The Minister for Finance Jack Chambers published his first Budget today announcing a number of changes to our corporate tax regime. A raft of tax measures and policies will be introduced to support Irish start-ups, small and medium-sized enterprises (SMEs) and multinational businesses. Budget 2025 provided for a total budget package of €10.5b
Our focus in this article is purely on Business Taxes under Capital Gains Tax, Corporation Tax, VAT and Employer/Employee Taxes.
SMALL BENEFIT EXEMPTION
BENFIT-IN-KIND
Retirement Relief
Retirement Relief (CGT) supports the cost effective / tax efficient transfer of businesses and farms from one generation to the next.
Finance Act 2023 introduced a number of amendments to the Retirement Relief regime which included:
These changes were to come into effect on 1st January 2025.
Budget 2025 will retain the increased upper age limit. It also introduced a clawback period of twelve years on the Relief.
This means that any tax arising due to the cap of €10 million will be abated provided the assets are retained for twelve years.
In other words, the €10 million cap, due to be introduced on 1st January 2025, will only apply in circumstances where the child disposes of the assets within twelve years.
Angel Investor Relief
Angel Investor Relief, introduced in Budget 2024, was aimed at encouraging business angel investment in innovative start-ups.
Finance Act 2023 introduced a reduction on this rate for angel investors, bringing it down from 33% to 16% or 18%.
Budget 2025 provides Capital Gains Tax Relief for a third party individual who takes a significant minority shareholding (i.e. between 5% and 49% of the ordinary issued share capital of the company) for a period of at least three years, in a certified innovative start-up small and medium enterprise (SME) company which is less than seven years old. The investment by the individual must be in the form of fully paid-up newly issued shares costing at least €20,000 or €10,000 if acquiring between 5% and 49% of the ordinary issued share capital of the company.
Qualifying investors will be able to avail of an effective reduced rate of CGT of 16%, or 18% if through a partnership, on a gain up to twice the value of their initial investment.
There was previously a lifetime limit of €3 million on gains to which the reduced rate of CGT will apply. Budget 2025 has increased this limit to lifetime gains of up to €10 million.
Therefore, the amount on which the reduced CGT rates of 16% or 18% will apply is the lowest of the following:
The following will be extended for a further two years until 31st December 2025:
In addition, the EII limit on the amount that an investor can claim relief on will be doubled i.e. increasing from €500,000 to €1,000,000.
It is proposed to increase the SURE relief available to a maximum of €140,000 per year or a total of €980,000 over seven years.
Research and Development (R&D) Tax Credit
As you’re aware, the existing Research and Development (R&D) Tax Credit provides a 30% tax credit for all qualifying R&D expenditure.
The first year payment threshold will now increase from €50,000 to €75,000.
Companies with claims of between €75,000 and €150,000 will benefit from a €25,000 increase in the first instalment of their claim.
Companies with claims of in excess of €150,000 will continue to receive a first instalment amount based on 50% of the Research & Development Tax Credit claim.
Two new Audio-visual incentives
A new tax credit will be introduced for the unscripted film production sector.
The relief will take the form of a 20% Corporation Tax Credit for certain production expenditure up to a maximum limit of €15 million per project.
The commencement will be subject to State Aid approval from the European Commission.
A cultural test will be introduced.
The second incentive is an 8% uplift referred to as the “Scéal Uplift”.
This involves an uplift of 8% to the existing film credit in respect of certain feature film productions.
It will be applied to the existing film credit and will result in a tax credit rate of 40% for projects with a maximum qualifying expenditure of up to €20 million.
This incentive is for small to medium budget productions under the Section 481 film tax credit.
As with the Tax Credit for Unscripted Productions, the Scéal Uplift is subject to State Aid approval.
A new Participation exemption for foreign sourced dividends from subsidiaries in EU/EEA and tax treaty jurisdictions will be introduced with effect from 1st January 2025. The aim is to simplify existing Double Taxation Relief provisions.
Currently, Ireland operates a worldwide corporate tax regime. This means that all the profits (both domestic and foreign) earned by an Irish resident company are subject to Irish tax with Relief for any foreign taxes deducted under, a ‘tax and credit’ regime.
Under the new rules, a company will have the option of either (a) claiming the participation exemption or (b) continuing to use existing tax-and-credit relief.
