Budget 2023 - what you need to know

Pension updates

There were no changes in relation to private pensions in Budget 2023. Although some widely anticipated changes were not included in Budget 2023, we expect some pension changes to be included in the Finance Bill 2022 which will be published in the third week of October. These changes are likely to involve a phased implementation of some of the recommendations detailed in the report produced by the Inter-Departmental Pensions Reform & Taxation Group (IDPRTG).

Social Welfare Pensions

Budget 2023 did confirm that the full personal rates for state pensions and other relevant social welfare payments will increase by €12 per week from January 2023. The full State Pension Personal Rate will increase from €253.30 per week to €265.30 per week from January 2023.

Cost of Living Support Payments

This year additional Cost of Living Support payments will be paid twice in the coming months as double weekly payments – once during October and then again in December (as the Christmas Bonus). These additional payments for pensioners and social welfare recipients will be paid at 100% of their respective State benefit weekly rate. Pensioners in receipt of the Living Alone allowance will receive a separate once-off payment of €200 in November. Those in receipt of the Fuel Allowance will also receive a once-off payment of €400 before Christmas on top of the existing allowance.

Pensions - No Changes

In summary, there were no changes in Budget 2023 to the following:

Tax Relief - Employer Pension Contributions - Corporation Tax relief will continue to be available on Employer Pension Contributions paid to an approved Occupational Pension Scheme - subject to the overall maximum pension funding and benefit limits.

Employer Contributions to a PRSA – as mentioned above, the expected removal of the Benefit-in-Kind Charge to an Employer Contribution to a PRSA was not included in Budget 2023 but is likely to be included in the Finance Bill 2022.

Apart from the anticipated (and long overdue) removal of the BIK on an Employer Contribution to a PRSA, we also wait to see whether it will be possible for Employers to maximise pension funding using a PRSA Contract based arrangement – in the same way that it is possible for Employers to maximise pension funding using an Occupational Pension Scheme.

These issues were flagged initially in the IDPRTG Report (published 13 Nov 2020) and more recently in the Budget 2023 Tax Strategy papers.

In particular in the Budget 2023 Tax Strategy papers (Developments in the Pensions Landscape, Pages 69 – 72) there were a number of proposals in relation to private pensions.

Policy proposals under consideration - Abolish the differential treatment of the PRSAs for funding purposes

The IDPRTG has focussed closely on this recommendation from the Report this year. Having examined the issue the Group considered a number of alternative ways to equalise the funding options for occupational pension schemes and PRSAs. The Department is now proposing to amend the Taxes Consolidation Acts to implement the recommendation.

Comment

These are still Policy proposals under consideration and we await to see what is included in the Finance Bill 2022. This may happen in several parts – with the first part referenced in Section 318 dealing with the removal (in isolation) of the BIK on an Employers Contribution to a PRSA – and that the maximum funding may not be in the first phase, and also that the age related limits and €115K Earnings Cap may not be altered this time round.

However, given the significant compliance requirements introduced in July 2022 by the Pensions Authority for One Member Arrangement (OMA’s), this is a very important issue for many Employers and Advisers as they review the pension options available to them and their clients as a result of IORPS II – and when considering which options are available for future pension funding – and whether this should be using a Master Trust or a Contract based arrangement.

Tax Relief - Employee Pension Contributions – This relief will continue at the marginal rate of income tax but subject to the Age-Related Contribution Limits and Earnings Cap, if applicable (and overall Revenue Maximum Approvable Benefit limits).

Employer Corporation Tax

The Corporation Tax Rate for the vast majority of businesses in Ireland remains at 12.5%. This applies to approx. 160,000 businesses that collectively employ 1.8 million people which  have a turnover of less than €750 million (the rate for any firms that have a turnover of €750 million or more is 15%).

Earnings Cap – The Age Related Contribution Limits (for pension contributions to Personal Pensions/PRSA’s and Employee/AVC Contributions) are subject to an Earnings Cap – and this remain €115,000.

Retirement Lump Sum - up to €200,000 remains tax-free and amounts from €200,000 to €500,000 will be taxed at 20%.

Standard Fund Threshold

The Taxes Consolidation Act (Chapter 2C of Part 30) imposes a limit or ceiling on the total capital value of pension benefits that an individual can draw in their lifetime from tax-relieved pension products, where those benefits come into payment for the first time on or after 7 December 2005. This is called the Standard Fund Threshold (SFT) and is currently €2 million. There are significant additional tax liabilities where the limit is exceeded. We will wait for the Finance Bill 2022 to see whether the SFT from 2023 has been amended.

Life & Taxation

There was no specific mention of DIRT in Budget 2023 – the last reduction in DIRT tax occurred in 2020 when DIRT was reduced to 33% - i.e. it is the same as the rate of Capital Gains Tax (33%).

Unfortunately the Minister did not remove the 1% Insurance Levy - or reduce the rate of Exit Tax on Life Assurance Policies and Investment Funds and it remains at 41%.

Income Tax

There was an increase of €3,200 in the income tax standard rate band for all earners, from €36,800 to €40,000 for single individuals and from €45,800 to €49,000 for married couples / civil partners with one earner. There was also an increase of the Personal Tax Credit, Employee Tax Credit and Earned Income Credit by €75, from €1,700 to €1,775 and an increase of €100 in the Home Carer Tax Credit from €1,600 to €1,700.

Universal Social Charge (USC)

The USC Rates & Bands from 1 January 2023 will be:

Incomes of up to €13,000 are exempt. Otherwise:

€0 – €12,012 @ 0.5%

€12,013 – €22,920 @ 2% (there was an increase of €1,625 to the ceiling for the 2% rate band)

€22,921 – €70,044 @ 4.5%

€70,045+ @ 8%

Self-employed income over €100,000 = 3% surcharge

The reduced rate of USC for medical card holders (and those over-70 earning less than €60,000) was extended for a further year until 31 December 2023.

PRSI

There were no changes to the rates of PRSI in Budget 2023 however the government has signalled that future PRSI increases are coming down the line for employers, employees and the self-employed to ensure the state pension (contributory) can be maintained.

Savings: Corporate Deposits

The current corporate exit tax rate remains at 25%, in line with corporation tax for non-trading income.

Capital Acquisition Tax (CAT)

There was no increase in any of the CAT Thresholds and these remain as follows:

The Group A Threshold (gifts or inheritance from parent) remains unchanged at €335,000.

The Group B Threshold (gifts or inheritance from brother/sister/aunt/uncle/grandparent) remains unchanged at €32,500.

The Group C Threshold (relationship other than A or B) remains unchanged at €16,250.

The rate of Capital Acquisition Tax remains at 33%.

Capital Gains Tax (CGT)

Capital Gains Tax rate remains at 33%.