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Sundaybusinesspost

QUIDS IN OR QUIDS OUT IN 2015

The income tax package that starts this week should put money back in some pockets - but there's always another bill to be paid - Emma Kennedy Personal Finance Correspondent

 When employees around the country receive their wages later this month, there will be an extra few euro for most, due to recent budgetary changes. 2015 might begin with an extra few euro in your pocket, but what else lies in store for your finances this year?

Income tax

The two key strands of Budget 2015, as expected, were the income tax package announced by finance minister Michael Noonan, and the road map he laid out on the government's approach to corporate tax.

For most taxpayers, it was Noonan's income tax package, which kicked in this week that was of most interest.

Last October's budget increased the entry point for the universal social charge (USC) to just over €12,000, and made other tweaks on USC rates, which was good news for lower earners. However, Noonan also announced new higher USC rates for high earners to "limit the benefits of these changes for the top ten per cent of earners".

The USC changes, coupled with an increase in the standard rate band and a one per cent reduction in the marginal rate of tax means that, according to government figures, a single PAYE worker earning €45,000 will be up about €10 a week in 2015.

However, self-employed people still face tax inequality this year, with last October's budget maintaining a three per cent USC surcharge on high earning self-employed people. Business groups challenged this inequity, with ISME tweeting soon after Budget 2015 to call it "blatant discrimination".

Capital tax

Capital taxes have jumped by 65 percent in recent years, meaning those passing assets to their family or selling a business have faced much bigger tax bills. However, last October's budget did not bring a further hike in these rates.

Capital gains tax (CGT) and capital acquisitions tax (CAT) have both jumped from 20 per cent in 2008 to 33 per cent now.

While the capital taxation landscape is broadly similar after Budget 2015, any uptick in the economy is likely to have a knock-on effect on asset values, meaning those passing on or selling assets in 2015 could face higher tax bills. For example, the amounts exempted from CAT were dramatically reduced during the austerity years, which means any rise in asset values will be harder to shield from tax.

Savings

The hikes in capital taxation during the austerity years came hand in hand with a huge move upwards in another wealth tax of sorts, Deposit interest retention tax (Dirt). This tax applies to the interest earned on savings, and any increase in the tax erodes the value of savings.

Dirt doubled between2008 and2014, rising from 20 per cent to 41 per cent.

This, coupled with a low interest rate environment, has resulted in a significant decline in real returns for savers.

Last October's budget did not further hike the Dirt rate, but did announce a Dirt refund scheme for would-be first-time buyers in a bid to take the sting out of recent Central Bank's proposals to restrict mortgage lending. The Minister for Finance Michael Noonan has indicated that the Dirt refund scheme will run until the end of 2017. For first-time buyers, the Dirt rebate is unlikely to make much of a hole in the tens of thousands of euro required for a house deposit, regardless of whether the Central Bank presses ahead with its plans to cap mortgage lending in the year ahead or not.

Household bills

Water charges are the big issue for households in 2015. Last month, tens of thousands of angry people took to the streets to challenge the government's planned introduction of water charges this year.

After yielding to considerable voter pressure, the government has rowed back on certain elements of its water charges plan and reduced the amount that households will have to pay. Charges kicked in days ago on January 1, with the first bills due to arrive in April. As it stands, a two-adult household will face an annual bill of €160, provided they register with Irish Water, and avail of their €100 rebate.

However, as a number of voices from the opposition benches pointed out, water charges will negate the impact of Budget 2015's income tax measures for many households.

Another household bill due in 2015 is the local property tax. New figures from the Revenue Commissioners indicate a 95 per cent compliance rate with the local property tax in 2014.

Homeowners now have just days left to settle their property tax bills for 2015, with the payment deadline falling this Wednesday, January 7.

Beyond the two big taxes that households face, there are also a host of other bills, like energy costs and groceries.

The energy market is now much livelier than it was a few years ago, with competition driving good deals for consumers. Experts predict more competition ahead this year. "Just a few years ago we had one electricity supplier, and one price fitted all customers. We now have four suppliers, it looks like we'll have a fifth in 2015, and there are new deals on offer all the time," said Simon Moynihan, communications director and co-founder of comparison website Bonkers.ie.

According to Moynihan, the energy market is a vibrant one. He said a price war towards the end of summer 2014 resulted in "the best discounts and special offers we've seen since deregulation".

On the back of this injection of life into the market, consumers who switch can, in some cases, make savings of more than €300 per year, Moynihan said. He predicted more switching ahead, saying it was "hardly surprising that so many people are switching".

For grocery shoppers, the rise of the discount giants shows little sign of slowing in 2015. Discount retailer Lidl recently opened two new stores in Dublin and Westmeath, and its rival Aldi intends to open ten new outlets across Ireland this year.

Mortgage lending

The Central Bank has already flagged its plan to restrict mortgage lending this year, meaning that borrowers could need a 20 per cent deposit to buy a home in 2015.

While there have been some indications from Central Bank governor Patrick Honohan of an easing of the proposed rules, and a lot of pressure being applied by lenders and politicians alike, the market will have to wait and see what emerges from a Central Bank consultation on the proposals.

The consultation closed last month, and a Central Bank statement on the matter is due this month.

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