Finance Bill 2021 sets into law many of the tax measures announced on Budget day. The Finance Bill 2021 has been published on 21st October and includes a number of changes. However, it is important to note that the Finance Bill itself does not make any changes to legislation. It has to go through the Dáil and be passed before it becomes law as the Finance Act. The Finance Bill 2021 will come into effect as soon as it is passed by the Dáil on 31st December 2021.
What does the new legislation mean for you? The new Finance Bills aims to help with the impact of Covid-19 and many measures have been introduced, or maintained, to support business and individuals in Ireland. In this article, we focus on the impact of the changes to employees in Ireland in terms of their income, housing, and pensions.
1. Finance Bill 2021: Employee Income
With rising inflation, energy and fuel prices, Finance Bill 2021 is making an attempt to ease the pressure on employees by increasing their take home pay. You may see a bit more in your bank account as you will likely be paying slightly less in taxes.
Great news for those who are still working from home. The Bill puts the availability of a 30% deduction from income tax for heat, electricity and broadband costs for employees working from home. Tax payers can currently claim relief for 10pc of the cost of electricity and heat incurred and 30pc of the cost of broadband incurred. The relief can only be claimed if their employer is not paying the tax-free €3.20 a day discretionary payment.
Employment Wage Subsidy Scheme
The Employment Wage Subsidy Scheme (EWSS) will extend to the end of April 2022. This is a reassuring factor as the fourth wave of Covid-19 grips Ireland. This programme will phase out by April 2022, while the Pandemic Unemployment Payment (PUP) will be ending in January 2022.
Income Tax Reductions
The Bill includes an increase of €1,500 to the Standard Rate Cut Off Point announced in Budget 2022, and also the change to the 2nd USC rate band to reflect the increase to the minimum wage. The Personal, PAYE, and Earned Income Credit all increased to €1,700. For higher rate taxpayers, this will result in an annual reduction in income tax and USC of €412 in 2022.
2. Finance Bill 2021: Housing
There is good news on the housing front as well. The Help-to-Buy Scheme will continue into 2022 and Zone Land Tax will be introduced in an attempt to increase housing supply. Furthermore, the proposed change to taxing loans from the ‘Bank of Mum and Dad’ will not be going ahead.
Bank of Mum and Dad
The issue of family loans has been one of the most controversial topics published in the Finance Bill last month. Thankfully, the Government has stepped back from the planned changes to the tax treatment of family loans after meeting substantial push back from the public. It remains to be seen if they will introduce the measure again in the future.
The Help to Buy Scheme for first-time homeowners has been extended until the end of 2022. The scheme allows those buying or building a new home to claim income tax and deposit interest retention tax (DIRT) to a maximum of €30,000 or 10 percent of the purchase price of the property.
The Bill also introduced a Zone Land Tax. This provides for a 3% annual tax on the market value of a specified piece of land. The land zoned will be considered suitable for residential development, aiming to act as an incentive to push current landowners to develop their idle lands.
From January 2022, non-resident landlords will be subject to a corporation tax of 25% for all rental income in Ireland.
Finance Bill 2021: Pensions
As anticipated, the Finance Bill included amendments to legislation which were set out in the report of the Interdepartmental Pension Reform and Taxation Group (IDPRTG) in November 2020. The proposed changes will lift some restrictions on transferring out of previous occupational pensions and on drawing down of pensions at retirement.
AMRFs to be Abolished
The Approved Minimum Retirement Funds (AMRFs) will be abolished easing the full access to pension funds much earlier than 75.
As of today, an individual who is under the age of 75 and who does not meet the requirement of having a minimum guaranteed income for life of €12,700 p.a. must use €63,500 to invest in an AMRF, purchase an annuity or a combination of both. The removal of the AMRF requirement means that the whole pension fund can be transferred into an ARF with no limits to the amount drawn down every year.
The rules associated with ARFs will require you to draw down a minimum of 4% of the ARF each year from the age of 61, and 5% when you reach 71 years of age. If you choose not to draw down any money, an imputed distribution applies where you still must pay tax as if you had drawn the money down. It is argued that this may lead to paying of higher taxes at retirement for some pensioners. However, this can be avoided by good financial planning.
Removal of 15 year rule on Company Pension to PRSA transfers
The lifting of the transfer out restriction can be beneficial for employees with long previous service who wish to take control of their previous work pensions. This can be a great option for some but required very good financial advice before option to move a previous work pension. Sometimes, leaving it where it is could be the better option.
If you are still unsure on how these changes will affect your pension, contact us today.