Ernst & Young concerned about Dirt rise

Financial services firm Ernst & Young have expressed concern over the Government's move to increase Deposit Interest Retention Tax (Dirt) from 27% to 30%.

David Fennell, Tax Director with the firm said: "While the 3% increase in DIRT is designed to incentivise savers to spend more, it may instead be the final straw that motivates already nervous depositors to remove deposits from the Irish banking system."

Mr Fennell was also cautious on the announcement of the new €100 Household charge.

He said: "While a €100 household charge may be seen by many as relatively modest, the question is whether this could be the tip of a melting iceberg under which some householders may eventually sink."

Jim Ryan, Tax Partner, with Ernst & Young said the announcement by the Minister to increase the exemption limit for those currently liable to the Universal Social Charge will have a positive impact on those on low levels of income.

Mr Ryan said: "The net effect is that the increase is a reduction in the annual tax charge of €120."

On Capital Gains Tax, he said the 5% rise to 30% was expected.

Mr Ryan said: "The increase in the rate of CGT from midnight on 6th December was expected, as was the rate of increase from 25% to 30%.

"The new rate will apply to all contracts executed on on after 7th December 2012. "

Mr Ryan said he was "surprised at the Minister's announcement of a reduction in the exemption threshold for Gift and Inheritance Tax.

He said: "Similar to the increase in the rate of CGT the Minister has announced an increase in the rate of gift and inheritance tax from 25% to 30%.

"In a surprise move the Minister has reduced the exemption threshold on the amount a parent gift or leave to each child by 25%, from €332,084 to €250,000. Surprisingly he did not reduce the exemptions for other transfers."

According to Mr Ryan, the Government's decision not to proceed with the proposal announced by the previous Government to severely restrict the use of Section 23 and related property reliefs was very welcome.

He said: "Where an investor has unused entitlements to property based tax reliefs at 31 December 2015, they will generally not be entitled to carry these reliefs beyond 2015.

"However, if the 'tax life' of the investment was due to end after 2015 the investor may continue to claim unused reliefs up to the end of the tax life. The tax life of such investments is a function of the type of investment and date on which the investment was made, and is generally between seven and 10 years from the date of acquisition."

"However, to counteract the loss of revenue resulting from these reliefs the Minister has announced that individuals with gross income over €100,000 who qualify for relief from income tax on rental income, due to the availability of Section 23 relief and property based allowances, will become liable to a 5% fixed charge on their rental income to the extent it is relieved from income tax.

"This 5% charge will apply in the same manner as the Universal Social Charge, but only where gross income exceeds €100,000."