Tax News

Stamp Duty, Residential Property Ireland, Non residential property, Commercial Leases

Finance Act 2017 increased the rate of Stamp Duty on all non-residential properties from 2% to 6% and includes non-residential lease premiums.  This 6% rate applies to documents executed on/after 11^th October 2017.  Although transitional measures have been introduced, this higher Stamp Duty rate will apply for conveyances executed from 1st January 2018.

What were the rules before 11th October 2017?

To be able to avail of the previous 2% rate on commercial property the two following conditions must be met:

1. a binding contract must have been in place before 11th October 2017 and

2. the instrument for the transfer must have been executed before 1^st January 2018.

What else does the increased Stamp Duty rate apply to?

It also applies to certain shares which derive their value or the greater part of their value, directly or indirectly, from Irish non-residential land and buildings.  The 6% Stamp Duty Charge was introduced by Section 31C SDCA 1999 on conveyances/transfers of shares in Irish and non-Irish companies.  The provision also applies to units in an Irish real estate fund, interests in foreign collective investments schemes as well as to interests in a partnership.

What happens if the transfer is a change in the person/persons having direct/indirect control over the non-residential property?

This 6% Stamp Duty rate will apply if the result of the transfer is a change and where it would be reasonable to consider that the immovable property concerned was:

1. acquired by the company, IREF or partnership with the sole or main object of realising a gain from its disposal,

2. being developed by the company, IREF or partnership with the sole/main object of realising a gain from its disposal when developed, or

3. held as trading stock by the company, IREF or partnership.

Are there transitional provisions?

There are transitional provisions, which will limit the Stamp Duty rate to its existing rate (i.e. 1% or qualifying for an exemption) where:

1. A binding contract was entered into before 6^th December 2017,

2. the instrument is executed or the binding contract is completed before 1st March 2018 and

3. the instrument contains a statement certifying that the instrument was solely executed in pursuance of said binding contract which was entered into prior to 6^th December 2017.

What does the new rate apply to?

It will apply to contracts for sale of such shares as well as actual transfers of shares.

What happens if the sale of a business is involved?

As the 6% rate applies to all non-residential property, this means:

(a) the disposal of goodwill or the transfer of Debtors,

(b) as part of the sale of a business,

(c) could also give rise to a 6% Stamp Duty charge.

What are the Stamp duty rates on residential property?

1% up to the first €1,000,000.

2% payable on the excess over €1,000,000.

What is the SD rate on leases of commercial property?

It will continue to be charged at a rate of 1% on the average annual rent.  However, where the landlord receives a premium from the tenant at the commencement of the lease, this will be subject to Stamp Duty at 6%.

Finance Act 2017 (Section 83D SDCA 1999)

It introduced a Stamp Duty Rebate Scheme in relation to land purchased for the purpose of developing residential property.

What does it provide?

Where Stamp Duty at the new higher rate of 6% is paid on the acquisition of land which is subsequently used to develop residential property, then the purchaser will be entitled to a rebate of 2/3 of the 6% upfront duty paid.  In other words, a potential refund of up to 4% can be claimed provided the following conditions are satisfied:

What are the key points to keep in mind?

1. The Stamp Duty Rebate Scheme is limited to the proportion of land used for residential development.

2. The Scheme only applies where construction operations for residential property:

(a) commence before 1^st January 2022 and

(b) construction must begin within thirty months of the date the land was acquired.

3. The time required to conclude any planning appeal can be added to this thirty month period.

4. The repayment cannot be claimed in advance of the commencement of construction operations.

5. There is a four year time limit on claiming a repayment. The supporting documentation required to substantiate the claim include:

(i) a certified copy of the deed of transfer,

(ii) a statutory declaration stating that building work commenced within the thirty month period immediately after the date the instrument was executed and

(iii) written consent by all the accountable persons to the person making the claim.

6. Where the Stamp Duty rebate claims relates to only part of the land, the Statutory Declaration must clearly state the specific part of the land to which the claim relates.

7. The rebate will not carry interest.

8. The refund can only be claimed via Revenue’s e-Stamping system.

9. In situations where the residential development is being carried out in phases, repayments can be sought on a phased basis.

10. The Rebate will be clawed back in two situations:

(i) where the residential development is not completed within two years of acknowledgement, by the relevant building control authority, of the commencement notice or

(ii) where at least 75% of the units or a minimum of 75% the total area of the land in question is not occupied.

How is the term “Construction Operations” defined?

 As the construction of buildings or structures including the preparatory operations of site clearance, drainage, earth-moving, excavation, laying of foundations and provision of roadways and other access works.

For further information, please click: https://www.irishstatutebook.ie/eli/2017/act/41/enacted/en/html

If you are a developer, purchaser or landlord of rented residential property or commercial property in Ireland, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Tax Pay and File. Income Tax, Capital Gains Tax (CGT), Local Property Tax (LPT) and Employers/Payroll Taxes

Here is a brief list of relevant tax filing dates for those with pay and file obligations under Local Property Tax, Income Tax, Capital Gains Tax, Payroll Taxes, etc.

For useful Pay & File Tips please click: https://www.revenue.ie/en/online-services/services/ros/ros-help/popular-ros-services/pay-and-file/index.aspx

For further information on tax deadline dates and to discuss your tax obligations with a qualified Chartered Tax Advisors, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Budget Ireland. Income Tax Changes. Business Tax amendments. CGT and CAT Reliefs and Exemptions, VAT

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D delivered his first Budget today, on 10^th October 2017, which concentrated more on expenditure than on tax changes.  The Minister announced a number of positive measures to assist small and medium sized enterprises prepare for “Brexit” as well as confirming Ireland’s commitment to the 12½% corporation tax rate. We are pleased to bring you our summary of the tax measures set out in Budget 2018 under (i) personal taxation, (ii) Income Tax, (iii) Capital Acquisitions Tax, (iv) Capital Gains Tax, (v) Business Taxes, (vi) VAT, etc.

PERSONAL TAXATION

Universal Social Charge

The USC has been cut for lower and middle income earners.

The 2.5% USC rate has been reduced by 0.5% to 2% and the band has been increased to €19,372 from €18,772 which will benefit employees earning the minimum wage.

The 5% USC rate has been reduced by 0.25% to 4.75%

Medical card holders and individuals aged 70 years and over whose combined income does not exceed €60,000 per annum will only be liable to pay a maximum USC rate of 2%.

For self-employed individuals with income of over €100,000 the 11% rate will continue to apply

Income Tax

The higher or marginal tax rate will remain at 40% for 2018.