To do this, an election will have to be made in the company’s annual corporation tax return. It will apply to all qualifying dividends in that particular period.
For non-qualifying jurisdictions, the existing method of claiming double taxation relief should continue.
The new participation exemption for foreign source dividends will come into effect from 1st January 2025.
For full information on Budget 2025, please click https://www.gov.ie/en/publication/e8315-budget-2025/
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.
In the United Kingdom, the tax year commences on 6th April and ends on the following 5th April.
HMRC have published a set of criteria which outlines the taxpayer’s requirements in order to accurately and correctly complete a self-assessment tax return. For further information please click link: https://www.gov.uk/log-in-file-self-assessment-tax-return
You are required to file a self-assessment form if you are a self-employed individual or if you receive untaxed income, for example, from rental properties. In other words, the self-assessment system applies to any individual whose income is not automatically taxed at source. To check if you need to file a self-assessment tax return please click: https://www.gov.uk/check-if-you-need-tax-return
For the 2023/24 tax year, taxpayers in receipt of PAYE earnings of up to £150,000 are no longer required to file a self-assessment tax return, provided, of course, that they do not meet any of the other self-assessment criteria outlined by HMRC.
The self-assessment deadline is 31st January 2025 for online submissions, however, if you submitted a paper tax return, the deadline was 31st October 2024. Please keep in mind that the tax is still due by 31st January 2025.
Online Tax Returns must be filed and all outstanding tax paid on or before 31st January following the end of the tax year.
In other words:
Failing to file your tax return or pay your taxes by the appropriate date can result in penalties. Missing the 31st January deadline comes can result in significant penalties even if no tax is owed. For full details, please click: https://www.gov.uk/self-assessment-tax-returns/penalties
In summary, missing any of the Self-Assessment deadlines can result in penalties and interest. A delay in filing your Tax Return by a single day can result in a £100 fine, even if you don’t actually owe any tax.
You can register for self-assessment through the HMRC website before the deadline of 5th October. For further information, please click: https://www.gov.uk/register-for-self-assessment
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.
As you are aware, Finance Act 2017 increased the rate of stamp duty on the transfer of non-residential property from 2% to 6% with effect from midnight on Budget Day.
The change applied to instruments executed on or after 11th October 2017.
This dramatic increase will, most likely, reduce the number of commercial property transactions carried out in Ireland in 2018.
On 27th October 2017, The Irish Revenue Commissioners published Revenue eBrief No. 94/2017 outlining the transactions eligible for the 2% Stamp Duty rate under Transitional Relief Measures:
In circumstances where a binding contract has been entered into before 11th October 2017 the rate of stamp duty will remain at 2%, provided the following two conditions are met:
A person who filed a stamp duty return before the enactment of the Finance Bill and who was satisfied that the transitional measures would have applied if the Finance Bill had been enacted, had two options:
On 4th January Revenue published guidelines on how this postponed stamp certificate can be obtained. To receive the certificate, you must amend the Stamp Duty Return by following the link:
For those who filed their Returns but did not pay the correct amount of Stamp Duty at the 2% rate, you will not have received a Stamp Certificate.
In order to obtain the stamp certificate you must amend the Stamp Duty Return, pay the Stamp Duty of 2%, pay any Interest accruing on the late payment of Stamp Duty and pay any surcharge arising on the late filing of the Return, if relevant.
Once the payments have been processed your Stamp Certificate will issue automatically.
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.
Recently I’ve received a number of queries relating to the Irish tax treatment of CFDs or Contracts for Difference. Although the information available is plentiful and appears to be straight forward, it’s important to be aware that each situation is different and as a result the tax treatment may vary considerably.
Firstly, what is a Contract for Difference?
Essentially it’s a contract between two parties i.e. the investor and the CFD Provider. At the close of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, including individual equities, currencies, commodities, market indices, market sectors, etc. In other words, two parties take opposing positions on the difference between the opening and closing value of a contract i.e. the price will rise versus the price will fall.
Contracts for Difference offer wide access to different financial instruments from a single account for a fraction of the cost of buying shares. They do not carry voting rights like ordinary stock and CFD trades on certain Irish stocks are not liable to Stamp Duty.
