‘Unjustified’ tax reliefs to be removed as tax on deposits swell

TAX reliefs regarded as “unjustified” by Finance Minister Brian Lenihan will be removed while taxes on deposit accounts are set to increase.

Further abolition of tax reliefs are planned, according to Mr Lenihan, who said at this stage of the tax year it is not possible to introduce them for technical reasons.

He said, however, it is the intention of the Government to remove unnecessary reliefs and shelters from the tax system in successive budgets.

For the moment Mr Lenihan is increasing the rates of Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) to 25% with immediate effect and is reducing the CAT thresholds by 20%.

CGT is a tax charged on the profit made on the disposal of any asset while CAT is a tax paid on gifts.

The Deposit Interest Retention Tax (DIRT) rate on ordinary deposit accounts is increasing 2% to 25% and to 28% on certain savings products.

The Irish Taxation Institute (ITI) said the Budget was the toughest the country has seen in many years.

Chief executive Mark Redmond said: “While the measures to assist those who have lost their jobs in the downturn are helpful, ITI believes Government can do more to assist the retention of employment and the creation of new jobs.”

The ITI welcomed the Government’s commitment to Ireland’s 12.5% corporation tax rate.

Mr Lenihan said that in 2010, the government will seek up to an additional e1.75 billion from taxation while in 2011, the target will be to raise up to an additional e1.5bn.

“Over the later years of the five year plan, further adjustments will be required. The scale and nature of these measures will depend to a great extent on the strength of the economic cycle. If growth is better than forecast, less will need to be done at that stage,” he said.

The Government is reducing the level of tax relief investors can claim on the interest for mortgages and loans on residential rental properties to 75% of the interest with immediate effect.

From the start of next month mortgage interest relief for principal private residences will only be available for the first seven tax years of the mortgage.

The relief will be targeted on those who bought their homes when prices were at their peak, he said adding that it will also support those who now wish to move, improve or buy for the first time.

“As house prices fall the provision of mortgage interest relief will be kept under review with a view to eventual abolition. In this regard, I look forward to the recommendations of the Commission on Taxation which I will receive later this year,” said Mr Lenihan.