The income tax standard rate band, however, will be increased by €750 to €34,550 i.e. the entry point at which the 40% income tax rate applies has been increased from €33,800 to €34,550 for a single person and from €42,800 to €43,550 for married couples with one income.

The marginal rate of tax for individuals earning between €34,551 and €70,044 will be 48.75%.

The marginal rate of tax for individuals earning in excess of €70,044 will remain at 52% for employees.

The marginal rate of tax for self-employed individuals earning in excess of €100,000 will remain at 55%.

Earned Income Credit

For self-employed individuals, the earned income tax credit will increase by €200 to €1,150.

No reference was made in today’s Budget speech as to when future increases to this tax credit would arise to bring it in line with the PAYE Tax Credit of €1,650.

Home Carer Tax Credit

The Home Carer Tax Credit will increase by €100 from €1,100 to €1,200.

The €7,200 income threshold remains

This tax credit can be claimed by a jointly-assessed couple where a spouse/civil partner cares for one or more dependents regardless of the number of individuals cared for.

Deposit Interest Retention Tax (DIRT)

The rate for Deposit Interest Retention Tax for 2018 will be charged at 37%.

PRSI

The National Training Fund Levy will be increased over the next three years and will apply to employees under Classes A and H by increasing Employer’s PRSI as follows:

a)      10.85% in 2018

b)      10.95% in 2019

c)      11.05% in 2020

Mortgage interest relief 

Mortgage Interest Relief for residential property owners which was scheduled to be abolished from the end of this year will continue until 2020.

This relates to home owners who took out qualifying mortgages between 2004 and 2012.

The relief will be reduced as follows:

a)      to 75% in 2018

b)      to 50% in 2019

c)      to 25% in 2020

Following a change in last year’s Finance Act, the amount of mortgage interest allowable against taxable rental income will increase to 85% with effect from 1^st January 2018.  However, there was no reference, in today’s Budget speech, to the expected increase from 80% to 85% mortgage interest relief on rented residential property.

As you may remember, in Budget 2017, it had been announced that100% mortgage interest relief for rental properties would be restored on a phased basis by 2020.

 Deductibility of pre-letting expenses

Expenses incurred prior to the first letting of a property are not deductible against rental income, with a few exceptions.

Following today’s Budget, property owners who rent out residential properties which have been vacant for a period of twelve months or more will be entitled to a tax deduction of up to €5,000 per property.

These expenses must be revenue in nature and not capital expenditure.

The relief will be subject to a clawback of the property is withdrawn from the rental market within a four year period.

This relief will be available for qualifying expenditure between now and the end of 2021.

Benefit-in-kind on motor vehicles

The minister announced a number of measures to incentivise the purchase of electric cars including:

a)      a 0% rate of Benefit-in-Kind for electric cars and the electricity used at to charge these vehicles while at work.

b)      a VRT Relief measure

CAPITAL ACQUISITIONS TAX

No changes were announced to the CAT tax-free thresholds in the Budget.

CAPITAL GAINS TAX

No changes were announced to CGT rates in the Budget.

Seven Year Exemption

The Minister relaxed the “Seven Year Exemption” which applied to land or buildings purchased between 7^th December and 31^st December 2014.

Disposals of qualifying assets between years four and seven will now qualify for the full Capital Gains Tax Exemption

VAT

VAT Compensation Scheme

A VAT refund scheme was introduced in order to compensate charities for input VAT incurred on expenditure.

This scheme will take effect from 1^st January 2018 but will be paid one year in arrears. In other words charities will be entitled to claim an input VAT credit in 2019 in relation to expenses incurred in 2018.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

The Minister also confirmed that a capped fund of €5 million will be available to fund the scheme in 2019.

For further information please visit:

http://www.budget.gov.ie/Budgets/2018/Documents/VAT_Compensation_Scheme_For_Charities.pdf

9% VAT Rate

The reduced VAT rate of 9% for goods and services, mainly related to the tourism and hospitality industry, has been retained.

VAT on Sunbed Sessions

 In line with the Irish Government’s National Cancer Strategy, the VAT rate on sunbed services will increase from 13.5% to 23% from 1^st January 2018.

BUSINESS TAXES

Corporation tax rate

The government has made a firm commitment to retaining the 12½% Corporation Tax rate to attract foreign direct investment.

 Capital Allowances for Intangible Assets

The Minister confirmed that he would be limiting the amount of capital allowances that can be claimed for intangible assets.

A tax deduction for capital allowances under Section 291A TCA 1997 on intangible assets and any associated interest cost will now be limited to 80% of the relevant income arising from the intangible asset in the accounting period from midnight of 10^th October 2017.

Key Employee Engagement Programme (KEEP)

The Minister announced plans for a new share based remuneration incentive for unquoted SME companies aimed at improving the ability of SMEs to attract and retain key staff.

This incentive will be available for qualifying KEEP share options granted between 1^st January 2018 and 31^st December 2023.

No income tax, PRSI or USC will be charged on the exercise of the share options. Instead gains from exercising these share options will only be liable to CGT @ 33%.

The tax becomes payable when the shares are sold.

State Aid approval will be required to introduce this scheme.

Accelerated capital allowances for expenditure on energy-efficient equipment

Following a review of the accelerated capital allowances scheme for energy efficient equipment, the current scheme is being extended for a further three years to the end of 2020.

STAMP DUTY

Stamp Duty on commercial property

The rate of stamp duty on commercial property transactions will have increased from 2% to 6% with effect from midnight of 10^th October 2017.

A stamp duty refund scheme is also being introduced for commercial land acquired for the development of housing, on condition that the development must begin within 30 months of the purchase of the land.

It is expected that further details of the relief and the conditions will be outlined in the Finance Bill.

FARMING AND THE AGRI-SECTOR

Stamp duty

The Stamp duty rate of 1% remains for inter-family farm transfers for a further three years.

The Stamp Duty exemption for Young Trained Farmers on agricultural land transactions will also be retained.

Leasing land for solar panels

The leasing of agricultural land for the use of solar panels will continue to be classified as agricultural land for the purposes of the CAT Agricultural Relief and the CGT Retirement Relief providing the solar panel infrastructure does not exceed 50% of the total land holding..

BREXIT

Brexit Loan Scheme 

A new Brexit Loan Scheme has been announced. A loan scheme of up to €300 million will be available at competitive rates to SMEs to assist them with their short-term working capital needs, with particular attention given to food industry businesses.

Details of this scheme will be provided by the Tánaiste and Minister for Business, Enterprise and Innovation, and the Minister for Agriculture, Food and the Marine.

Plans were also announced to hire over 40 additional staff across the Department of Business, Enterprise and Innovation and enterprise agencies in 2018 to respond to the issues arising from Brexit.

