individual circumstances. There will be tax rebates for first-time buyers of new homes. Interest deductibility has been increased for landlords, giving them a boost. There is a €100 increase in the home carer's tax credit.
There is a lift in the inheritance tax threshold from parents to children from €280,000 to €310,000, meaning the higher amount can now be inherited tax-free.
There are smaller increases in the allowances for inheritances between other family members. The so-called “b” threshold applying to inheritances left to parents, siblings,nieces, nephews or grandchildren has increased from €30,150 to €32,500. For other inheritances, where there is no family relationship, the threshold has increased from €15,075 to €16,250.
The DIRT tax rate on savings is being cut from 41 per cent to 39 per cent and further cuts are promised to bring it to 33 per cent in the years ahead. Given the low interest on savings, the impact will be limited.
The one increase is a 50 cent per pack increase in cigarettes, while diesel drivers escaped.
