Budget 2018 Newsletter

Budget 2018 Newsletter

Income Tax Personal Taxes Budget 2018 made some minor changes in the area of personal taxes. We have set out below details of the changes to Income Tax and USC, to take effect from 1 January 2018. The impact of the changes to individuals net income is set out in the attached Appendices. No changes have been introduced to Income Tax rates for 2018. The standard rate band will be increased for 2018 as follows: Standard Rate Band 2017 2018 Increase Single Person 33,800 34,550 750 Married One Income Married Two Incomes USC 42,800 43,550 750 67,600 69,100 1,500 The Home Carer Tax Credit has been increased from 1,100 to 1,200 per annum. No change has been made to the Home Carer s income threshold which will remain at 7,200 per annum unless otherwise provided for in the Finance Bill. The Earned Income Tax Credit, which is available to self-employed individuals and proprietary directors who are not eligible for the Employee Tax credit, has been increased from 950 to 1,150. The credit is expected to increase to 1,650 in the coming years to address the disparity in take home pay between employees and selfemployed individuals. 2

Personal Taxes USC In line with Budgets of previous years, minor changes were made to USC bands as follows: 2017 PAYE Self- Employed 2018 PAYE Self- Employed Band Rate Rate Band Rate Rate Income < 13,000 Exempt Exempt Income < 13,000 Exempt Exempt First 12,012 0.5% 0.5% First 12,012 0.5% 0.5% 12,013-18,772 2.5% 2.5% 12,013-19,372 2% 2% 18,773-70,044 5% 5% 19,373-70,044 4.75% 4.75% 70,045-100,000 8% 8% 70,045-100,000 8% 8% Balance 8% 11% Balance 8% 11% *Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed 60,000 will pay a maximum USC rate of 2%. PRSI An increase in employer contributions to the National Training Fund from 0.7% to 0.8% is being introduced from 1 January 2018. The Minister did not clarify whether this will result in an increase of 0.1% in Employers PRSI (currently at 8.5% and 10.75%). Further details are awaited in the Finance Bill. No other changes have been made to PRSI rates and bands for 2017. The Minister did however mention in his speech that it is intended that USC and PRSI will be amalgamated in the medium term. DIRT Finance Act 2016 reduced the rate of Deposit Interest Retention Tax (DIRT) from 41% to 39% in 2017. DIRT rates were not mentioned in the Minister s Budget 2018 speech, however, Finance Act 2016 has legislated for a reduction in DIRT to 37% from 1 January 2018. Finance Act 2016 also provided for a further reduction in the DIRT rate by 2% per annum thereafter until it is reduced to 33% in 2020. 3

Personal Taxes Mortgage Interest Relief Tax Relief at Source Interest Relief Rented Residential Property Mortgage Interest Relief at source is claimed on interest paid by individuals on loans used to purchase, repair, develop or improve their home. The relief is subject to rates and thresholds depending on the year of purchase. For 2017, 100% of the existing mortgage interest relief can be claimed. The relief will then be phased out by 2021, with 75% of the existing relief available for 2018, 50% of the existing relief available for 2019 and 25% of the existing relief available for 2020, after which time the relief will be fully abolished. The tax deduction available for landlords against rental income for qualifying interest payments on borrowings for the purchase, improvement or repair of residential property was reduced to 75% in Finance Act 2009 in respect of interest arising on or after 7 April 2009. Finance Act 2016 increased this tax deduction to 80% in 2017 and 85% in 2018. Although not mentioned in Budget 2018, Finance Act 2016 provided that the deduction will reduce by 5% per annum until 100% relief is available for interest arising on or after 1 January 2021. 4

Business Taxes Corporation Tax Rate No changes have been made to the standard rate of corporation tax, which remains at 12.5%. Employee Share Option Scheme In Budget 2017, it was announced that a review of Ireland s share based incentive schemes would be carried out in order to develop a tax efficient incentive that would be suitable for unquoted SMEs. As a result of the review, the Key Employee Engagement Programme ( KEEP ) was announced in Budget 2018. The incentive will take the form of a share option scheme. Gains arising to employees on KEEP share options will be liable to Capital Gains Tax as opposed to Income Tax. As a result no tax should be payable by such key employees until the shares are sold. Full details are awaited in the Finance Bill. Benefit in Kind on Electric Vehicles Currently, if an employee is provided with a company car for private use, income taxes at their marginal rates may arise in respect of the benefit. The deemed value of the benefit depends on the level of business use of the car, however it can be up to 30% of the original market value of the car when it was new. Budget 2018 introduces relief from BIK for electric vehicles. Where the relief applies, the value of the benefit received by the employee for the use of the electric vehicle will be deemed to be nil. In addition, any electricity used to charge the car will be exempt from BIK charges. The incentive is expected to apply to qualifying options granted between 1 January 2018 and 31 December 2023. 5

