In the year of Brexit and against a background of forecasted tax revenue of €55.1 billion, the Minister for Finance and Public Expenditure and Reform Paschal Donohoe delivered his second budget this afternoon. He is raising additional tax revenue of €700 million with the greater part coming from the reversal of the 9% VAT rate for the hotel sector which is forecast to bring in additional tax revenue of €466 million in 2019. The main points announced in the Budget are as follows:
• No changes to stamp duty.
• The stamp duty rates on residential property remain unchanged at 1% on the first €1 million and 2% on the balance.
• The rate on commercial property and goodwill remains at 6%.
Capital Acquisitions Tax
• The Class A tax free thresholds for gifts or inheritances to children has increased by €10,000 to €320,000. The Class B and Class C thresholds remain at €32,500 and €16,250 respectively.
• 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.
Capital Gains Tax
• A new capital gains tax relief for landlords who provide long term tenancies was expected but not mentioned by the Minister. However, it may still be included in the Finance Bill. This had been reported in recent press reports to be 4% per annum.
• No change in the rate which stays at 33%.
• No changes have been announced in relation to the entrepreneur capital gains tax rate of 10% on the first €1 million of capital gains. Ireland is not competitive with the UK where the first Stg£10 million is subject to a 10% rate.
• Despite much lobbying the reduced VAT rate of 9% has been increased to 13.5% for the hotel/ restaurant sector and hairdressing with effect from 1 January 2019. The reduced rate had applied from 2011. The increase is forecast to bring in additional VAT revenue of €466 million. The reduced rate still applies to sporting facilities and newspapers. The VAT rate applying to the electronic form of newspapers and books has been reduced from 23% to 9%.
Vacant Site Levy
As announced in last year’s budget the vacant site 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 as the lands are developed.
Local Property Tax
The Minister indicated that any future increases will be moderate and affordable despite property increases.
• The lower rate income tax band has been increased by €750 for single or widowed persons to €35,300, for married /civil partnership families with one income the lower band increases to €44,300 while the two incomes band increases to €70,600.
• 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 has increased from 80% to 85% in 2018 and will now increase to 100% from 1 January 2019. It had been due to be phased out by 2021.
• The USC rates have been cut with the 4.75% rate dropping by .25% and the lower 2% band increasing by €502 resulting in a saving of up to €139 per annum. The revised rates are:
Up to €12,012 0.5%
Next €7,862 2.0%
Next €50,170 4.5%
Balance stays at 8%
Up to €12,012 0.5%
Next €7,862 2.0%
Next €50,170 4.5%
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 €1,350. The PAYE credit for employees remains at €1,650.
• Home carer credit increased by €300 to €1,500.
• The lower Employers PRSI of 8.7% will apply on income up to €386 per week (€20,072 per annum).
• The were no changes announced to the first time buyers “Help to Buy Scheme”. 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.
• The Minister stressed that there will be no changes to the corporate tax rate of 12.5%.
• Changes were announced to the KEEP scheme to encourage the take up among SMEs as it has been less than expected to date. The purpose of the scheme was to help SMEs attract and retain talent in a highly competitive labour market. It aimed to do this by not subjecting to income tax, USC and PRSI gains on the exercise of share options but to subject the gain to CGT on the subsequent disposal of the shares. The legislation for the KEEP scheme was introduced by the Finance Act 2017 and is applicable in respect of share options granted during the period between 1 January 2018 and 31 December 2023. The ceiling on the maximum annual market value of share options that can be granted to an employee or director will be increased to a 100% of that person’s salary in the year in which the share option is granted. This is subject to the new lifetime limit of €300,000 which replaces the old 3 year limit of €250,000. The previous ceiling on the maximum annual market value of share options that could be granted to an employee or director was the lesser of €100,000 or 50% of the salary of the employee or director in the year in which the share option is granted.
• As per last year’s Budget, the National Training Fund levy will rise to 0.9 per cent in 2019 and 1 per cent in 2020. The Employers PRSI rates from 1 January 2019 will be 8.7% on earnings up to €20,072 and 10.95% on earning above this level.
• Following a review of the EIIS scheme a priority package of measures will be included in the Finance Bill to increase the efficiency of the scheme. We await details.
• The Minister advised that he will be introducing new Controlled Foreign Company (CFC) rules in line with the Anti-Tax Avoidance Directive (ATAD) in Finance Bill 2018. The new rules will apply for accounting periods commencing on or after 1 January 2019. Currently, there is no CFC legislation in Ireland. In essence, CFC legislation taxes a foreign company’s profits in Ireland. It will affect all Irish companies with subsidiaries abroad unless certain exceptions apply.
• A new exit tax of 12.5% will apply from midnight on 9 October 2018 on unrealised gains on assets of companies exiting Ireland or transferring assets abroad.
• The Minister confirmed an update on transfer pricing provisions will be announced in 2019.
• The corporation tax exemption for start up companies has been extended to 2021.
• The 0% BIK rate for electric vehicles is being extended for a period of 3 years, with a cap of €50,000 on the Original Market Value of the Vehicle. There was no cap in 2018. Presumably normal BIK rates will apply to cars over this ceiling but we await the details in the Finance Bill.
• New accelerated capital allowances scheme has been announced for gas propelled commercial vehicles.
• Income averaging has been extended to farmers with off-farm income.
• Stock relief has been extended for a further 3 years until the end of 2021.
• Young trained farmers stamp duty relief extended to the end of 2021.
Other Revenue Measures
• The duty increases by 50 cents on a package of cigarettes with no increases on petrol, diesel or alcohol. This is forecast to yield a mere €2.4 million.
• Betting tax levy increases from 1% to 2% on bets placed in the State will yield €39.5 million in 2019 while a 1% VRT surcharge for diesel passenger cars registered in the State from 1 January 2019 is projected to yield €25 million.
• To promote a greener environment the current VRT relief available for conventional hybrids and plug in electric hybrids is being extended for a period of one year until the end of 2019.
• There is an increase in the minimum wage to €9.80 per hour.
• The Minister is reviewing the withholding tax implications for crowd funding and these may be relaxed with the introduction of new regulations.
Purcell McQuillan Tax Partners Limited 9 October 2018
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.