Tuesday, October 10, 2017
The first budget of Pascal Donoghue was released this afternoon. In this brief update we outline the key measures as announced and are likely to affect our clients.
As always, the devil will be in the detail and particularly some of the measures outlined below will require greater detail in the Finance Bill which we will watch with interest. The Finance Bill is due to be published next Thursday 19th October.
1. Key Business Changes
The largest revenue yielding change is the significant increase in the rate of stamp duty and commercial property to 6% with effect from midnight tonight.
Another measure which will affect the property market is the introduction of a new acronym – Homebuilding Finance Ireland (“HBFI”) – which will provide funding for residential developments with capital of €750 million from the Ireland Strategic Investment Fund.
The Budget has again confirmed the corporation tax rate of 12.5% is a keystone of Government policy and also the reduced rate of VAT at 9% for the hospitality sector.
In addition what could potentially be a significant long term change is the introduction of a new scheme to be known as Key Employee Engagement Programme (KEEP) in relation to share options granted between the 1st January 2018 and 31st December 2023 where the recipient will be taxed at the lower CGT rate of 33% on sale of the underlying shares.
The reduction from 7 to 4 years of the CGT holding period for properties purchased in 2011-14 will allow these assets to be sold between year 4 and 7 CGT free and may bring additional property onto the market sooner than expected.
There are a number of policy based initiatives relevant to those operating in the beverages sector, energy efficient equipment sector and solar farms. The measures include the introduction of accelerated capital allowances, extension of agricultural relief to include solar panels up to 50% of the total farm acreage and the introduction of a sugar tax for carbonated drinks from 1 April 2018.
2. Income Tax & USC
- The main change is that there the point at which an income earner pays the higher rate of income tax rises next year by €750 per year, i.e. from €33,800 to €34,550 for single individuals and from €42,800 to €43,550 for married one earner couples.
- As noted a new Keep Employees Engaged Scheme (KEEP) will be introduced for SMEs. This scheme is a share-based remuneration incentive which is being introduced to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.
- There will be an extension of mortgage interest relief for remaining recipients – owner occupiers who took out qualifying mortgages between 2004 and 2012. 75% of the existing 2017 relief will be continued into 2018, 50% into 2019 and 25% into 2020, with the relief to cease entirely from 2021.
- A new deduction is being introduced for pre-letting expenses on a property that has been vacant for a period of 12 months or more to encourage owners of vacant residential property to bring that property into the rental market. There ia a cap on the allowable expenses and the relief will be subject to clawback .
- The 2.5% rate will be reduced to 2%
- There will be a €600 increase to the €18,772 band ceiling
- The 5% rate will be reduced to 4.75%
3. Corporation Tax
- The Minister has reaffirmed that there will be no change to the 12.5% corporation tax rate.
- Capital Allowances for Intangible Assets will provide that the deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from the intangible asset in an accounting period.
- Accelerated Capital Allowances for Energy Efficient Equipment is a measure to incentivise companies to invest in energy efficient equipment. This measure was due to expire at the end of 2017 and is being extended to the end of 2020.
- The lower VAT rate of 9% has been confirmed for the hospitality sector;
- Finally, after much lobbying by the charities sector a VAT refund scheme is to be introduced in 2019 in respect of expenses incurred in 2018. Further details of the scheme are to be released in the near future.
5. Capital Acquisitions Tax (CAT)
- No major changes where introduced to the current CAT rules and the tax free thresholds are unaffected.
- The only change announced concerns the tax treatment of solar farms. For the purpose of CAT (in addition to agricultural relief and CGT retirement relief), agricultural land placed under solar infrastructure will continue to be classified as agricultural land. This is subject to the condition restricting the amount of the farmland that can be used for solar infrastructure to 50 per cent of the total farm acreage.
6. Stamp Duty
- There has been a major change to the stamp duty rates on commercial property which will increase from 2% to 6% with effect from midnight tonight.It should be noted that the relevant date for stamp duty purposes is the date of the transferring instrument and not the date of contract.
- There will be an extension of Consanguinity Relief meaning that the stamp duty rate remains at 1% for transfers for inter-family farm transfers.
7. Other measures
- A tax on sugar sweetened beverages will be introduced on 1 April 2018. The tax will apply to sugar sweetened drinks with a sugar content between 5 grams and 8 grams per 100ml at a rate of 20c per litre. A second rate will apply for drinks with a sugar content of 8 grams or above at 30c per litre.
- The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT) with a pro-rata increase on the other tobacco products, from midnight tonight.
- The VAT rate on sunbed services is being increased from 13.5% to the standard rate of 23% from 1 January 2018, in order to deter sunbed use.
- A further change which will affect the property sector is the proposed increase to the vacant site levy. In practical terms it means an owner of vacant site on the register who does not develop the land in 2018 will pay 3% in 2019 and then be liable to the increased rate of 7% from the 1st January 2019.
The marginal changes to USC and income tax are positive and though not material should encourage employment and getting people back to work. In addition, for those in negative equity or with large mortgages the extension of mortgage interest relief for a further period is to be welcomed.
One sector which may feel the pinch from the Budget are those involved in the commercial property sector, though the HBFI fund is to be welcomed for those involved in residential development if it operates properly.
For businesses looking to recruit and retain employees the introduction of KEEP could be of real significance if it expands similar to option schemes in other jurisdictions. It is unfortunate however that the scope of Entrepreneurs’ Relief has not been widened or indeed that the CGT rate has not been reduced.
The information contained in this article is based on the interpretation of the relevant tax law, tax practice and published statements of the Minister for Finance. As in all matters involving interpretation of law and practice, there can be no guarantee that the Revenue Authority or Court will necessary agree to an interpretation. In addition the changes proposed in the Budget are subject to the passing of the Finance Bill through the houses of the Oireachtas and the passing of all necessary supporting legislation. The views expressed in this document are based on the firm’s interpretation of the Minister’s statement, current law and practice and may change at any time hereafter.