Welcome to our summary of the main tax provisions included in Budget 2017.
As a result of the outcome of last February’s general election, this year’s Budget has been agreed in advance with the main opposition party. Many of the provisions on USC, childcare packages and relief for first time buyers who purchase new homes have been announced in advance of the Minister’s speech. Given these circumstances it is no surprise that the Budget is heralded as containing a little something for everyone.
For business owners the changes to the tax regime for taxing gains realised by entrepreneurs on disposal of their businesses is particularly welcome.
Summary of measures
- Cuts to USC rates.
- Income tax rates remain the same
- No changes to the income tax standard rate bands
- Increase in Earned Income Credit to €950 for self-employed individuals
- Increase in Home Carer tax credit
- Home Renovation Incentive extended to 31 December 2018
- Income tax rebate of up to €20,000 for first time buyers of new homes
- Rent a Room exemption increased from €12,000 to €14,000
- Increase in the allowability of interest paid by landlords from 75% to 80% on loans for rented residential premises
- Reduction in Deposit Interest Retention Tax from 41% to 39%
- The Start Your Own Business relief is being extended by two years until end of 2018
- Extensions to the Foreign Earnings Deduction and the Special Assignee Relief Programme
- Accelerated capital allowances for energy-efficient equipment being extended to sole traders and non-corporates
- The reduced 9% rate of VAT on tourism-related activities to be retained
Capital Gains Tax
- 10% rate for disposal of businesses by entrepreneurs up to €1m
Capital Acquisitions Tax
- Tax-free threshold for gifts/inheritances from parents to children increased from €280,000 to €310,000 and 8% increase for the other thresholds
- Price of 20 cigarettes to rise by 50c from midnight
- Extension of VRT reliefs for the purchase of hybrid electric and other motor vehicles
- Changes to excise duty relief for microbreweries
- Tax on sugar-sweetened drinks to be introduced from April 2018
The 40% higher tax rate will remain for 2017.
Universal Social Charge
The USC has been cut for lower and middle income earners. The three lowest rates have all been reduced by half a percent.
The entry threshold for USC will remain at €13,000; however there has been an increase in the second band threshold from €18,668 to €18,772 to take account of the increase in minimum wage.
Medical card holders and individuals aged 70 years and over whose aggregate income does not exceed €60,000 will now pay a maximum USC rate of 2.5%.
The 11% rate will continue to apply to self-employed income over €100,000.
Deposit Interest Retention Tax (D.I.R.T)
The DIRT rate will be reduced by 2% each year for the next four years until it reaches 33%. For 2017 DIRT will be charged at 39%.
Home Carer tax credit
The Home Carer Credit will increase from €1,000 to €1,100. The income threshold up to which a home carer can earn will remain at €7,200.
Earned income credit
For self-employed individuals the earned income credit will increase by €400 to €950.
Home Renovation Incentive (HRI)
The HRI is being extended for a further two years until 31 December 2018.
The rent-a-room scheme ceiling will increase from €12,000 to €14,000 for 2017 and subsequent years to take into account increases in rents nationally.
Help to Buy Scheme
A New Help to Buy Scheme for first time buyers will be introduced. There will be a 5% rebate of income tax paid over the previous four years by First-Time Buyers of newly built homes, capped at €20,000. Houses purchased at prices in excess of €600,000 will not be eligible for the rebate. The scheme will run until 2019 and applicants must take out a mortgage of at least 80% of the purchase price.
Interest relief – rented residential property
In an effort to move to restoring full deductibility for interest payments on monies borrowed to purchase, improve or repair residential properties, the interest deduction is being increased from 75% to 80% for 2017 with an extra 5% for each year thereafter. This increase applies to both new and existing mortgages.
Living City Initiative
The Living City Initiative will be extended to include landlords. For residential applicants the restriction on maximum floor size of the property will be removed, the requirement that the property must have been previously used as a dwelling will also be removed and there will be a reduction in the minimum amount of expenditure needed to qualify for the scheme.
Corporation tax rate
There is a firm commitment given to retain the 12.5% corporation tax rate as a key part in Ireland’s strategy to attract foreign direct investment.
Review of Ireland’s corporate tax code
Similarly the Minister announced a review of Ireland’s corporate tax code which will consider how Ireland can deliver certainty for businesses and maintain the competitiveness of Ireland’s corporation tax offering.
Start Your Own Business relief
The Start Your Own Business scheme which provides for relief from Income Tax for long term unemployed individuals who start a new business is extended for two years until the end of 2018.
