Minister Michael Noonan delivered his sixth budget since becoming Minister for Finance in 2011. Against a backdrop of a reduced GDP growth forecast for 2017 of 3½% due to Brexit, he has given a little to everyone.
Inheritance and Gift Tax Thresholds
• The tax free thresholds have increased as follows:
Category A For parents to children the threshold has increased from €280,000 to €310,000. This peaked at €542,544 in 2009.
Category B For other lineal relatives including brothers, sisters and grandchildren the threshold has increased by 8% from €30,150 to €32,500.
Category C For other gifts and inheritances the threshold has increased by 8% from €15,075 to €16,250.
The rate of gift or inheritance tax above these thresholds still remains at 33%.
• There has been no change to the annual gift exemption which remains at €3,000 to any individual.
• There has been no change in the Dwelling House Relief which is still a valuable relief for passing on the family home.
• No changes to Business Relief.
Capital Gains Tax
• No change in standard rate which stays at 33%
• The new revised entrepreneurial capital gains tax rate of 20% introduced last year has been reduced to 10% on gains of up to €1 million.
• The reduced VAT rate of 9% remains for the hotel and restaurant sector.
• A review on recovery of VAT for charities which are exempt from VAT is to be carried out.
• Increase in Farmers Flat Rate Addition from 5.2% to 5.4% with effect from 1 January 2017.
Income Tax (€335 million allocated to improve lower and middle income earners)
• DIRT – The rate of income tax on deposits has reduced from 41% to 39% and it is due to reduce by 2% per annum for a further three years to 2020 when the rate will be 33%.
• A new first time buyers “Help to Buy Scheme” will provide a rebate of income tax paid over the previous four years up to 5% of the purchase price of up to €400,000. Where new homes are valued at between €400,000 and €600,000 the maximum relief (€20,000) will continue to be available. Applicants must take out a mortgage of at least 80% of the purchase price. No rebate is due if the new home purchase price exceeds €600,000. The scheme is back dated to 19 July 2016 and will run to 31 December 2019. The scheme doesn’t apply to second hand homes.
• The Home Renovation Incentive Scheme which was due to expire on 31 December 2016 for homeowners and landlords has been extended for a further two years to 31 December 2018.
• The interest restriction on rented property introduced in 2009 is to be phased out. The deduction available for qualifying interest payments on residential rental properties has been increased from 75% to 80% in 2017 and will be increased further by 5% per annum thereafter until the restriction is fully phased out.
• The Living City Initiative has been extended to landlords and the restriction on the maximum floor area is to be removed.
• The income ceiling that applies under the Rent a Room Scheme has been increased by €2,000 to €14,000 to assist with student accommodation shortages.
• The USC rates have been cut by ½% on the three lower bands resulting in a saving of up to €350 per annum. The revised rates are:
Up to €12,012 0.5%
Next €6,760 2.5%
Next €51,272 5%
Balance stays at 8%
Up to €12,012 0.5%
Next €6,760 2.5%
Next €51,272 5%
Next €29,956 remains at 8%
Balance over €100,000 remains at 11%
• The Home Carer Credit has increased by €100 to €1,100 per annum.
• No change to the standard rate income bands.
• Self Employed Earned Income Tax Credit increased from €550 to €950 to bring it closer to PAYE credit for employees of €1,650. According to the Minister, this benefits 147,000 self-employed individuals.
• A new SME focused share based incentive scheme which was highlighted in recent press reports has been deferred to Budget 2018 in order to obtain EU approval.
• Special Assignee Relief Programme (“SARP”) and Foreign Earnings Deduction (“FED”) extended to 2020. A change is being made to FED to reduce the foreign work days required from 40 to 30.
• Start Your Own Business Relief has been extended for a further two years until the end of 2018.
• A new Fishers Income Tax Credit has been introduced of €1,270 per annum for Fishers who have fished for wild fish or wild shellfish for at least 80 days in a tax year.
• The Minister stressed that there will be no changes to the corporate tax rate of 12.5%.
• As announced last month, Mr Noonan introduced changes to special purpose vehicles (SPVs), known as “section 110 companies”, holding Irish property assets. Today’s Budget has provided no further clarity on the use of other fund structures in the Irish property market, including Irish Collective Asset-Management Vehicles (ICAVS), established by the Government last year and Irish Qualifying Investor Alternative Investment Funds (QIAIFs). Details of proposed changes in relation to property in these type of funds will be contained in the Finance Bill which is due to be published on 20 October after consultation with the industry.
As highlighted in recent press reports Real Estate Investment Trusts (Reits) which have been floated on the stock exchange in recent years are unlikely to be affected.
• Update on International Tax Strategy Paper is to be published today.
Other Revenue Measures
• A tax on sugar, sweets and drinks will be introduced in April 2018 in line with the UK. A public consultation process will run until 3 January 2017.
• €5 million to be allocated to employ an additional 50 Revenue staff.
• Following on from the Panama Papers, there will be new increased targeting of compliance interventions against those who engage in offshore tax evasion including:
(a) denying the opportunity to make a qualifying disclosure in this area after 1 May 2017; and
(b) introducing a new strict liability offence of failure to return details of offshore accounts or other assets. Details to be contained in the Finance Bill.
• The only tax increase in today’s Budget, according to the Minister, is 50 cent on a packet of cigarettes.
Please note that this is a general summary and no action should be taken without taking detailed advice.
If you have any queries on the Budget please do not hesitate to contact Purcell McQuillan Tax Partners Ltd on 01 668 2700.