Deposit interest retention tax (DIRT) is set to rise to 41 per cent from January 1st 2014, yielding the Government an additional €140 million in annual tax revenues.
The increased rate will also apply to the exit tax that is levied on life assurance policies and investment funds, and the higher rate applies to payments made both annually, and less frequently. Previously, a rate of 33 per cent was levied on payments made annually or more frequently, and 36 per cent on less frequent payments. The rate of DIRT has now more than doubled since 2008, when it was 21 per cent.
Prior to Budget 2014, it had been speculated the Government would impose PRSI on forms of unearned income - such as rental income, dividends and interest - but instead it appears to have opted to substantially increase the rate of DIRT.
The move will see the Government’s take of every €1 earned in interest rise to 41 cent.
Under the new rate, a deposit account valued at € 50,000 and earning interest at 3 per cent will now only return €885 to an investor, with €615 going to the Exchequer.
In his speech, Minister for Finance Michael Noonan said the measure will “incentivise investment and spending in the economy, which is vital for the creation of jobs”.
The rate of capital gains tax (CGT), at 33 per cent was left unchanged, and a number of reliefs introduced.
CGT relief for property investors has also been extended, with those purchasing a property before December 31st, 2014 exempt from the tax, provided that they hold the property for seven years. Jonathan Hillyer, managing partner at HWBC said the extension of the waiver “will help strengthen investor confidence”.
Secondly, a new CGT incentive will be introduced to encourage entrepreneurs, in particular serial entrepreneurs who make several investments, to invest and re-invest in assets used in new productive trading activities in order to encourage new business creation and employment.
If an entrepreneur has already paid CGT on the disposal of their assets, and they invest in a new company or companies from January 1st, 2014 to December 31st, 2018, they may qualify for a lower rate of CGT if they hold the investment for at least three years.
The CGT rate applicable will be reduced by the lower of: a) the CGT paid by the individual on a previous disposal of assets from1 January 1st, 2010; and b) 50 per cent of the CGT due on the disposal of the new investment. This measure will require EU State Aid approval before it can be implemented.
Thirdly, the Minister announced that CGT retirement relief will be extended further to encourage older farmers who have no children to whom to transfer their farm to lease their farms to younger farmers. The relief applies to disposals of leased land, where the land is leased for a minimum lease of five years, and the subsequent disposal is to a person other than a child of the individual disposing of the farmland.
