Budget 2018 – What Do You Need To Know?

Budget 2018

Paschal Donohoe, Minister for Finance and Public Expenditure and Reform, has delivered his maiden budget speech and set out the first set of budgetary measures from the government under the leadership of Taoiseach Leo Varadkar.

Budget 2018 spread the jam thinly. The winners are middle-income earners. The big news for business was the new rate of stamp duty of 6% now applicable to sales of commercial property.

So how do yesterday’s measures affect you?

Business Taxation

There will be an increase in Employer’s PRSI of 0.1% from 8.5 to 8.6% / 10.75% to 10.85% with effect from 1st January 2018.

Capital Allowances

An 80% cap on the amount of capital allowances, and related interest, that can be claimed each year against related income is to be reintroduced for intangible assets acquired from midnight last night. Any excess allowances/interest can be carried forward to future years so the change will not give rise to a reduction in the overall relief available. There should be no impact for IP acquired on or before 10th October 2017.

The government reaffirmed its commitment to 12.5% Corporation Tax.

In response to the recommendations contained in the Coffey report last month, a public consultation process has been launched as part of the Update on the international Tax Strategy. This can be accessed through this PDF and will run until 30th January 2018.

A share-based remuneration incentive called the Key Employee Engagement Programme or “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 on exercise. This incentive will be available for qualifying share options granted after 1st January 2018 and the full conditions will be set out in the Finance Bill.

There was no mention of any expansion of Entrepreneurs Relief for Capital Gains Tax so the existing limit would appear set to continue in place for 2018.

Income Tax

Next year the point at which an income earner attracts the higher rate of income tax will rise by €750 per annum.

The entry point for single earners will increase from €33,800 to €34,550.

The targeted changes to the Universal Social Charge will reduce rates but do not narrow the USC tax base:

The entry point to USC will remain at €12,012.
The 2.5% USC rate will be reduced to 2%. With the ceiling for the new rate increased from €18,772 to €19,372.
The 5% USC rate will be reduced to 4.75%.

The USC relief for medical card holders is being extended for a further 2 years.

A working group will be set up over the coming year to plan the amalgamation of the USC and PRSI over the medium term.

The Earned Income tax credit for the self-employed will rise by €200 to €1,150 a year.

The Home Carer tax credit has increased by €100 to €1200.

Other Personal Tax Measures

Mortgage Interest relief will be cut next year in a move that will affect about 300,000 homeowners. The relief for people with loans from 2004-2012 is being continued to 2020, but at just 75% of the rate in 2018, 50% in 2019 and 25% in 2020.

A 0% benefit in kind (BIK) is being introduced for one year in respect of electric vehicles. Electricity used in the workplace for charging such vehicles will also be exempt from BIK. A review of BIK treatment of motor vehicles will take place in advance of next year’s budget.
The rate of DIRT will be reduced by 2% for 2018 as provided for in the Finance Act 2016.

Property

There has been a reduction from 7 years to 4 year in the period for owners to enjoy full relief from Capital Gains Tax.

A new agency “Home Building Finance Ireland” (HBFI) announced to provide loans totalling up to €750m on market terms to fund residential development projects.

The vacant site levy increases from 3% to 7% in the second and subsequent years. The increased rates would first apply from 1st January 2019.

A new deduction of €5,000 per property for pre-letting expenses of a revenue nature will be introduced for owners of residential property that has been vacant for a period of 12 months or more. A clawback will arise if the property is withdrawn from the rental market within 4 years. The relief will be available for qualifying expenses incurred up to the end of 2021.

Stamp duty

An increase in the rate of stamp duty on commercial property from 2% to 6% was announced and this came into effect at midnight last night. However, a stamp duty refund scheme will be introduced for commercial land purchased for the development of housing, provided the relevant development commences within 30 months of the land purchase.

Indirect tax

It was confirmed that the Vat rate on the tourism and hospitality sector will remain.

A VAT refund scheme will be introduced in respect of VAT paid on expenditure incurred by charities in 2018. The amount of VAT recoverable will be based on the level of non-public funding a charity receives.

The VAT rate on sunbed services is to increase from 13.5% to 23% from 1st January 2018.

The duty of a packet of 20 cigarettes increased by 50 cent (including VAT) at midnight last night with a pro rata increase on other tobacco products.

From 1st April 2018, there will a tax introduced on sugar-sweetened drinks subject to State Aid approval.

Agriculture

For the purpose of CAT Agricultural relief and CGT Retirement relief, agricultural land used for solar farms will continue to be classified as agricultural land. However the amount of the farmland that can be used by the solar farm will be restricted to 50 % of the total farm acreage.

Consanguinity stamp duty relief at a rate of 1% for inter-family farm transfers is being extended for a further 3 years.

A renewable heat incentive (“RHI”) is being introduced with an initial budget of €17m.

Compliance Measures

Additional funds are being allocated to the Revenue Commissioners to increase its technical capacity to tackle complex tax avoidance and transfer pricing cases, with specific reference to the Revenue’s Competent Authority role.

In preparation for PAYE Modernisation, a range of compliance interventions (with a focus on ICT capacity and data analytics) will be made to ensure compliance with employer PAYE obligations.

Rainy Day Fund

A Rainy Day Fund will be established in the coming year, with at least €1.5 billion transferred to it from the Ireland Strategic Investment Fund.

Get in touch with Paul O’Donovan & Associates to discuss Budget 2018 and your business – see contact details below.