Business Taxes Energy Efficient Equipment The scheme of accelerated capital allowances for energy efficient equipment was due to expire on 31 December 2017. The relief will be extended to 31 December 2020. Capital allowances are ordinarily available at a rate of 12.5% over 8 years. However, where qualifying energy efficient equipment is acquired, 100% of the expenditure qualifies for capital allowances in the year the equipment is acquired. A register of eligible equipment is available from the Sustainable Energy Authority of Ireland at www.seai.ie. Capital Allowances for Intangible Assets If a company carries on a trade and incurs capital expenditure on the acquisition of Intellectual Property ( IP ), capital allowances may be available in respect of same. Currently, the capital allowances available in respect of the IP plus any interest arising on borrowings in relation to the acquisition of the IP, cannot exceed the income arising from the IP. Any unused allowances or interest may be carried forward for offset against relevant profits in future years. Budget 2018 restricts the deductions further, such that the deductions in respect of allowances and related interest may not exceed 80% of the income arising from the IP. Further details are awaited in the Finance Bill. 6

A range of new compliance measures were announced as follows: Employer PAYE Compliance Project Compliance The Revenue Commissioners are in the process of implementing a PAYE Modernisation project whereby most PAYE returns will be abolished in favour of real time reporting of payments to employees. Before the new system comes into operation, the Revenue Commissioners intend to carry out a review of PAYE compliance by employers. ecommerce/online Business Compliance Project The tax implications arising from online trading has become an area of focus across the globe recently. The Revenue Commissioners intend to carry out a project focusing on the tax compliance of online businesses. Tax Avoidance and Base Erosion Capacity Funding will be made available to the Revenue Commissioners to ensure that staff have the requisite technical knowledge in order to identify and challenge tax avoidance transactions. In addition, staff will need to be trained in international areas as transfer pricing, mutual assistance and base erosion become issues of greater significance to Ireland. 7

Property Measures Stamp Duty Rate Increase for Commercial Property The rate of stamp duty on commercial property transactions has tripled from 2% to 6% with effect from midnight on 10 October 2017. The stamp duty rate for non-residential property up to now has been 2%, having been reduced from a maximum rate of 6% for transactions taking place prior to 7 December 2011. The increased 6% rate of stamp duty applicable from midnight will apply to all commercial transactions regardless of the value of the property being transferred. As outlined in our section on Agricultural Measures (p11), Consanguinity Relief has been retained resulting in a reduction of the stamp duty rate to 1% in respect of the transfer of farmlands within the family, subject to certain conditions. However, this reduced rate for intra-family transfers is not available in respect of the transfer of any other assets such as the family pub or the property from which the family business is run. We believe that a 6% rate of stamp duty will act as a deterrent on transfers within families resulting in parents retaining business assets until death. In our view, the reintroduction of Consanguinity Relief for transfer of businesses within the family is necessary to ensure families continue to transfer assets on an early stage. Refund of Stamp Duty in respect of Land used for Housing The Minister has announced that in order to address the housing supply challenge, a stamp duty refund scheme will be introduced in respect of land purchased for the development of housing. This scheme will provide for a refund of stamp duty if the development of the land is commenced within 30 months of purchase. Further details of the stamp duty refund scheme are awaited in the Finance Bill. No change for Residential Property No changes to stamp duty on residential property were announced. The stamp duty rate applicable on the transfer of residential property therefore remains at 1% (2% where property value exceeds 1m.). 8

