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Monday, 15th April 2024
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UK Tax Contrast Back  
The marketplace with which Ireland is most closely integrated is the UK. A look at the tax rates in the most recent UK Finance Act illustrates how far we still have to go in reducing tax burdens in Ireland.
The Irish and UK economies in many respects are a single market. This is probably true for goods, services, and labour. It is therefore instructive to keep an eye on how the Irish tax system compares with the UK tax system.

The UK Finance Act 1999 received Royal assent on 27 July. It sets some challenging targets for Mr McCreevy, in relation to the forthcoming December budget.

Personal Tax
Currently, the standard rate of income tax in Ireland is 28 per cent, and the higher rate is 46 per cent. The 46 per cent rate applies to a single person once they have Ā£14,000 of taxable income.

In contrast, the UK higher rate of 40 per cent applies only when income reaches StgĀ£28,000. The basic rate of 23 per cent will reduce to 22 per cent next year!

The UK also have a ā€œstarting rateā€ of 10 per cent which applies to the first Ā£1,500 of taxable income. However that is essentially a political gimmick rather than a serious
tax rate.

As negotiations for partnership agreements between the government, trade union and employers emphasise, taxation is a cost of employment. Tax cuts are directly tradable against pay increases. That makes the significantly higher Irish tax cost on income of less than StgĀ£28,000 (around IrĀ£30,000) significant.

Part of the difficulty facing the Minister is that in Ireland (unlike in the UK) a married couple receive twice the rate bands and personal allowances which a single person receives, whether or not both spouses are earning income. This makes it expensive in Ireland to attempt to ease the burden of tax on the single person (including those cohabiting but not married). Unfortunately, the Government does not seem willing to deal with this problem by concentrating tax relief measures on allowances such as the PAYE allowances, which apply only to persons who are working, and are not doubled up merely because the taxpayer is married.

As can be seen, the contrast in tax rates between the UK and Ireland is not extreme in the case of a married couple only one of whom has income. The contrast is principally as the tax systems affect single persons.

Capital Gains Tax
In Ireland the first Ā£1,000 of chargeable gains accruing to an individual are exempt in each year. In the UK the equivalent exemption is StgĀ£7,100. However in other respects the Irish CGT system is more favourable than that in the UK. Our CGT rate on most transactions is 20 per cent. In the UK the rate is either 20 per cent or 40 per cent, depending on the amount of the capital gains as increased by taxable income. In effect, taxable gains and income are taken together for tax purposes to some extent.

Gifts and Inheritances
The Irish and UK tax systems in relation to gifts and inheritances are radically different, making comparison almost impossible. Ireland taxes people on the gifts and inheritances which they receive, whereas Britain taxes people on the gifts they make and the inheritances they leave. Whereas Ireland takes into account all gifts and inheritances received by a person since 1988, Britain takes into account inheritances and gifts within the previous 7 years (subject to a sliding scale over that period). Britain has a flat rate of 40 per cent, whereas currently Ireland has an inheritance tax rate of 40 per cent, and a gift tax rate of 30 per cent. It is widely expected that Irelandā€™s rates will be reduced in the next budget. Both Ireland and the UK substantially exclude business assets and agricultural property from the tax net. There is probably little to choose between the two systems. Both are punitive in respect chiefly of the salary earning middle classes.

Company Taxation
The standard rate of corporation tax currently is 28 per cent in Ireland, with a 10 per cent rate applying to manufacturing and a wide range of computer based and financial services. By 1 January 2003 a 12.5% corporation tax will be available on trading income in Ireland universally. In contrast, Britain presently has a standard rate of corporation tax rate of 30 per cent. However the rate applied to companies with profits of up to StgĀ£300,000 is only 20 per cent. Next year Britain will introduce a 10 per cent rate, but it is a political gimmick only, applying only on profits of less than StgĀ£10,000.

Irelandā€™s corporation tax regime will clearly be preferable to that of the UK in the medium term.

Tips to Follow?
Two aspects of the recent UK Finance Act might interest Mr McCreevy in his next budget. Employees will not incur a benefit in kind charge in the UK where employers supply them with computer equipment (on loan not a gift) with a value of up to StgĀ£2,500. This is so even if there is private use by the employer or his family. This assists people to work from home, thus reducing traffic and the need for offices. It also increases computer literacy and Internet usage. Given Irelandā€™s determination to become a centre of e-commerce, this is a move which the Minister should closely examine.

A somewhat related matter is the abolition in the UK of the benefit-in-kind charge on mobile telephones provided to an employee by an employer.

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