Higher savings taxes to raise extra €70m

DIRT AND CAPITAL TAXES:THE EXCHEQUER will raise an additional €50 million this year and €70 million in a full year through increases in taxes on savings.

The deposit interest retention tax (Dirt) rate on ordinary deposit accounts has been increased to 25 per cent from the current rate of 23 per cent introduced in the October budget. Previously, it had been levied at 20 per cent.

The rate of retention tax on life assurance policies and investment funds were also increased by 2 percentage points to 28 per cent.

The changes were effective from midnight last night.

Capital gains tax and capital acquisitions tax were both increased to 25 per cent from 22 per cent, which will bring in an additional €30 million this year and €45 million in a full year.

Changes were also announced to the thresholds for capital acquisitions tax, to take account of declining asset values.

The new thresholds are €434,000 for acquisitions between parents and children, €43,400 for deals between related parties and €21,700 for unrelated persons. Each limit has been reduced by 20 per cent and the move will earn the Government €16 million this year.

From June 1st, a new 1 per cent levy will apply to life assurance policies, raising €83 million for the exchequer this year and an expected €140 million next year.

The current 2 per cent levy on non-life assurance premiums will increase to 3 per cent. This move will bring in €27 million this year.

Mr Lenihan said he was making these changes to capital and savings taxes because “it is important that we treat all sources of income in a similar manner”.

PJ Henehan, tax partner with accountancy firm Ernst Young, described the changes as a clear reversal of the policies of former minister for finance Charlie McCreevy.

“While the intention of these measures is to replace lost revenue from reduced returns on savings products, a significant side- effect is potentially a significant drop in the funds available to financial institutions to conduct their ordinary business of lending and investing,” said Mr Henehan.

Property management group Jones Lang LaSalle described the increase in capital gains tax as “less welcome” than other measures in the Budget to stimulate the property market, but said it “is unlikely to be a major deterrent at present”.