The new Minister for Finance and Public Expenditure and Reform Paschal Donohoe delivered his first budget this afternoon. As publicised in press reports over the last week the reduction in the USC and other changes to income tax thresholds are being partly financed by an increase in stamp duty from 2% to 6% on commercial property transactions. The main points announced in the Budget are as follows:
The stamp duty rate on commercial property transactions increases from 2% to 6% from midnight tonight. The 2% rate has applied since 7 December 2011.
A stamp duty refund scheme will be outlined in the Finance Bill for land purchased for residential development where building work commences within 30 months of purchase.
The stamp duty rates on residential property remain unchanged at 1% on the first €1m and 2% on the balance.
Vacant Site Levy
An increase to the vacant site levy has been announced to incentivise landowners to develop vacant sites prior to 2019. The vacant site levy was first introduced in 2015 and was due to apply at the rate of 3% to urban land on the register which remained undeveloped in 2018. This 3% levy is payable in 2019. A higher levy of 7% will now apply to the extent that the land remains undeveloped in 2019. This higher levy becomes payable in 2020.
The vacant site levy is an annual levy that is charged on the market value of the land. The 7% annual levy will also apply in subsequent years until such time the lands are developed.
Inheritance and Gift Tax Thresholds
• The tax free thresholds have not increased.
• 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.
• No changes to Business Relief.
• No change in standard rate which stays at 33%
• For those who availed of the 7 year capital gains tax exemption, the Minister has introduced a significant change by reducing the holding period from 7 years to 4 years.
• No changes have been announced in relation to the entrepreneurial capital gains tax rate of 10%. It was expected that this would be increased to cover gains of up to €2 million. It is hoped this change may still occur in the Finance Bill. Ireland is not competitive with the UK where the first Stg£10m is subject to a 10% rate.
• Farm land leased for solar panels will qualify for retirement relief and agricultural relief provided the panels do not extend over more than 50% of the land.
• After much lobbying the reduced VAT rate of 9% remains for the hotel and restaurant sector and is seen as a cushion against the effects of Brexit.
• A fund of €5m is being made available in 2019 to refund charities input VAT that they have incurred during 2018.The refund will be based on the proportion of funding raised from non-government agencies over total funding.
• The lower rate income tax band has increased by €750 for single or widowed persons to €34,550, for married /civil partnership families with one income the lower band increases to €43,550 while the two incomes band increases to €69,100.
• DIRT – As announced in last year’s budget the rate of income tax on deposits will reduce from 39% to 37% from 1 January 2018.
• After much commentary, the first time buyers “Help to Buy Scheme” remains unchanged. This scheme provides 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 runs to 31 December 2019. The scheme doesn’t apply to second hand homes.
• As announced in Budget 2017 the interest restriction on rented residential property introduced in 2009 is being phased out. The deduction available for qualifying interest payments on residential rental properties will increase from 80% to 85% in 2018 and will be increased further by 5% per annum thereafter until the restriction is fully phased out in 2021.
• The USC rates have been cut with the 5% rate dropping by .25% and the lower rate by .5% resulting in a saving of up to €178 per annum. The revised rates are:
Up to €12,012 0.5%
Next €7,360 2.0%
Next €50,672 4.75%
Balance stays at 8%
Up to €12,012 0.5%
Next €7,360 2.0%
Next €50,672 4.75%
Next €29,956 remains at 8%
Balance over €100,000 remains at 11%
Individuals with income under €13,000 still remain exempt from the USC.
• The Self Employed Earned Income Tax Credit has been increased by €200 to €1,150. The PAYE credit for employees remains at €1,650.
• Mortgage interest relief is being continued on a tapered basis for owner occupiers who took out qualifying mortgages between 2004 and 2012. The current level of mortgage interest relief being obtained by the relevant owner occupiers will be reduced to 75% in 2018, 50% in 2019 and 25% in 2020. Mortgage interest relief will cease entirely from 2021.
• Mortgage interest relief for homeowners ceased to exist for new borrowings taken out with effect from 1 January 2013.
• Home carer credit increased by €100 to €1,200.
• The Minister stressed that there will be no changes to the corporate tax rate of 12.5% and emphasised it will remain a core part of Ireland’s offering.
• A zero rate of BIK will apply in 2018 on electric cars used by employees to encourage the take up of these vehicles. During 2018 there will be a comprehensive review of existing BIK legislation.
• A new SME focused share based incentive scheme which was highlighted in Budget 2017 but deferred to Budget 2018 was announced today. The share-based remuneration incentive, the Key Employee Engagement Programme (“KEEP”), is being introduced to facilitate the use of share-based remuneration by unquoted SME companies to attract key employees. Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on disposal of the shares, in place of the current liability to income tax, USC and PRSI which arises on exercise. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.
• The Minister announced that the limit on the quantum of relevant income against which capital allowances for intangible assets and any related interest expense may be deducted in a tax year is reduced to 80 per cent. This comes into effect in respect of expenditure incurred by a company with effect from midnight tonight. The specific details will follow in the Finance Bill due next week.
• The National Training Fund levy which is part of employer’s PRSI is being increased in 2018 from 0.7 per cent to 0.8 per cent which the Minister said would provide €47.5million of additional funding for the higher and further education sectors. The levy will rise to 0.9 per cent in 2019 and 1 per cent in 2020.
Other Revenue Measures
• A tax on sugar sweetened drinks will be introduced in April 2018 in line with the UK. A rate of 30 cents applies on 1 litre drinks with in excess of 8 grams of sugar per 100 millilitres and a reduced rate of 20 cents applies where the sugar content is between 5-8 grams.
• The duty increases by 50 cent on a packet of cigarettes but there are no increases on petrol, diesel or alcohol.
Other Commercial initiatives
A Brexit Loan Scheme of €300m has been established for SME’S to assist with short term working capital needs.
Home Building Fund
Home Building Finance Ireland has been established to provide up to €750m of loans to commercially viable residential home builders at commercial interest rates. This is projected to assist with the building of 6,000 houses.
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.