Increased funding

The Minister announced increased funding of €64 million to support the agri-sector. Of this, a further €25 million is to be provided to the Minister for Agriculture, Food and the Marine to develop further Brexit loan schemes for the agri-food sector in addition to the loan scheme discussed above.

OTHER CHANGES

Sugar Tax

 From 1^st April 2018 two rates of tax on sugar-sweetened drinks will be introduced subject to State Aid approval.

The first will apply at a rate of 30 cent per litre where the sugar content is above 8g per 100ml.

The second rate of 20 cent per litre will apply where the sugar content is between 5g and 8g per 100ml.

Drinks with less than five grams of sugar won’t attract a sugar tax.

Vacant site levy

The vacant site levy has been increased from the current 3% levy in the first year to 7% in second and subsequent years to encourage land owners to develop vacant sites rather than “hoarding” land.

The vacant site levy is due to come into effect in 2018.

An owner of a property on a vacant site register who does not develop their land in 2018 will be liable to the 3% levy in 2019 and a further 7% levy in 2020 and each year thereafter until the land is developed.

From 1^st January 2017, each local authority is obliged to maintain a register of vacant sites to include on the register, details of any site, which they believe, has been vacant for the previous twelve month period.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Income Tax, Corporation Tax, Capital Gains Tax, Revenue Compliance Interventions, Capital Acquisitions Tax, VAT.

Are you aware of how much has changed since 1st January 2017 in terms of Tax compliance, Tax Credits, Employee Subsistence Expenses, Personal/Income Tax, Corporation Tax, Capital Acquisitions Tax, Capital Gains Tax, Value Added Tax, PAYE, Stamp Duty, Transfer Pricing, Local Property Tax, Revenue Audit Procedures, etc.?

Here are a list of the Revenue eBriefs published so far this year:

1. Revenue eBrief No. 01/17  Finance Act 2016 – VAT Notes for Guidance
2. Revenue eBrief No. 02/17 Improved online services for PAYE customers
3. Revenue eBrief No. 03/17 Stamp duty levies – changes made by Finance Act 2016 and Health Insurance Amendment Act 2016
4. Revenue eBrief No. 04/17  Finance Act 2016 changes to Capital Acquisitions Tax Consolidation Act 2003 – Changes to section 86 (Dwelling House Exemption) and Schedule 2 (Group Thresholds) CATCA 2003 
5. Revenue eBrief No. 05/17  Fisher Tax Credit 
6. Revenue eBrief No. 06/17  Special Assignee Relief Programme
7. Revenue eBrief No. 07/17  Deduction for statutory registration fees paid to the Health and Social Care Professionals Council
8. Revenue eBrief No. 08/17  Revenue Opinions and Confirmations 
9. Revenue eBrief No. 09/17  Tax Relief on Retirement for Certain Income of Certain Sportspersons 
10. Revenue eBrief No. 10/17  Irish Real Estate Fund declarations
11. Revenue eBrief No. 11/17  Average Market Mid-Closing Exchange Rates v Euro – Lloyds Conversion Rate
12. Revenue eBrief No. 12/17  Revenue Arrangements for Implementing EU and OECD Exchange of Information Requirements In Respect of Tax Rulings
13. Revenue eBrief No. 13/17  PAYE – Exclusion Orders
14. Revenue eBrief No. 14/17 –  Taxation of Paternity Benefit
15. Revenue eBrief No. 15/17  Deduction for income earned in certain foreign states (Foreign Earnings Deduction) 
16. Revenue eBrief No. 16/17  Revenue Technical Service – Solicitor Access to the MyEnquiries online contact facility 
17. Revenue eBrief No. 17/17  R and D tax credit claims in respect of projects supported by Enterprise Ireland R and D grants
18. Revenue eBrief No. 18/17  Updates to the Electronic Relevant Contracts Tax (eRCT) System – Look up Payment Notifications
19. Revenue eBrief No. 19/17  Revenue seeks applications for independent Research & Development (R&D) experts
20. Revenue eBrief No. 20/17  Solvency II – EU (Insurance and Reinsurance) Regulations 2015 
21. Revenue eBrief No. 21/17  Opticians in employment 
22. Revenue eBrief No. 22/17  Securitisation: Notification of “Qualifying Company” Section 110 Taxes Consolidation Act, 1997.
23. Revenue eBrief No. 23/17  Code of Practice for Revenue Audit and other Compliance Interventions
24. Revenue eBrief No. 24/17  Health Expenses / Assistance Dogs
25. Revenue eBrief No. 25/17  Non Principal Private Residence (NPPR) Charge
26. Revenue eBrief No. 26/17  Irish Real Estate Fund declarations
27. Revenue eBrief No. 27/17  Certification of Residence for Individuals/Companies/Funds
28. Revenue eBrief No. 28/17  CGT implications for individuals of takeover of Fyffes plc by Sumitomo Corporation
29. Revenue eBrief No. 29/17  PAYE Modernisation – Report on Public Consultation Process
30. Revenue eBrief No. 30/17  Non Principal Private Residence charge notification facility
31. Revenue eBrief No. 31/17  Home Renovation Incentive (HRI)
32. Revenue eBrief No. 32/17  Help To Buy Scheme
33. Revenue eBrief No. 33/17  Section 900 Taxes Consolidation Act 1997 – Power to call for the production of books, information etc.
34. Revenue eBrief No. 34/17  Charitable Donations Scheme
35. Revenue eBrief No. 35/17  Revenue Technical Service (RTS) for Agents and Taxpayers
36. Revenue eBrief No. 36/17  Large Cases Division: Opinions/Confirmation on Tax/Duty Consequences of a Proposed Course of Action
37. Revenue eBrief No. 37/17  VAT treatment of education and vocational training
38. Revenue eBrief No. 38/17  ROS – Extension of Pay & File Deadline for ROS Customers for 2017
39. Revenue eBrief No. 39/17  Corporation Tax (CT1) Returns for 2016 and 2017, Forms 46G (Company)
40. Revenue eBrief No. 40/17  Offshore funds regime
41. Revenue eBrief No. 41/17 Incapacitated Child Tax Credit
42. Revenue eBrief No. 42/17  MyEnquiries enhancements
43. Revenue eBrief No. 43/17  Exemption in respect of certain expense payments for resident relevant directors
44. Revenue eBrief No. 44/17  Definition of ‘chargeable person’ – Self Assessment
45. Revenue eBrief No. 45/17  Employees’ Subsistence Expenses and Motoring and Bicycle Expenses
46. Revenue eBrief No. 46/17  Underpayment of Preliminary Corporation Tax: waiver of interest where the underpayment arises solely due to movements in the exchange rate of the functional currency
47. Revenue eBrief No. 47/2017  Pre self-assessment – stamp duty manual
48. Revenue eBrief No. 48/17  Taxation of exam setters, exam correctors, invigilators, etc.
49. Revenue eBrief No. 49/17  Tax treatment of the reimbursement of Expenses and Travel and Subsistence to Office Holders and Employees
50. Revenue eBrief No. 50/17  Returns Compliance Income Tax and Corporation Tax
51. Revenue eBrief No. 51/17  Local property tax appeals
52. Revenue eBrief No. 52/17  Company reconstructions without change of ownership (Section 400 TCA 1997)
53. Revenue eBrief No. 53/17  Restructured VAT Tax and Duty Manual
54. Revenue eBrief No. 54/17  Full self-assessment: Time limits for making enquiries and making or amending assessments
55. Revenue eBrief No. 55/17  Surcharge on certain undistributed income of close companies
56. Revenue eBrief No. 56/17  Charges on income for Corporation Tax purposes
57. Revenue eBrief No. 57/17 Time limits for raising assessments and making enquiries – section 955 TCA 1997
58. Revenue eBrief No. 58/17  Filing and paying Stamp Duty on Instruments
59. Revenue eBrief No. 59/17  Capital Acquisitions Tax – Business Relief
60. Revenue eBrief No. 60/17  Pensions Manual Amended
61. Revenue eBrief No. 61/17  PAYE Taxpayers and Self-Assessment – Interaction of PAYE and Self-Assessment Procedures: Income Tax
62. Revenue eBrief No. 62/17  Company Incorporation – Economic Activity
63. Revenue eBrief No. 63/17  Tax-Geared Penalties for Non-Submission of Returns
64. Revenue eBrief No. 64/17  Tax treatment of certain dividends
65. Revenue eBrief No. 65/17  Full self-assessment – Revenue assessment in the absence of a return
66. Revenue eBrief No. 66/17  New PAYE Services and ROS registration changes
67. Revenue eBrief No. 67/17  Data Retention Policy for Compliance Interventions
68. Revenue eBrief No. 68/17  Provisions Relating to Residence of Individuals
69. Revenue eBrief No. 69/17  Guidelines on tax consequences of receivership and mortgagee in possession (MIP)
70. Revenue eBrief No. 70/17  Irish Real Estate Funds
71. Revenue eBrief No. 71/17  ROS Form 11 – 2016 income tax return
72. Revenue eBrief No. 72/17  Guide to Exchange of Information under Council Directive 2011/16/EU, Ireland’s Double Taxation Agreements and Tax Information Exchange Agreements and the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.
73. eBrief No. 73/17  Guidelines for requesting Mutual Agreement Procedure (MAP) assistance in Ireland
74. Revenue eBrief No. 74/17  Transfer Pricing Documentation Obligations
75. Revenue eBrief No. 75/17  Tax Treatment of Members of the European Parliament
76. Revenue eBrief No. 76/17  ROS – Digital Certificate Renewal reminder notices
77. Revenue eBrief No. 77/17  Corporation Tax Statement of Particulars – Section 882 TCA 1997
78. Revenue eBrief No. 78/17  Accessing Schedule E information – 2016 Income Tax Return

