UK BUDGET – AUTUMN 2018 – Stamp Duty and Land Tax

union-jack-1027898_960_720

 

The Chancellor announced today that the government will extend first-time buyers relief to all first-time buyers of shared ownership properties in England and Northern Ireland.

 

The relief will not apply to purchases of properties valued over £500,000.

 

This amendment will apply to relevant transactions with an effective date of on or after 29th October 2018.  The measure will also apply retrospectively to transactions with effective dates on or after 22nd November 2017, which was the date first-time buyer’s relief was originally introduced.

 

The relief must be claimed in an SDLT Return or by amending an SDLT return which has already been filed.

 

For those who completed their transaction before 29th October 2018, the opportunity to amend their SDLT Return will be extended by a further 12 months until 28th October 2019.

 

A technical correction was included to extend the time frame in which the 3% SDLT on additional dwellings can be reclaimed.  This applies to situations where an individual sells his or her home within three years of making a replacement purchase.  The amendment, which comes into effect from 29th October 2018, extends the reclaim period from three to twelve months following the sale of the old home.

 

UK BUDGET – AUTUMN 2018 – ENTREPRENEURS’ RELIEF

union-jack-1027898_960_720

 

 

The Chancellor announced two key changes to Entrepreneurs’ Relief in today’s budget which will impact shareholders and business owners.

 

 

What is Entrepreneurs’ relief?

Entrepreneurs’ Relief reduces the rate of Capital Gains Tax on disposals of certain business assets from 20% to 10%.

 

 

What changes were introduced today?

 Today’s Budget introduced two new additional tests to be met:

  1. The First one which extends the qualifying holding period from one year to two years for disposals on or after 6th April 2019.  In other words, it increases the holding period for shares held by individual shareholders. Individuals will now be required to hold the shares for at least 24 months rather than the current 12 months before they can claim Entrepreneurs’ Relief on the disposal of their shares. This change will apply to disposals made on or after 6 April 2019.
  2. The second change immediately introduces two further tests that must be satisfied before Entrepreneurs’ Relief is available. These tests will require the claimant to have at least a 5% interest in both (a) the distributable profits and (b) the net assets on a winding up of the company. The measure will have effect for disposals on or after 29 October 2018.

 


What does the 5% Rule mean?

 The changes introduced in today’s Budget mean that along with existing conditions that an individual must hold at least 5% of the ordinary share capital and voting rights of a trading company, the individual must also be entitled to:

a)       5% of distributable profits and

b)       5% of assets available on a winding up of that company.

 

 

 

How is Entrepreneurs’ Relief affected by Dilution?

 As previously announced, the Government confirmed that legislation will be implemented from 6th April 2019 in relation to individuals’ shareholdings diluted below 5% as a result of a commercial cash investment.

 

These individuals will be able to elect to preserve their Entrepreneurs’ Relief on gains to the date of dilution by treating their shareholding as having been disposed of and simultaneously reacquired at market value at the time of dilution. Another way of looking at this is, under the new rules, a shareholder can elect to claim Entrepreneurs’ Relief on the capital gains accrued before dilution below 5%.  This is provided the dilution resulted from an issue of new shares for cash. The Entrepreneurs’ Relief will be claimed on the eventual disposal of those qualifying shares.  There is, of course, the prerequisite that the share issue has not occurred for the purposes of tax avoidance.

 

There will also be an election allowing the individual to defer any tax due until a future liquidity event.

 

It is important to keep in mind that this provision will also not be available if the percentage entitlement falls below 5% due to a part-disposal of shares.

 

 

 

What about Entrepreneurs’ Relief in situations where there has been a transfer of a business to a limited company?

 The changes to Entrepreneurs’ Relief introduced in today’s Budget will affect the availability of the relief on the sale of shares originally issued after the incorporation of a trade.

 

A transfer of a trade in exchange for shares in a trading company should benefit from Entrepreneurs’ Relief if the trade existed for at least two years prior to the date of incorporation.

Under the current regime the claimant was required to hold the resultant shares for at least two years prior to the date of disposal.

 

Therefore, this amendment to the Entrepreneurs’ Relief is deemed to benefit sole traders who incorporate the trade shortly before selling their business.

 

 

UK – AUTUMN BUDGET – CGT on Disposal of Principal Private Residence

union-jack-1027898_960_720

 

Current UK Legislation

Principal Private Residence Relief (PPR) is a capital gains tax relief on the disposal of an individual’s only or main residence.

 

Under current U.K. legislation, an individual can claim relief for any period where the relevant property is deemed to be the individual’s “Principal Private Residence” (PPR).

 

The individual can claim Principal Private Residence relief for the final eighteen months of ownership providing the property had been that individual’s principal or main residence at any point during his or her ownership.  In other words, the final eighteen months always qualify for Principal Private Residence Relief even if the dwelling was no longer the individual’s only or main residence.

 

Lettings relief currently provides relief of up to £40,000 to individuals who let out a property which is or has been their main or principal residence.

 

 

 

Budget 2018 Amendments

The government proposes to make the following two changes with effect from April 2020:

1)      The Lettings Relief will be reformed so that it only applies where the owner of the property is in “shared-occupancy” with a tenant.  The relief can reduce the capital gain, per person, by up to £40,000, giving a potential tax saving of up to £11,200 (£40,000 x 28%) and

2)      The final period of exemption, which applies if a property has been an individual’s PPR at any point during their period of ownership, will be reduced from eighteen months to nine months.   There are no proposed amendments to the thirty six months that are available to disabled persons or those residing in a care home.

The government will consult on the proposed changes before legislating.

BUDGET 2019

Government Building

 

 

 

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D. delivered Budget 2019 today, 9th October 2018.

