Given that Budget 2012 is now fast approaching, Patrick McClafferty (Partner at FS taxation) briefly looks at some areas which may merit attention for both personal and corporate taxpayers in advance of 6 December 2011.

VAT increase

As has been widely covered in the press, and indeed effectively confirmed by Minister Noonan, it is anticipated that the top rate of VAT will be increased by up to 2 percentage points from 21% to 23%.  This would represent an almost 10% increase in the VAT cost for business on certain goods and services and will most greatly impact those with little or no VAT recovery (for example, many businesses operating in the financial services sector).

In light of this impending change it may be sensible for service providers to consider invoicing for larger projects in advance of Budget Day to lock in the current 21%.  Changes to VAT rates often come into effect from the following 1 January, however, given the level of the possible increase here it may be prudent to act ahead of Budget Day.

Capital taxes

Although less publicised than the above, there is also a growing feeling within the market that there will be significant changes to capital taxes in Budget 2012.  Specifically, it is anticipated that, amongst other things, the rate of Capital Gains Tax will be increase from the current 25% (potentially to as high as 30 or 35%).  In addition, following the trend in recent years, the tax free thresholds for Capital Acquisitions Tax (gift and inheritance tax) are likely to be considerably reduced. The relevant Capital Acquisitions Tax rates may also increase along the lines of the Capital Gains Tax changes.

Investors who are considering disposing of capital assets which have a gain attaching may therefore wish to do so in advance of 6 December.  The trigger to lock in the current rate should be the entering into a binding contract for sale, however, professional advice should be sought on specific transactions.  This applies to both personal investors and corporates disposing of non-trading assets.

Where the Capital Gains Tax rate does increase it should also be noted that any capital losses from previous investments (which unfortunately many Irish personal investors have, for example, from losses on holdings of direct equities or property investments) will effectively increase in value.  In this regard, investors should take some time to carry out an exercise to ensure they have captured and documented all available losses.  These losses can then be carried forward indefinitely and set off against any future gains.

In terms of Capital Acquisitions Tax, clients may wish to accelerate the passing of assets to relatives in advance of Budget Day where appropriate to take advantage of the current tax free thresholds.

Funds / deposits taxation

Finally, it not beyond the bounds of possibility that the rates of taxation in respect of income and gains under the investment undertaking (funds), life products and offshore funds taxing regimes may also be increased.  Equally, this could be the case for Deposit Interest Retention Tax ("DIRT") collected at source on deposit interest income.  Although this would be an extremely disappointing move it would be consistent with the trend over the last number of years which has seen rises in these rates.

FS taxation is a boutique tax practice specialising in providing tax advisory and compliance services to clients in the financial services sector. Visit www.fstaxation.ie to find out more.