Property Measures Capital Gains Tax 7-Year Relief Pre-Letting Expenses In December 2011, a new CGT Relief was introduced in respect of property purchased in Ireland or any other EEA country which is retained for 7 years or longer. This CGT relief is available in respect of property purchased in the period from 7 December 2011 to 31 December 2014. The exemption provides 100% relief from CGT where the property is held for 7 years, with relief provided on a pro rata basis where the property is retained for more than the requisite 7 years. In Budget 2018, the Minister announced an improvement to this CGT relief to allow full CGT relief where the property is disposed of between 4 and 7 years from the date of acquisition. The relief will continue to apply on a pro rata basis where the property is retained for more than 7 years. For example, where a property was acquired in January 2014 there was a requirement to retain that property until January 2021 in order to qualify for this CGT exemption. It should now be possible to sell or transfer this property at any time from January 2018 to January 2021 with no CGT arising on the sale or transfer. A deduction for pre-letting expenses has been introduced with a view to encouraging owners of vacant residential properties to bring those properties into the rental market for a minimum of four years. Up to now, any expenses incurred by a landlord prior to the date the property was rented were generally not deductible against rental income, with certain exceptions such as letting fees or advertising costs. This new measure allows landlords a deduction of up to 5,000 for allowable expenses incurred on a property which has been vacant for 12 months or longer provided the property is rented for four years or longer. The relief relates only to expenses of a revenue nature (e.g. repairs) and does not include capital expenditure. If the property is withdrawn from the rental market within four years, the relief will be clawed back. This relief will be available in respect of pre-letting expenses incurred up to 31 December 2021. The intention is to increase the level of property available for sale, with the Minister having indicated in his speech that increasing housing supply is a priority for the Government. 9

Development Lands Vacant Site Levy Property Measures Under the terms of the Urban Regeneration and Housing Act 2015, from 1 January 2019 planning authorities will be empowered to apply an annual vacant site levy of 3% to the market value of vacant sites which a planning authority has determined as vacant or idle in the previous year. This vacant site levy is designed to encourage landowners and developers to utilise available land for housing. The Minister has today announced that in light of the urgency to improve the housing supply, this vacant site levy will increase from 3% to 7% in second and subsequent years. Effectively this means that the landowner will be liable to pay a vacant site levy of 3% in 2019 and a further 7% levy in 2020 and subsequent years. There will therefore be a considerable incentive for landowners to develop any vacant sites before 2019 in order to prevent such levies arising. 10

Agricultural Measures Consanguinity Relief Consanguinity Relief currently provides a 50% reduction in the rate of stamp duty applicable to transfers of farmlands to blood relations before 31 December 2017 where the following conditions are satisfied: 1. The transferor is aged under 67 at the date of the transfer/conveyance; and 2. The transferee will actively farm the lands or will lease the lands to an active farmer for 6 years after the transfer/conveyance. The Minister has announced that Consanguinity Relief will be retained for a further three years and will result in a reduction in the stamp duty rate from 6% to 1% for farm transfers within the family. Young Trained Farmer Relief The Minister also announced that the stamp duty exemption for qualifying Young Trained Farmers will continue until 31 December 2018. Capital Taxes For the purposes of Capital Acquisitions Tax ( CAT ) and Capital Gains Tax ( CGT ) reliefs, the definition of agricultural assets will be extended to include land leased for solar panels, provided the amount of the farmlands used for solar infrastructure does not exceed 50% of the total farm acreage. Up to now, land leased to a solar energy company did not qualify as agricultural land and resulted in a significant curtailment of these capital tax reliefs. This change is therefore to be welcomed and presumably has been introduced in order to stimulate growth in the solar energy sector. As stated by the Minister, these changes should support diversification, expand the generation of renewable energy and help to tackle climate change. There have been no other changes made to Agricultural Relief from CAT or Retirement Relief or Entrepreneur Relief from CGT. Capital Allowances The scheme of accelerated capital allowances for energy efficient equipment was extended to partnerships and sole traders, including farmers, in last year s Budget with effect from 1 January 2017. This allows capital allowances of 100% of the expenditure on qualifying energy efficient equipment to be claimed in the year of acquisition (rather than 12.5% of the expenditure over 8 years). This scheme was due to expire on 31 December 2017 but it has now been extended to 31 December 2020. 11

