Budget 2018 11 October 2017 FIONA MURPHY TAX PARTNER RBK
Tax Backdrop International Uncertainty > Brexit > EU Developments > US Tax and Trade Reforms Domestic Challenges > Housing Crisis > Demand for Public Services BUDGET 2018
BUDGET 2018 Budget 2018
BUDGET 2018 Measures Property
Property Measures > Stamp duty - Commercial property > Vacant Site Levy > 7 year CGT exemption > Mortgage Interest Relief > Pre letting expenses > HBFI – Home Building Finance Ireland > Other BUDGET 2018
Stamp Duty – Non-Residential Property > Increase in rate on non-residential property from 2% to 6% - w.e.f. midnight > Stamp Duty Refund Scheme - commercial land for housing development Must commence development within 30 months BUDGET 2018
Vacant Site Levy > To encourage early development of lands > Increased rate of 7% from 1 January 2019 > Summary Undeveloped Land – Year Payable Rate Year of Ownership 2018 2019 3% 2019 2020 7% Subsequent years 7% > If undeveloped in 2018 and 2019 – effective 10% rate Continues to be undeveloped – further 7% for each > subsequent year BUDGET 2018
CGT Relief – Certain Disposals > Aim – to release property for housing development but not restricted to this > 7 Year CGT Exemption > Properties acquired between 7 December 2011 – 31 December 2014 > Holding period reduced from 7 to 4 years > Full exemption from CGT for assets disposed after 4 th anniversary of acquisition BUDGET 2018
Mortgage Interest Relief > Scheduled to cease on 31 st December 2017 > Extended on a tapered basis to 2020 2018 – 75% of existing relief 2019 – 50% 2020 – 25% BUDGET 2018
Pre-Letting Expenses > Tax deduction against future rents > Up to €5,000 per property if vacant for 12 months or more > Clawback if property withdrawn from rental market within 4 years > Relief available for expenses incurred up to 2021 BUDGET 2018
Home Building Finance Ireland > Establishment of new fund – Home Building Finance Ireland (HBFI) > Up to €750m to provide funding for viable residential development projects > Monies lent on commercial, market equivalent terms and conditions > Risk profile of each project, the quality of collateral and credit worthiness of the borrower considered BUDGET 2018
Other Landlord – Interest Deductibility > April 2009 - interest deductibility restricted to 75% > FA 2017 - Full deductibility phased over a period 2017 – 80% 2018 – 2021 – Increase by 5% p.a. Help to Buy > Retained / No changes BUDGET 2018
BUDGET 2018 Income Tax
Income Tax Changes Marginal Tax Rate 40% No change Standard Rate Tax Increased by €750 Band €34,550 (from €33,800) Rates Reduced, Bands USC Increased Earned Income, Home Tax Credits Carer’s Total tax rate for individuals earning less than €70,044 reduced to 48.75% BUDGET 2018
USC Rates & Bands Income Range Current Income Range New Rate (Income < €13,000 exempt) Rate €0 - €12,012 0.5% €0 - €12,012 0.5% €12,013 - €18,772 2.5% €12,013 - €19,372 2% €18,772 - €70,044 5% €19,373 - €70,044 4.75% Income > €70,044 @ 8% BUDGET 2018
USC > Relief from USC for medical card holders extended for 2 years – USC capped @ 2% > > 70 years and income < €60k – USC @ 2% > USC surcharge @ 3% on self-employed income over €100k BUDGET 2018
Amalgamating PRSI & USC > Working group being established to plan amalgamation of PRSI and USC looking to introduce a “European Style” social insurance system in Ireland BUDGET 2018
Tax Credits Earned Income Credit > “PAYE Credit” for self employed introduced in 2016 > 2018 – increased to €1,150 Home Carers Credit > Available on caring of one or more dependents (not spouse) > 2018 – increased to €1,200 BUDGET 2018
