The following are the key changes introduced in Finance Bill 2016. You can download our pdf infographic of these changes here.
Proposed Changes to Entrepreneur Relief
The Capital Gains Tax rate for entrepreneurs on the sale of businesses was reduced from 20% to 10%. The lifetime limit remains at €1 million.
Proposed Pensions Changes
The Bill closes off certain tax planning opportunities by amending the legislation to ensure that all PRSA benefits are deemed to commence on the PRSA owner’s 75th birthday and ensures that such a deemed vesting of a PRSA comes within the imputed distribution regime and is treated as a Benefit Crystallisation Event (BCE) for Standard Fund Threshold purposes.
In addition where PRSA owners have, to date, maintained their PRSAs intact beyond their 75th birthday these will be deemed to vest on the date of the passing of the Bill.
75% restriction on mortgage interest available as a deduction against rental income by landlords has increased to 80% for 2017. This is a move aimed at restoring full deductibility for mortgage interest with another 5% being added for 2018 and each year thereafter.
Help to Buy
An income tax rebate incentive is to be introduced for first-time buyers of new homes to help fund the deposit as required under the Central Bank rules. The relief will take the form of a rebate of income tax paid over the previous 4 years up to 5 percent of the purchase price of a house costing €400,000. Pro-rata rates will apply to lower priced houses. Relief is capped at €20,000 and is not available for houses costing more than €600,000. The scheme will run until 2019 and applicants must take out a mortgage of at least 70% of the purchase price. Each applicant involved in the purchase must be a first time buyer.
The rent-a-room limit of €12,000 will increase to €14,000 for 2017 and subsequent years.
Changes to Section 110 Companies & Real Estate Funds
Changes to Section 110 Regime
The Finance Bill gives effect to changes recently announced by the Minister for Finance to the tax treatment of Section 110 Special Purpose Vehicles (SPVs). While Section 110 SPVs are a key component of Ireland’s structured finance regime, there have been concerns that they are being used by certain companies set up to acquire and hold distressed loans and mortgages to avoid tax on Irish property related transactions.
Changes – Property Business
These changes mean that any loans, swaps or similar derivatives which derive the greater part of their value from land in the State will now be regarded as Specified Mortgages. In calculating the SPV’s taxable profits, the amount of interest paid on profit-participating loans relating to Specified Mortgages that may be deducted will be restricted to the amount of interest that would have been payable on the loans had they been entered into on an arm’s length basis and had the coupon not been dependent on the performance of the Section 110 SPV.
The restrictions will not apply where the interest has been subject to Irish Withholding Tax or where it has been paid to individuals or companies within the charge to Irish charge, nor will they apply to interest paid to pension funds in the EEA, including Ireland.
The changes apply to transactions entered into on or after 6 September 2016. A Section 110 SPV will also not be permitted to ‘mark to market’ or revalue their assets on 5 September 2016.
Irish Real Estate Funds (IREFs)
The Bill also provides for a tax regime for a new classification of funds to be known as Irish Real Estate Funds (IREFs). These are defined as investment undertakings (excluding UCITS) where 25% of the value of the undertaking is made up of Irish real estate assets.
IREFs will be obliged to deduct withholding tax of 20% on distributions made out of profits arising from its Irish land where such distributions are made to unit holders who are not within the charge to Irish tax. There will be an exception for pension funds, life assurance companies and other collective investment undertakings.
These provisions will apply to accounting periods beginning on or after 1 January 2017, although where an IREF changes its accounting period on or after 20 October 2016 in order to defer the application of the new regime they will apply from that date.
Increased Scrutiny by Revenue on Offshore Assets Tax Evasion
The Bill contains certain anti-avoidance measures for tackling offshore tax evasion. These measures have been introduced by the Minster to restrict the opportunity for offshore defaulters to use the voluntary disclosure regime.
With effect from 1 May 2017 the opportunity to make a voluntary disclosure in relation to a tax default will be withdrawn from all taxpayers whose liabilities involve offshore income or assets.
Any taxpayer failing to make a disclosure before that date will no longer have access to penalty mitigation arrangements and protection from publication on the list of tax defaulters. Tax defaulters may also leave themselves open to criminal prosecution as a result of these amendments.
Proposed VAT Amendments
The Bill makes changes to the rules relating to the deductibility of VAT for businesses that are carrying on both VATable and VAT-exempt activities. The changes apply to general overheads attributable to both activities (dual-use imports) – VAT on such overheads must be apportioned to determine what amount is deductible. These amendments provide that the turnover method is the primary method of apportionment but where that method does not reflect the taxable use of dual-use imports, an alternative method of apportionment should be used.