Indirect Taxes Value Added Tax Excise Duties No changes were introduced to the standard rate and the reduced rate of VAT, which remain at 23% and 13.5% respectively. Three areas of focus in the Budget were as follows: Sunbeds The VAT rate applicable in respect of the use of sunbeds will increase from the reduced rate of 13.5% to the standard rate of 23%. Tourism The 9% reduced rate of VAT applicable to the hospitality and tourism sectors has been retained in order to maintain growth in the tourism industry. Charities Budget 2018 includes the introduction of a relief from VAT for charities. Charities generally do not carry on VATable activities and therefore are not entitled to reclaim VAT on costs. Under the new relief, charities will be entitled to recover a portion of the VAT incurred on costs. The proportion of VAT recoverable will be based on the level of funding received by the charity otherwise than from public (e.g. State) funds. The benefit of this relief may therefore be somewhat limited for charities with a significant amount of grant funding. This relief will be introduced in 2019 in respect of VAT incurred in 2018. Excise duty on a packet of 20 cigarettes has been increased by 50 cent (including VAT) with a pro-rata increase on other tobacco products. The duty on roll your own tobacco products will increase by 25 cent. These measures are effective from midnight on 10 October 2017. Sugar Tax In Budget 2017, Minister Michael Noonan announced the Government s intention to introduce a sugar tax. Budget 2018 has clarified that the tax will take the form of a tax on sugar sweetened beverages. Sugar Tax will apply to nonalcoholic, water based and juice based drinks with added sugar of 5 grams or more per 100ml. The rates will be as follows: Added Sugar Between 5g and 8g per 100ml 8g per 100ml Rate 20 cent per litre 30 cent per litre The tax will not apply to dairy products or pure fruit juices with no added sugar. The tax will apply from 1 April 2018. This is in line with the introduction of Sugar Tax in the UK and is subject to State Aid approval. 12

Appendix 1 Income Tax Credits & Tax Bands Tax Credits 2017 2018 Employee Tax Credit 1,650 1,650 Earned Income Tax Credit 950 1,150 Personal Tax Credits Single 1,650 1,650 Married Couple/ Civil Partnership 3,300 3,300 Widowed person/surviving civil Partner (in year of bereavement) 3,300 3,300 One Parent Family Tax Credit 1,650 1,650 Home Carer Tax Credit 1,100 1,200 Dependent Relative Tax Credit 70 70 Incapacitated Child Tax Credit 3,300 3,300 Blind Persons Credit Single 1,650 1,650 Married (both blind) 3,300 3,300 Widowed Additional Credit 540 540 Widowed Parent Tax Credit Year 1 3,600 3,600 Year 2 3,150 3,150 Year 3 2,700 2,700 Year 4 2,250 2,250 Year 5 1,800 1,800 Age Credit Single 245 245 Married 490 490 13

Appendix 1 Income Tax Credits & Tax Bands Standard Rate Bands 2017 2018 Single/Widowed 33,800 34,550 Married One Income 42,800 43,550 Married Two Incomes 67,600 69,100 One Parent/Widowed Parent 37,800 38,550 Age Exemption Limits 2017 2018 Single 18,000 18,000 Married 36,000 36,000 14

Appendix 2 Changes to Net Income Single Person - Employee Annual Income Net Wage 2017 Net Wage 2018 Difference 20,000 18,551 18,604 53 35,000 28,620 28,860 240 75,000 48,871 49,199 328 150,000 84,871 85,199 328 Married Person One Income - Employee Annual Income Net Wage 2017 Net Wage 2018 Difference 20,000 19,251 19,304 53 35,000 30,510 30,600 90 75,000 52,321 52,649 328 150,000 88,321 88,649 328 15

Appendix 2 Changes to Net Income Married Person Two Incomes Employees* Annual Income Net Wage 2017 Net Wage 2018 Difference 20,000 20,000 20,000-35,000 34,206 34,260 54 75,000 59,789 60,283 494 150,000 97,742 98,399 657 Single Person Self-Employed Annual Income Net Wage 2017 Net Wage 2018 Difference 20,000 17,510 17,763 253 35,000 27,920 28,360 440 75,000 48,171 48,699 528 150,000 82,671 83,199 528 *Assumes both spouses earn same income. 16

Disclaimer This information is designed to remind/inform readers of important issues and deadlines, and to provide information of recent developments in the taxation sector in general. Please note that this leaflet is intended to be a brief outline of the issues involved and should not be regarded as a comprehensive guide. In all cases only a summary of the main points are included and you should contact us if you wish to discuss any of these matters in more detail. The emphasis is on clarity so some items may be over-simplified. While every effort has been made to ensure that the information contained therein is correct, Cahill Taxation Services do not accept any responsibility for loss or damage occasioned by any person acting, or refraining from acting, as a result of this information. Should you have any queries regarding any of the issues raised above, please do not hesitate to contact us at 065 6840630 or at info@cahilltaxation.ie. Contact us: Suite 2 Aras Smith O Brien Bank Place, Ennis, Co. Clare, Ireland. V95 P48D n +353 65 684 0630 p +353 65 684 0631 E info@cahilltaxation.ie www.cahilltaxation.ie 17