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

2017 Tax Reform for Economic Growth and American Jobs

The Biggest Individual And Business Tax Cut In American History

Top Line:

The U.S. tax code is overcomplicated and fails to create enough jobs, or provide relief to middle class families.

–          Since 2001, the U.S. tax code has faced nearly 6,000 changes, more than one per day.

–          Taxpayers spend nearly 7 billion hours and over $250 billion annually on compliance costs.

–          The U.S. has the highest statutory tax rate in the developed world, discouraging business investment and job creation.

President Trump is proposing the largest tax cut for individuals and businesses in U.S. history.

–          It will simplify the tax code, incentivize investment and growth and create jobs.

–          It will provide historic tax relief for middle income families and small business owners.

The Need For Comprehensive Tax Reform

An overly complex tax code is confusing and burdensome on American taxpayers.

–          The last major effort to successfully reform the U.S. tax code was over 30 years ago under President Reagan.

–          Today, according to the IRS’ National Taxpayer Advocate, the federal tax code is nearly four million words long.

–          Congress has made more than 5,900 changes to the federal tax code since 2001 alone, averaging more than one change a day.

–          The National Taxpayers Union estimates that Americans spend 6.989 billion hours at a cost of more than $262 billion on compliance and record keeping costs.

–          Instead of a single tax form, the IRS now 199 individual income tax forms and 235 business tax return forms.

–          Approximately 90% of taxpayers need help doing their taxes.

Today, with a corporate tax rate of 35%, U.S. businesses face the highest statutory tax rate in the developed world, and fourth highest effective tax rate, which discourages job creation or investment.

–          The U.S. is out of step with its competitors, having the highest corporate income tax rate among the 35 OECD nations and being the only nation that has increased its rate since 1988.

–          A lower business tax rate will discourage corporate inversions and companies from moving jobs overseas.

–          The high corporate tax rate keeps trillions of business assets overseas rather than being reinvested back home.

–          Even President Obama proposed lowering the business tax rate to 28 per cent to help spur economic activity.

Tax Reform for Economic Growth and American Jobs: The Biggest Individual And Business Tax Cut In American History

Goals For Tax Reform

–          Grow the economy and create millions of jobs

–          Simplify our burdensome tax code

–          Provide tax relief to American families-especially middle-income families

–          Lower the business tax rate from one of the highest in the world to one of the lowest

Individual Reform

–          Tax relief for American families, especially middle-income families:

–        Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%

–        Doubling the standard deduction

–        Providing tax relief for families with child and dependent care expenses

Simplification:

–          Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers

–          Protect the home ownership and charitable gift tax deductions

–          Repeal the Alternative Minimum Tax

–          Repeal the death tax

Repeal the 3.8% Obama care tax that hits small businesses and investment income

. Business Reform

–          15% business tax rate

–          Territorial tax system to level the playing field for American companies

–          One-time tax on trillions of dollars held overseas

–          Eliminate tax breaks for special interests

Process

–          Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input.

–          Working with the House and Senate, the Administration will develop the details of a tax plan that provides massive tax relief, creates jobs, and makes America more competitive – and can pass both chambers.