 

 

PERSONAL TAX

A number of changes aimed at easing the tax burden on low and middle income earners were announced in this year’s budget which include the following:

 

 

INCOME TAX

The income tax standard rate band will increase by €750 for a single earner.

 

This will raise the entry point to the 40% income tax rate

a)      from €34,550 to €35,300 for single earners and

b)      from €43,550 to €44,300 for married couples (with one earner).

 

The marginal rate of tax on income on earnings up to €70,044 per annum is now 48.5%.

 

The marginal rate of tax for those earning over €70,044 will remain at

a)      52% for employees and

b)      55% for self-employed individuals earning in excess of €100,000.

 

 

BENEFIT IN KIND

The 0% rate on BIK on electric cars has been extended to 2021 subject to a €50,000 cap in car value.

 

 

UNIVERSAL SOCIAL CHARGE

There will be a reduction in the third band of USC from 4.75% to 4.5%.

There will be an increase of €502 in the existing lower band of USC. This is worth a maximum of €139 per annum.   In other words, the band to which the 2% USC rate applies will be increased from €19,372 to €19,874.

 

 

TAX CREDITS

There will be a €200 increase in the Earned Income Credit for the Self Employed from €1,150 to €1,350.

There will be a €300 increase in the home carer credit from €1,200 to €1,500.   This credit can be claimed by a jointly assessed couple where one spouse/civil partner works in the home to care for children or other dependents, as defined.

 

 

PRSI

The weekly income threshold for the higher rate of employer’s PRSI will be increase from €376 per week (€19,552 per annum) to €386 per week (€20,072 per annum).

There will be a 0.1% increase in employers’ PRSI in 2019 from 10.85% to 10.95% and from 10.95 to 11.05% in 2020.

 

The National Training Fund Levy will increase from 0.8% to 0.9% from 1st January 2019. The levy forms part of employer’s PRSI for Class A and Class H employments.

 

 

 

BUSINESS TAX

There is strong reaffirmation of the Government’s long-term commitment to 12½% corporation tax rate.

 

 

Key Employee Engagement Programme (KEEP)

There are Increases to the KEEP scheme. The scheme provides for tax relief for certain share remuneration provided to key employees by unquoted SMEs. The three separate amendments are as follows:

  1. The ceiling on the maximum annual market value of shares that can be awarded must equate to the full amount of the employee’s salary.
  2. A replacement of the three-year limit with a lifetime limit.
  3. An increase in the value of shares granted under the scheme from €250,000 to €300,000.

 

Further clarification on these measures is expected in the forthcoming Finance Bill.

 

 

Film Relief

Film relief, which was due to expire at the end of 2020, has been extended until 2024.

 

 

Three Year Start Up relief

The Start up Relief from corporation tax has been extended until end of 2021.

 

 

Controlled Foreign Company (CFC) rules

Controlled foreign corporation rules are to take effect from 1st Jan 2019.

 

 

Capital Gains Tax Exit Tax

CGT Exit Tax at 12½% is to apply from midnight on 9th October 2018 for companies ceasing to be Irish tax resident on any unrealised capital gains arising as well as in situations where the company transfers assets out the State.  This new exit tax regime is to ensure compliance with the EU Anti-Tax Avoidance Directive (ATAD) by 1st January 2020.

 

 

 

AGRICULTURAL SECTOR

 

Income averaging

The Minister has proposed removing the restriction on income averaging for farmers with income from a non-farming source.

 

The current situation is that where a farmer or his/her spouse

a)      carries out another trade or profession or

b)      owns more than 25% of the share capital of a trading company

then they cannot avail of the income averaging provisions.

 

 

Stamp Duty Relief for Young Trained Farmers

The Young Trained Farmer Stamp Duty Relief which was due to expire at the end of 2018 will be extended for a further three years to 31st December 2021.

 

 

Stock Relief

The current stock relief measures will be extended for a further 3 years up to and including 31st  December 2021.

 

 

 

PROPERTY TAX

 

Interest relief for landlords

Interest relief on loans used to purchase, improve or repair a rental property will be increased from 85% in 2018 to 100% in 2019.

 

 

Review of local property tax

Any future changes will be moderate and affordable.

 

 

 

 

INDIRECT TAX

The Minister confirmed that the reduced 9% VAT rate which applies to certain tourism activities will be increased 13½% from 1st January 2019.

 

The 9% VAT rate which applies to the provision of facilities for taking part in sporting activities is being retained.

 

The 9% VAT rate which applies to certain printed matter  will also be retained, e.g. newspapers

 

The VAT rate on e-books and electronically supplied newspapers will be reduced from 23% to 9% with effect from 1st January 2019.

 

 

 

 

CAPITAL ACQUISITIONS TAX

 

CAT Threshold

The CAT Group A tax free threshold has been increased to €320,000 for gifts and inheritances received on or after 10th October 2018.

Group A generally applies to gifts and inheritances from parents to their children.

 

 

 

Additional Measures

  • The VRT relief available for hybrid vehicles including plug-in electric hybrids is being extended for one year i.e. until 31st December 2019.
  • A 1% VRT surcharge will apply to diesel engine passenger vehicles registered in Ireland from 1st January 2019.  This VRT rate is being introduced across all VRT bands.
  • Betting Duty on bets entered into by a bookmaker with an individual in Ireland will be increased from 1% to 2% effective from 1st January 2019.
  • From 1st January 2019, the duty on commissions earned by betting exchanges or intermediaries which are used by persons in Ireland will be increased from 15% to 25%.
  • The measure to allow accelerated capital allowances for employer provided fitness and childcare facilities, as introduced by Finance Bill 2017, will now take effect from 1st January 2019.
  • An accelerated capital allowances scheme will be introduced for refuelling equipment and gas propelled vehicles.