Foreign earnings deduction
This tax relief for employees travelling to and working in certain foreign countries is being extended to include Columbia and Pakistan. The requirement to have 40 qualifying days spent in those countries is being reduced to 30 days.
Special Assignee Relief Programme
This is a relief aimed at foreign workers working in Ireland. It is being extended for an additional three years up to the end of 2020.
The reduced VAT rate of 9% for goods and services mainly related to the tourism and hospitality industry will remain for 2017.
The Minister acknowledged the costs to charities arising from irrecoverable VAT on goods and services rendered to them. He confirmed that the Department of Finance and the Irish Charities Tax Reform Group are to liaise to establish how charities may be compensated in this regard.
Capital Gains Tax
Entrepreneur relief reduced to 10% for disposal of qualifying business assets. The lifetime limit of €1 million remains.
Capital Acquisitions Tax
Group thresholds increased from 12 October 2016 as follows:
- Group A – parent to child: €310,000
- Group B – close relations: €32,500
- Group C – relationship other than Group A or Group B
The Minister acknowledged that the farming and agri-food sector has been going through a difficult time recently, due to lower world prices, adverse weather conditions and in particular the impact of Brexit. He therefore announced a package of measures to assist the sector.
The Income Averaging scheme allows a farmer’s taxable profit to be averaged out over a five-year period. Once a farmer opts into the scheme however they must continue to use it for at least five years.
Changes announced mean that a farmer may elect to opt out of the scheme in a single year of unexpectedly poor income. Any deferred tax liability will then become payable over subsequent years. This election can be made starting with the 2016 tax year.
VAT flat rate addition
The flat-rate addition for farmers not registered for VAT is being increased from 5.2% to 5.4%.
New loan scheme for farmers
In order to assist cashflow, a new loan scheme will be created for farmers. The Minister stated that these loans will be low cost, with a rate of interest below 3% per annum and will be highly flexible.
Accelerated capital allowances for expenditure on energy-efficient equipment
This scheme is being extended to sole traders and non-corporates and is primarily aimed at businesses operating in the farming and marine sectors.
Fishers tax credit
A new tax credit is being announced for fishers to assist with the viability of the fishing sector.
Fishers who have fished for wild fish or wild shellfish for at least 80 days in a tax year will be eligible to claim the tax credit of €1,270 per annum.
The price of a packet of cigarettes will increase by 50c (inclusive of VAT) with a proportionate increase on other tobacco products with effect from midnight tonight.
The VRT relief in existence in relation to the purchase of hybrid electric vehicles to include plug-ins has been extended to 31 December 2018. While the VRT relief in relation to electric vehicles and electric motorcycles has been extended to 31 December 2021.
Changes to Section 110 regime
The Minister has recently announced significant changes to the tax treatment of Section 110 Special Purpose Vehicles (SPVs). This is in light of concerns that the Section 110 regime is being used by certain companies set up to acquire and hold distressed loans and mortgages to avoid tax on Irish property related transactions.
The Minister has noted the positive impact that the securitisation industry has made to the Irish economy and the role of Section 110 SPVs in this regard, but has expressed concern that they are now being used in ways that were never intended.
Accordingly he has already announced changes to the tax treatment of certain transactions entered into by them with effect from 6 September 2016, such that any financial assets which derive all or most of their value from land in Ireland will now be deemed to be derived from a Specified Property Business, which will be taxed as a separate trade. In calculating the profits of that trade the amount of interest that may be deducted will be restricted to the amount of interest that would have been payable had the loan been entered into on an arm’s length basis and where the coupon was not dependent on the performance of the Specified Property Business.
Offshore tax evasion
Revenue will use data sources available through FATCA, EU and OECD exchange of information initiatives to target offshore accounts and assets. This will be accompanied by legislation denying the opportunity to avail of the benefits of making a voluntary disclosure after 1 May 2017 and the introduction of a new strict liability offence for failure to return details of offshore accounts or assets.
Revenue resources to combat non-compliance
Revenue will receive funding to recruit 50 full-time staff for audit and investigation activities and to improve data matching and data analytics tools.
A new sugar-sweetened drinks tax is to be introduced. The Minister however announced that its introduction will be aligned with the UK’s tax proposal in this area. It will therefore not be introduced until April 2018 and a consultation process will take place in advance of this.
Share Incentive Scheme for SMEs
Currently, where an employer gives shares in their company to an employee the benefit is subject to income tax, PRSI and USC. Albeit there are share incentive schemes provided in the legislation, however, they tend only to be applicable to large companies. The Minister intends to engage in a public consultation with a view to developing a share-based incentive aimed at SMEs in Budget 2018.