Information courtesy of WHfactsheet04262017.pdf

For further information, please click: https://trumpwhitehouse.archives.gov/articles/president-trump-proposed-massive-tax-cut-heres-need-know/

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Qualifying Disclosure. Revenue Compliance Intervention. Audits and Investigations. Compliance Notification Letters

Today, 3^rd March 2017, Revenue issued eBrief 23/17, announcing the publication of its updated Code of Practice for Revenue Audit and other Compliance Interventions – February 2017.  All compliance notification letters will now advise the taxpayer of Revenue’s potential use of e-audit techniques, as part of the intervention process. This updated Code of Practice also incorporates amendments to the qualifying disclosure regime in relation to offshore matters.  These are due to come into effect on 1st  May 2017.

The main changes are as follows:

• Paragraph 2.6 states “The scope of the audit will also be set out, and will range from a single tax-head or single issue for a specific period or year to a comprehensive audit for a number of years.” In this section, Revenue’s Audit/Compliance Notification Letter will now provide more clarity as to what the tax head(s) and year(s) will be audited.

• Paragraph 3.7.1 states “In cases not involving deliberate default, if Revenue draws the attention of the taxpayer to issues not within the initial scope of the Revenue Audit, without formally extending the audit, the taxpayer will have the benefit of an ‘unprompted qualifying disclosure’ in respect of any liabilities disclosed.” Here Revenue is extending the circumstances where a taxpayer can make an unprompted qualifying disclosure. In the previous Code of Practice, if Revenue identified areas not within the scope of the audit, as outlined in the audit notification letter, but considered that they were related to the subject matter of the audit then the Taxpayer could only make a prompted qualifying disclosure.

• Paragraph 3.13 states “A notice of intention to make a qualifying disclosure will not be granted where the taxpayer has already availed of a 60 day period in respect of the same issue or period, i.e. only one 60 day period will be allowed to prepare a qualifying disclosure for the same issue or period.” This amendment was introduced to address the issue of taxpayers’ delays. The Revenue Commissioners want to make it clear that the taxpayer has only one sixty day period in which to prepare a qualifying disclosure for the relevant issue and tax period.

• Paragraph 4.10 states “Revenue Compliance Interventions can involve the copying of records or the extraction from records… The data will be deleted within six months of the date that the compliance intervention is finalised.” This section states that if Revenue copy or extract taxpayers’ information or records, as part of a compliance intervention, that this data will be deleted within a six month period from the conclusion of the intervention.

• Paragraph 6.2 increased the statutory publication threshold amount from €33,000 to €35,000. Please be aware that this figure is the accumulation of tax liabilities, statutory interest and penalties.

As with previous updates to the Code of Practice for Revenue Audit and other Compliance Interventions, if the taxpayer has received a compliance intervention notification, and the intervention has not been settled by 22^nd February 2027, the taxpayer has the option of using the terms of this Code of Practice or the previous one.

For further information, please click: https://www.revenue.ie/en/tax-professionals/documents/code-of-practice-revenue-audit-2017.pdf

What we can do for you

Did you know that it’s the Revenue Commissioners’ aim is to audit every company at least once, every five years?  We have extensive experience and expertise in dealing with all aspects of Revenue Audits, Compliance Interventions and Investigations.  For further information on minimizing and managing your tax risk, preparing qualifying tax disclosures, supporting you throughout the intervention and ensuring the best possible outcome, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Offshore Income and Gains Taxes. Qualifying Disclosure. Revenue Compliance Intervention. Revenue Audits and Investigations

With effect from 1^st May 2017, you will no longer be able to avail of the benefits from making a qualifying disclosure in relation to offshore income and gains.  From 1^st May 2017 any offshore tax defaults could result in (i) unmitigated penalties, (ii) publication on the quarterly tax defaulters’ list and (iii) possible criminal prosecution, even in situations where the taxpayer comes forward voluntarily. Therefore, if you have incurred a tax liability in relation to any offshore matter, you have until 30th April 2017 to make a voluntary disclosure to the Revenue Commissioners.  Please be aware, that according to Revenue’s FAQ, filing a notice of intention to make a disclosure will NOT provide taxpayers with an extension to this deadline.

Who is affected?

Individuals, Companies, Trustees and other persons will all be impacted.

What is meant by “offshore matters”?

1. Foreign Bank Accounts,

2. Assets held in countries outside the state,

3. Income arising from a source outside Ireland,

4. Gains arising or accruing in a territory other than Ireland,

5. Foreign property and

6. Shares held outside the state.

“Outside the state” means all countries or jurisdictions outside Ireland.

If you have received a gift or inheritance of a foreign property, you should contact your Tax Advisor to ensure you meet your compliance obligations.

For those of you who own a holiday property abroad or hold an overseas pension, this recent tax development may affect you.

Special attention should be paid if you hold a directorship of a non-Irish company and receive Director’s Fees or if you receive income from a family trust established outside the state.  You may need to make a disclosure to the Revenue Commissioners before 30^th April 2017.

What should I look out for?

On 17^th February Revenue issued its press release “Income Tax Payers Get Important Advice from Revenue.”  They subsequently sent out letters to hundreds of thousands of taxpayers inviting them to review their tax returns and consider if they need to make a qualifying disclosure.

If you have received such a letter, you should seek professional tax advice.

For further information, please click:

https://tab.ie/wp-content/uploads/2017/03/Revenue-FAQ-Qualifying-disclosure-offshore-matters-1.pdf

If you would like to make an appointment to review your offshore assets, discuss any Revenue correspondence you received in relation to this matter or to prepare a qualifying disclosure, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Gift and Inheritance Tax. Capital Acquisitions Tax. Dwelling House Exemption. CAT Reliefs and Exemptions

Everyone is aware that significant changes were introduced in the 2016 Budget but have you thought what they might mean for you?  From 25th December 2016, the Dwelling House Exemption from CAT (Capital Acquisitions Tax) will apply (i) to inheritances and (ii) gifts to a dependent relative.   Subject to certain exceptions, the inherited property must have been the principal place of residence of the deceased person at the date of death.  This requirement, however, will be relaxed in situations where the deceased person was required to leave their home, prior to the date of death, as a result of ill health.

Situation prior to 25th December 2016

Prior to 25^th December 2016, Section 86 CATCA 2003 provided a means of passing on a property to the next generation, either by gift or inheritance, in a tax free manner.

The exemption from Capital Acquisitions Tax for a gift or inheritance of a dwelling house or part of a dwelling house applied if the following conditions were met:

1. the donee/successor/beneficiary who received the gift or inheritance must have continuously occupied the dwelling house as their sole or main residence throughout a period of three years immediately up to the date of the benefit or
2. in circumstances where the dwelling house replaced another property, the donee/successor/beneficiary must have occupied the property as their only or main residence for a period of three out of the four years immediately before the date of the benefit  and
3. the donee/successor/beneficiary must not at the date of the gift/inheritance have been beneficially entitled to any other dwelling house or interest in any other dwelling house and
4. in circumstances where the donee/successor was aged under fifty five years, he/she must have continued to occupy the dwelling house as their sole or main residence for six years beginning on the date of the gift or inheritance.

