CGT Services Ireland
BUDGET 2018 – Tax Changes
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 10th 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 1st 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 7th December and 31st 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 1st 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 1st 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 10th 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 1st January 2018 and 31st 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 10th 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 1st 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 1st 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.
BUDGET 2017
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 1st 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 19th 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 31st 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 1st 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 31st December 2016, has been extended to 31st 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 1st 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 3rd 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.