Budget 2011 will be announced on Tuesday 7th December 2010 and it is expected that this will be the toughest Budget in many years. The recently published “National Recovery Plan 2011 – 2014” (NRP) has signalled a number of significant tax measures that we expect will be introduced.

The following tax planning actions should be considered prior to the Budget:

It has been suggested in the NRP that the tax free element of ex-gratia termination payments will be capped at a maximum of €200,000 and that the excess will be fully taxable. In the event that you are currently negotiating termination payments, consideration should be given to making the payments before Budget Day in order to maximise the employees after tax position and protect against any changes that may be introduced.

The NRP indicated that the rates of CGT & CAT would be increased from their current levels of 25%. It is possible that these rates could be increased with effect from Budget day and you should consider ensuring that any CGT or CAT event occurs before Budget day to avoid paying the higher rate of CGT or CAT if in the event the rates are increased in the Budget.

There is currently a relief from Capital Gains Tax (retirement relief) and Capital Acquisitions Tax (business property relief) available when a parent transfers their business/farm and/or certain business assets to a child. It has been suggested that restrictions will be put in place which will see these reliefs capped or eliminated. We would recommend that anyone considering passing a business to the next generation as part of their succession planning should do so prior to Budget Day.

The NRP mentioned that the earnings based limits for contributing to personal pension funds will be reduced. You should consider making a personal pension contribution for 2010 prior to Budget Day (subject to your cash flow requirements) in order to avoid any further restrictions in pension tax relief for individuals which may be introduced.

Currently, a self employed individual can withdraw up to 25% of his pension tax free on retirement subject to a maximum tax free lump sum of €1.35m. The NRP suggested that the maximum tax free lump sum be limited to €200,000.  Individuals should consider drawing their pension lump sum in advance of Budget Day.

Company contributions into employee and executive pension plans are currently unlimited. If a company is considering making a special pension contribution into a pension scheme, it should consider doing so prior to Budget Day.

Please contact us if you wish to discuss any of the above points.