Capital Acquisitions Tax Situation from 25^th December 2016

1. The Dwelling House Relief is available for inheritances of a dwelling house or part of a dwelling house only.  It is no longer available for gifts or gifts which convert to inheritances in circumstances where the donor dies within two years of the date of the gift.
2. The donor must have occupied the dwelling house as their sole or main residence at the date of his/her death. Please be aware that this requirement will be relaxed in situations where the deceased person could not remain in the dwelling house due to mental or physical infirmity. In other words if that individual requires specialist care in, say, a nursing home and as a result, has to leave their home, then they will be deemed to continue to occupy the property during that period.
3. The beneficiary/successor must have occupied the dwelling house as their sole or main residence for a continuous period of three years preceding the date of the inheritance. In other words, the house must be occupied by both the person making the gift at the date of death and the beneficiary receiving the gift at the date of the inheritance. Please be aware that this requirement does not apply in the case of a gift of a dwelling house to a “Dependant Relative.”
4.  The beneficiary/successor must not have an interest in any other dwelling house or part of a dwelling house at the date of the inheritance and
5.  The beneficiary/successor must continue to occupy the dwelling house as his/her main or sole residence for six years from the date of the inheritance.   Please be aware that this requirement will be relaxed in situations where the beneficiary/successor cannot remain in the dwelling house due to mental or physical infirmity or because the terms of their employment requires them to live elsewhere.
6.  The Dwelling House Relief will however be available on a gift of a dwelling house which is made to a “Dependant Relative.”   This is defined as a direct relative of the person making the gift or their spouse/ civil partner, and who is permanently and totally incapacitated by reason of mental or physical infirmity or is over the age of sixty five years.

What does this mean?

The amendment to Section 86 CATCA 2003 (Exemption relating to certain dwellings) has removed a valuable tax planning opportunity and will lead to unforeseen Capital Acquisitions Tax liabilities for individuals who receive gifts.

To most it seems like an excessive way of addressing the problem of wealthy families using this exemption as a means of transferring property to the next generation tax free.   For many families in Ireland the “Dwelling House Relief” was used by parents to help their children get on to the property ladder.   Some, however, welcome this amendment stating that it will ensure that family members who genuinely want to live with and care for elderly parents will inherit the family home tax free providing the conditions are met.

It is also important to keep in mind that since the conditions for this Relief are based on mental or physical infirmity then medical proof will be required to avoid a claw-back of the relief.

 In summary

1. Section 86 CATCA 2003 Dwelling House Relief is only available for inheritances unless a gift of a dwelling house is taken by a Dependant Relative who is permanently or totally incapacitated or aged over sixty five years.
2. The age at which a beneficiary/successor can take a property without being liable to the claw-back provisions has been increased from fifty five years to sixty six years.
3. The house must be occupied by both the disponer and the beneficiary at the date of the inheritance except where the property was gifted to a dependent relative.
4. The property is the only residential property that the beneficiary/successor is beneficially entitled to.

For further information, please click:

http://www.revenue.ie/en/practitioner/ebrief/2017/no-042017.html

For all your Irish or cross-border gift or inheritance concerns under Inheritance Tax, Gift Tax, Estate Tax and Capital Acquisitions Tax,  please contact us on queries@accountsadvicecentre.ie.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Budget Ireland, Personal Tax, Business Tax, Capital Gains Tax (CGT), Corporation Tax, Cross Border Taxes

Today the Minister for Finance Michael Noonan T.D. delivered Budget 2017.  Until the Brexit negotiations begin, it is impossible to know the impact for Ireland.  However today’s Budget gave Minister Noonan the opportunity to affirm the stability of Ireland’s tax policies, while at the same time introducing measures to promote economic growth.  Unless otherwise stated, the following tax changes will take effect from 1^st January 2017.  We will be examining them under Personal Tax, Business Taxes, Capital Acquisitions Tax, Property Taxes, etc.

PERSONAL TAX

1)   USC Reductions

There will be a half per cent reduction to the first three USC rates i.e. 1%, 3% and 5.5% to 0.5%, 2.5% and 5% respectively.  The aim is to ease the tax burden on low and middle income earners earning up to €70,044 per year.

There will also be an increase in the entry point to the 5% band from €18,668 to €18,772.

There has been no change to the 8% or 11% USC rates.

While the reduction in USC rates is a welcome reduction in the overall tax burden, the top marginal rate for employed individuals with earnings over €70,044 is still 52% and 55% for self-employed individuals with income in excess of €100,000.

2)   Home Carer Credit

There is an increase in the Home Carer Tax Credit by €100, to €1,100 for 2017.

An individual who cares for one or more dependent persons may claim the Home Carer Tax Credit.  These include children, an older person, an incapacitated individual, etc.

Who can claim it?

A jointly-assessed couple in a marriage/civil partnership where one spouse/civil partner cares for one or more dependent individuals.

3)   Earned Income Tax Credit

The Earned Income Credit has increased from €550 to €950.

The tax credit is expected to increase to €1,650 in 2018.  This will see self-employed individuals being on a par with employees, who are currently entitled to a PAYE tax credit of €1,650.

Budget 2016 introduced an Earned Income Tax Credit of €550 for self-employed individuals and includes proprietary directors, with earned income who were not otherwise entitled to the PAYE Tax Credit.

 4)   Deposit Interest Retention Tax (“DIRT”)

The rate of DIRT has been reduced from 41% to 39%.

In his Budget speech, Minister Noonan also committed to reducing the DIRT rate by a further 2% in the next three years until it reaches 33%.

 5)   Fisherman’s Income Tax Credit

Fishermen can claim a new income tax credit of up to €1,270.  This is provided they spend at least 80 days in the tax year, fishing for wild fish or shellfish.

Capital Acquisitions Tax thresholds

The Group A tax-free threshold, which applies primarily to gifts and inheritances from parents to their children, is being increased from €280,000 to €310,000.

Group B threshold, which applies primarily to gifts and inheritances to parents, brothers, sisters, nieces, nephews, grandchildren, etc., is being increased from €30,150 to €32,500.

The Group C threshold, which applies to all relationships other than Group A or B, is being increased from €15,075 to €16,250.

