Making sense of budget changes to the Universal Social Charge

1 am on a pension of €20,736. What is the benefit for me in the budget changes to the Universal Social Charge?

Ms N O'C, email

Following the budget, you will certainly be paying less in Universal Social Charge next year than you are now, but the precise saving depends on whether you are over or under the age of 70.

Essentially, Minister for Finance Michael Noonan decided to reduce the lower rate of the social charge to 1.5 per cent from the current 2 per cent rate. Similarly, the 4 per cent rate is dropping back to 3.5 per cent.

The Minister has also increased the thresholds. Until now, if you had income of less than €10,036, you paid no Universal Social Charge; if your income was above that level, you paid it on all your income. That threshold has now been lifted to €12,012.

You will pay the 1.5 per cent rate up to this, and the new 3.5 per cent rate thereafter.

Now this is where the delicate matter of your age becomes an issue. If you are over 70 (and your income is below €60,000 a year), this 3.5 per cent rate is the highest you will pay, and it applies to all income over the €12,012 threshold.

If, however, you are younger than 70, you will move to another, higher rate of 7 per cent on any income above a new threshold of €17,576. That threshold was previously €16,016.

There are higher bands as well, but they don’t apply in your situation. For the life of me, I cannot understand why the thresholds are such odd numbers, though I’m sure someone will enlighten me. It would seem far simpler to have, say €12,000, €17,500, and so on, but that’s the way of it.

So what does it mean in euro and cent?

Well, if you are under 70 with an income of €20,736, you will be paying €770.32 this year in the social charge . Next year, assuming you are still younger than 70, that charge will drop to €596.12 , a saving of €174.20 per annum.

If you are over 70, you are currently paying €628.72, a figure that will fall next year to €461.02 , a saving of €167.70 annually.

Can I claim double relief on water charges?

Is the new tax relief on water charges going to be in addition to the €100 Household Benefits Package allowance for those charges?

Ms B C, email

It’s difficult to be definitive on this, not least because water charges, predictably, are the one area in the budget that has become a bit of a banana skin for the Government.

It appears that the Minister had always intended to make provision for a €100 payment (paid quarterly) to those in receipt of the Household Benefits Package. That includes everyone over the age of 70 and pensioners below that age on a state pension, including widow(er)’s or surviving civil partner’s pension, Garda widow’s pension or a social security pension from other EU states or countries with which Ireland has a bilateral arrangement.

Of course, this assumes you live permanently in the State and are the registered consumer. Also, only one person per household can get the Household Benefits Package.

In addition, certain people under the age of 66 may qualify if they are in receipt of an invalidity or blind person’s pension, disability allowance or certain equivalent payments from other states.

Where it gets complicated is the second measure to alleviate the impact of water charges: the €100 tax credit.

The suspicion is that this was a last-minute measure to placate voters after the giant water-charges protest in Dublin and the two byelections ahead of Budget 2014, in which the Government was soundly beaten.

The problem is that a large cohort of people is sandwiched between the two credits: they do not get the household package (or the fuel allowance that would also qualify them), nor are they paying tax, so the credit is of no use.

It seems certain that the Minister will have to amend the scheme before the Finance Bill is published, to address this anomaly; the Minister for Social Protection Joan Burton has already said as much.

When that redrafting takes place, it will be interesting to see if the water charge relief is limited to either the tax credit or the Household Benefits Package provision, because, as it stands, I believe a pensioner who is paying tax because they have an additional occupational pension or other income can claim both the tax credit and the €100 payment under the Household Benefits Package.

Getting sums wrong on Living Alone Allowance

I am a pensioner living on my own. I saw it reported that the Living Alone Allowance had risen by €9, but the welfare office tells me this is not true. Which is correct?

Ms I S, Dublin

The welfare office is correct. It was mistakenly reported on TV, radio and in the papers that the allowance had risen by €9 a week.

In fact, the allowance, which is currently paid at a rate of €7.70 a week, will rise from next year to €9 for the 180,000 people that the Minister for Public Expenditure and Reform Brendan Howlin says receive the payment.

It’s a welcome change, I’m sure, though certainly well short of a €9 increase. With most welfare payments unchanged, a €9 weekly increase would have been a bit of an eye-opener. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.