CFDs can be traded ‘long’ or ‘short’ to speculate on rising or falling markets i.e. the investor speculates that an asset price will rise by buying (long position) or fall by selling (short position).
CFDs do not confer ownership of the investment. Instead the investor has access to the price performance which includes any dividend or corporate action equivalent.
What is the Irish tax treatment for profits / gains?
Contracts for Difference are treated as Capital Assets liable to Capital Gains Tax UNLESS they are deemed to be held in the course of a financial trade in which case the profits are liable to Income Tax under Case I, Schedule D.
According to Revenue eBrief No. 36/2007:
“The contracts require two parties to take opposing positions on the future value of a particular asset or index. Investments are often made on a margin of 20% of the contract amount. As well as the difference in value of the asset from beginning to end of the contract period, certain other notional income flows are taken into account in calculating the overall gain or loss.
Where the contract is long (expectation of a rise in price), notional interest is a deduction and notional income a credit in the calculation.
Where the contract is short (expectation of a fall in price), notional interest is a credit and notional income a deduction.
The chargeable gain will be calculated on the gain or loss resulting from the computations above and including a deduction for all necessary broker fees incurred in the full contract.
Actual interest paid, if any, on the margin amount put up will be chargeable under Case III in the ordinary way and does not come into the CGT calculation.”
What’s the difference between holding Capital Assets and operating a financial trade?
The concept of a “trade” is a matter of interpretation and is usually determined by a number of factors known as “badges of trade.”
For example, a once off transaction would not normally be considered a “trade.” Depending on the circumstances and the timing it may be liable to Capital Gains Tax or indeed may be exempt from tax. If, on the other hand, the investor was involved in a large number of transactions throughout the year of assessment then this activity would be most likely be considered to be a trade and therefore liable to Income Tax.
What are the “Badges of Trade”?
There are a number of factors which will determine the existence of a “trade”. There is, however, no decisive test and no legislative definition. There is considerable case law concerning this issue and in 1954 a Royal Commission was set up in the United Kingdom to consider what factors should be taken into account in deciding whether a trade exists. A report was published outlining the “Badges of Trade” which are as follows:
1. THE SUBJECT MATTER OF THE SALE.
While almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading, are only very exceptionally, the subjects of investment.
Again, property, which does not yield to its owner an income, or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does
2. THE LENGTH OF PERIOD OF OWNERSHIP.
Generally speaking, property meant to be dealt in is realised within a short time after acquisition. But there are many exceptions from this as a universal rule;
3. THE FREQUENCY OF SIMILAR TRANSACTION.
If realisations of the same sort of property occur in succession over a period of years or there are several such realisations at about the same date a presumption arises that there has been dealing in respect of each;
4. SUPPLEMENTARY WORK.
If the property is worked on in any way during the ownership so as to bring it into a more marketable condition, or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. When there is an organised effort to obtain profit there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way;
5. THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALISATION.
There may be some explanation, such as a sudden emergency or opportunity calling for ready money that negates the idea that any plan of dealing prompted the original purchase;
6. MOTIVE.
There are cases in which the purpose of the transaction and sale is clearly discernible. Motive is never irrelevant in any of these cases and can be inferred from surrounding circumstances in the absence of direct evidence of the seller’s intentions.
In Summary
Say an individual is employed in an investments role by day and makes considerable CFD profits in his/her spare time based on a significant number of transactions, how would this income be taxed?
Although opinions published by Revenue in the context of financial services are primarily concerned with group financing and treasury operations I believe they have direct relevance to this situation and should certainly be taken into consideration in ruling in favour of Income Tax Treatment.
In one such case, Revenue believed that the company was trading on the basis that the company was actively managing the business and making strategic decisions regarding financing and treasury operations. Despite the fact that the activities of the company were outsourced (i.e. no individuals were employed in the company), the outsourcing arrangement was managed and controlled by Irish resident directors with the appropriate level of specialized expertise in this area.
In this example, as the individual’s Irish PAYE employment relates to the area of financial services/investments, it would be difficult to see how Revenue could treat his/her C.F.D. activities as anything other than trading activities liable to Income Tax.
In summary, as the C.F.D. relates to a large number of transactions with a profit motive which requires a considerable amount of skill and expertise, it would be highly probable that this income would be liable to Income Tax and not Capital Gains Tax.
IN CONCLUSION
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.