PROPERTY

1.    Help to Buy Scheme

Minister Noonan announced the new “Help to Buy” scheme for First Time Buyers of newly-built houses today.  This new tax incentive is aimed at assisting first time buyers in meeting the acquisition deposit limits set by the Central Bank.  Under this scheme, first-time buyers will receive a rebate of income tax of the previous four years.  The rebate will be up to 5% of the value of a newly constructed home, up to a maximum value of €400,000.

A full rebate (which will be calculated on a maximum of €400,000) will apply to houses valued between €400,000 and €600,000.  In other words, where the new house is valued between €400,000 and €600,000, the rebate will still apply but it will be capped at €20,000.

A rebate cannot be claimed on house purchases in excess of €600,000.

The scheme will be back-dated to cover new houses acquired between 19^th July 2016 and December 2019.

A number of conditions must be met as follows:

The property must be a new build or a self-build.  It must have either been purchased or built as the First Time Buyer’s main or primary residence.

Second-hand properties will not qualify for this relief.

The First Time Buyer must take out a mortgage of at least 80% of the purchase price.

 2.    Interest on rental properties

For landlords of residential property, 100% relief for mortgage interest incurred on the acquisition or development of residential rental properties will be restored on a phased basis over the next five years.

The Relief will increase by 5% per annum, beginning with 80% interest relief in 2017. This change will apply to both new and existing mortgages.

Under this new measure, the relief will be increased by 5% every year over the next five years.  This will ultimately bring the relief in line with that currently available to landlords of commercial property.

3.    Rent-a-Room relief

The annual tax free income limit for Rent-a-Room Relief is being increased by €2,000 from €12,000 to €14,000 per annum for 2017 and subsequent years.

4.    Home Renovation Incentive

The Home Renovation Incentive which offers a tax incentive of up to approximately €4,000 for homeowners wishing to renovate a property has been extended for another two years until the end of 2018.

It was originally introduced in Finance Act 2013 and was due to expire at the end of 2016 but Minister Noonan announced today that this will now be extended to the end of 2018. This is seen as of great benefit to the Irish construction industry.

The rate of credit and the expenditure thresholds remain unchanged.

 5.    Living City Initiative

This Initiative provides tax relief on the refurbishment of properties in designated areas in Ireland’s six cities.

The conditions of the Living City Initiative are being amended as follows:

• Landlords can qualify for the relief where they let qualifying residential property.
• The current cap on the maximum floor space of a residential property has being removed.

BUSINESS TAX

There were a number of welcome changes for business owners in today’s budget:

I.          Revised Entrepreneur Relief

Minister Noonan announced a reduction in the preferential Capital Gains Tax rate, from 20% to 10%, for those qualifying for Entrepreneur Relief on the disposal of certain business assets, including shares, provided conditions are met.

There was no change to the €1m lifetime limit on chargeable gains.

II.     Foreign Earnings Deduction (“FED”)

This scheme which was due to expire in December 2017 has been extended until the end of 2020.

The minimum number of qualifying days spent abroad for Foreign Earnings Deduction Relief has been reduced from 40 days to 30 days.

The list of qualifying countries has been extended to include two additional countries: Colombia and Pakistan.

III.          Share-based remuneration regime for SMEs

The Minister signalled his intention to develop a SME focused, share based incentive scheme which would be introduced in Budget 2018.

The Minister noted that any new regime would have to satisfy EU State Aid rules.

IV.            Start Your Own Business scheme

The Start Your Own Business relief, which was due to expire on 31^st December 2016, has been extended for a further two years.

The cap on eligible expenditure is being increased from €50 million to €70 million, subject to State Aid approval.

AGRI SECTOR

The following changes were introduced for individuals operating in the Agri sector in light of the challenges posed from Brexit:

• The flat-rate addition for VAT unregistered farmers is being increased from 5.2% to 5.4% from 1^st January 2017.

• The extension of the scheme of accelerated capital allowances for energy efficient equipment to sole traders and non-corporates.  Previously this scheme only applied to companies who could claim relief for expenditure on qualifying plant and equipment.

A new income tax payment option for farmers was introduced whereby farmers can opt to ‘step out’ of income averaging to allow for “unexpectedly poor income” and pay tax based on their actual profits in that year.

The tax deferred must be paid in subsequent years however the period over which the deferred tax must be paid is as yet unclear. Therefore this is a tax deferral scheme and not an actual tax saving.  Farmers can opt to avail of this “step out” in 2016.

A new low cost loan fund is to be established for farmers, with an interest rate of less than 3% per annum. These loans will enable farmers to improve their cashflow management and reduce the cost of their short term borrowings.

The CGT relief for farm restructuring was introduced to facilitate sales, purchases and swaps of land parcels and to ensure more efficient farm structures.  Although the terms of the relief remain unchanged, this relief, which was due to expire on 31^st December 2016, has been extended to 31^st December 2019.

Payments under the raised bog restoration incentive scheme will be exempt from Capital Gains Tax.

INTERNATIONAL TAX

Special Assignee Relief Programme (“SARP”)

The SARP regime, which was due to expire at the end of 2017, has been extended for a further three years until the end of 2020.

This Relief exempts 30% of the income of between €75,000 and €500,000 of employees assigned to work in Ireland for a minimum of twelve month provided certain conditions are satisfied.

No other changes were announced in relation to SARP.

Tackling offshore tax evasion

The Irish Revenue will be carrying out a comprehensive programme of targeted compliance interventions.  They will be focused on offshore tax evasion.

Revenue will be paying attention to information it receives under FATCA, EU and OECD information exchange initiatives etc.

From 1st May 2017, individuals involved in illegal offshore tax planning will not have the opportunity to make a qualifying voluntary disclosure.

Also, legislation will introduce a new strict liability offence, for failure to return details of offshore assets/accounts.

Consultation on modernising PAYE

Minister Noonan announced a Revenue consultation regarding the proposed modernisation of the PAYE system to take effect from 1^st January 2019.

The consultation process will begin today regarding the implementation of a real time PAYE / Tax reporting regime for employers.   He advised that it would be similar to that which currently operates in the UK.

 OTHER MEASURES

• There was no change to the VAT rates.  The 9% VAT rate applying to tourism related activities remains unchanged.

• The Minister intends to extend mortgage interest relief to 2020. The details of the extension will be set out in Budget 2018.

• A tax on sugar-sweetened drinks will be introduced in 2018.  This will coincide with a similar regime in the UK. A public consultation on the form and implementation of the tax was released today by the Department of Finance. It will run until 3^rd January 2017.

• The excise duty on a packet of twenty cigarettes will increase by 50c (VAT inclusive) from midnight tonight.  A corresponding pro-rata increase will also apply to other categories of tobacco products including smoking tobacco, cigars, etc.

• There is no change to the excise duty on alcohol or fuel.

• The qualifying limit on excise duty for Microbreweries was extended. This will reduce the standard rate of tax (alcohol products tax) by 50% on beers produced in Microbreweries where the output is 40,000 hectolitres or less per year.  Previously the limit was 30,000 hectolitres.

• VRT relief on the purchase of electric vehicles is extended by five years.  The VRT relief for hybrid vehicles is to be extended by two years.

• Relief from carbon tax is being introduced to promote the use of “green fuels.”   In other words, solid fuels that include a biomass element.

For further information, please click: https://www.gov.ie/en/department-of-finance/collections/budget-2017/

If you are looking for an experienced, independent, professional and qualified Chartered Tax Advisor to effectively handle your tax affairs and provide you with peace of mind, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information.  However, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Discretionary Trusts. Inheritance Tax. Gift Tax. Discretionary Trust Tax. Estate and Succession Planning.

Effective estate and succession planning enables you to tax efficiently transfer your assets, during your lifetime or at death, to your beneficiaries.  Trusts can play an important role in estate planning.   When setting up a Trust, it is essential to take into consideration the following tax heads: (i) Income Tax, (ii) Capital Gains Tax, (iii) Capital Acquisitions Tax, (iii) Stamp Duty and (iv) Discretionary Trust Tax.

INCOME TAX

The tax residence of the trustees is what determines the extent of their liability to Irish income tax.

If all the trustees are Irish resident then they are liable to Irish income tax on the worldwide income of the trust from all sources.

If, however, the trustees are resident in say France or the U.S. for tax purposes, then the trustees will only be liable to Irish income tax on Irish source income.

The Trustees must pay income tax at the standard rate of 20% on any income arising but they will not be entitled to claim any of tax credits, allowances or reliefs as they are not deemed to be individuals.

If the income of the trust has not been distributed within eighteen months from the end of the year of assessment in which the income has arisen, there will be a 20% surcharge on this accumulated income.

In circumstances where a beneficiary has an absolute right or entitlement to the trust income as opposed to the Trustees then Revenue will assess the beneficiary directly.  In other words if the terms of the trust state that income is to be paid directly to a particular beneficiary as opposed to the trust then the beneficiary will be liable to Income Tax on the amounts received.  That individual must file the appropriate tax return and pay the relevant taxes within the deadline dates.

CAPITAL GAINS TAX

For the purposes of CGT, the trustees will to be Irish resident and ordinarily resident if the general administration of the trust is carried out in Ireland and if all or the majority of the trustees are resident or ordinarily resident in Ireland.

In general, if the trustees are resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax on their worldwide gains.

If, however, the trustees are not resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax in respect of any gains arising on disposal of specified assets including:

• Land and buildings in Ireland .
• Minerals in Ireland including related rights, and exploration or exploitation rights in a designated area of the continental shelf.
• Unquoted shares deriving their value, or the greater part of their value, from such assets as mentioned above.

Please keep in mind that, just as for Income Tax purposes, the trustees are not deemed to be individuals and are therefore not entitled to the annual CGT exemption of €1,270 which is only available to individuals.

Apart from selling/distributing the trust assets, the trustees will be deemed to have disposed of assets for CGT purposes in the following three situations:

1. Where the trustees cease to be Irish resident or ordinarily resident.
2. Where a life interest in the trust property has ended but the property continues to be settled property.
3. Where a beneficiary becomes absolutely entitled in possession to the settled property except in situations where it occurred as a result of the death of the individual with a life interest in that property.

Market Value rules are imposed on this event with the Trustees being deemed to have disposed of and immediately reacquired the property at open market value.  As with all CGT computations, the liability is calculated on the difference between its base cost and the deemed market value.

CAPITAL ACQUISITION TAX

Capital Acquisition Tax is only payable when the beneficiary actually receives a gift or inheritance.  Where a beneficiary receives the gift/inheritance under a deed of appointment from a trust then he/she/they will be taxed as if the benefit was received from the settlor/testator.

Capital Acquisition Tax at 33% is payable by the beneficiary and is charged on the value of the gift or inheritance to the extent that it exceeds the relevant tax-free threshold amount.

A charge to Irish Capital Acquisition Tax will arise in the following situations:

• If the beneficiary is Irish resident or ordinarily resident on the date he/she/they receives the benefit.
• If the settlor is Irish resident or ordinarily resident either (a) at the date of setting up the trust or (b) on the date the beneficiary receives the benefit.
• In circumstances where the settlor is Irish resident or ordinarily resident at the date of his/her/their death a liability to Irish CAT will arise on any benefit taken on the settlor’s death
• Where the property, which comprised the benefit, is situated in Ireland.

Points to keep in mind

• The creation of a discretionary trust or the transfer of funds to a discretionary trust will not give rise to a charge to capital acquisitions tax.
• Distributions from a trust, however, can potentially give rise to both an Income Tax and a Capital Acquisitions Tax liability. You’re probably asking yourself if a double charge to tax has arisen.  It has.  Regular or periodic distributions to a beneficiary will be subject to the individual’s marginal rate of Income Tax but can also, at the same time, be liable to CAT.  A Revenue concession exists where CAT is chargeable on the net benefit i.e. the benefit after Income Tax has been deducted.  Don’t forget, the small gift exemption of €3,000 per annum can also be deducted.

STAMP DUTY

Stamp Duty can arise on the transfer of assets into a trust at 1% in the event of shares, residential property valued at less than one million euros, etc. or 2% in the event of commercial property, business assets, etc.

There is no Stamp Duty on the transfer of assets into a trust that is created by a Will.

Where trust assets are appointed by the Trustees to the beneficiaries then no Stamp Duty charge will arise i.e. there is an exemption from Stamp Duty in this situation.

DISCRETIONARY TRUST TAX

Discretionary trust tax of 6% is a once off charge based on the value of assets comprised in a discretionary trust.

If the Trust is wound up and all the assets are appointed within a five year period then 50% of this initial charge will be refunded i.e. 3%

The initial charge is due and payable on the later of the following dates:

• The death of the settlor or
• Where the last of the “principal objects” (i.e. spouse, child or child of a predeceased child of the Disponer) has reached his/her 21st birthday.

A 1% annual charge on undistributed assets comprised in a discretionary trust will arise every year on 31st December.  This annual levy, however, will not arise within the same twelve month period as the initial charge of 6% has been levied.

For further information, please click:

https://www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part05.pdf

https://www.revenue.ie/en/gains-gifts-and-inheritance/discretionary-trust-tax/initial-once-off-6-charge.aspx

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-03-03.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.