Income Tax - DIRT > Reduction in DIRT – Introduced in Finance Act 2017 > 2% pa over next 3 years Year Rate 2017 39% 2018 37% 2019 35% 2020 33% BUDGET 2018
BUDGET 2018 Business Taxes
Corporation Tax > Ireland has a stable and competitive Corporation Tax system > 12.5% tax rate to remain “is and will remain a core part of our offering” > Compete on rate and on ability to offer certainty > Coffey Report review of Corporate Tax code – June 2017 Our roadmap for CT reforms up to 2020 > Importance for certainty and need for consultation BUDGET 2018
Corporation Tax Start up Exemption > No changes > Due to expire on 31 st December 2018 > Reduced rate of CT 0% CT on profits of €320k and minimum 8 employees BUDGET 2018
Corporation Tax > Recommendation adopted from Coffey Report Software / Intangible Assets 80% cap, Capital Allowances and interest Expenditure incurred from midnight > Consultation Process to cover Transfer pricing exclusion of grandfathering provisions exclusion of SME’s Taxation of Intangible Asset BEPS, transparency and other matters BUDGET 2018
Corporation Tax > Business Taxes – other measures 0% BIK on electric vehicles acquired during 2018 In addition to VRT relief Review of BIK treatment of motor vehicles Inform decisions for next Budget > Accelerated Capital Allowances 100% energy efficient equipment Extended to end of 2020 (previously to end of 2017) BUDGET 2018
Preparing for Brexit > Loan Scheme - €300m to be made available to SME’s > To fund short term working capital needs > Competitive rates of interest > A separate loan scheme of €25m specific to the Department of Agriculture BUDGET 2018
Share Based Remuneration Key Employee Engagement Programme (“KEEP”) > Objective: Support SME’s in Ireland to compete with larger entities for talent > Current Regime: Gain arising on exercise of share options subject to tax up to 52% Future disposal subject to CGT with deduction for amount subject to income tax > The KEEP Incentive: Deferral of tax event Gain arising on exercise of KEEP share options liable to CGT on disposal of the shares Apply to share options granted between 1 Jan 2018 and 31 Dec 2023 BUDGET 2018
Share Based Remuneration KEEP Example > 1 st May 2018 Grant of Option 10,000 shares MV of shares = €1 @ date of grant > 1 st May 2021 Exercise of Option Employee purchases 10,000 shares for €1 each MV of shares = €3 @ date of exercise Discount = €20,000 > 1 st May 2024 Disposal of Shares MV of shares = €4 @ date of disposal Proceeds €40,000 BUDGET 2018
KEEP Example Tax Treatment Share Options Non KEEP KEEP Options Options € € 1. 01/05/2018 Grant of Option 0 0 No Tax Liability Share Option @ MV 2. 01/05/2021 Exercise of Option Discount €20,000 Income Tax @ 40% 8,000 0 USC @ 4.75% 950 0 Employee PRSI @ 4% 800 0 Income Tax Liability 9,750 0 3. 01/05/2024 Disposal of Shares Proceeds 40,000 40,000 Less: Consideration at Exercise (10,000) (10,000) Less: Discount subject to Income Tax (20,000) - Chargeable Gain 10,000 30,000 CGT @ 33% 3,300 9,900 Tax Summary Income Tax 9,750 - CGT 3,300 9,900 Total 13,050 9.900 Difference Saving 3,150 BUDGET 2018
Share Based Remuneration > Details of incentive to be contained in Finance Bill Qualifying Company Qualifying Holding Period Qualifying Requirements throughout holding period Key employee > Subject to State Aid approval > Comparable to UK EMI Scheme? BUDGET 2018
National Training Levy > Increase in employer contribution to National Training Fund > Employer Levy to increase by 0.1% in 2018, 2019 and 2020 > Employer PRSI / Levy: 2018 10.85% 2019 10.95% 2020 11.05% > Consultation process to follow BUDGET 2018
BUDGET 2018 Farming
Agri Sector Renewable Energy > To encourage renewable energy > Leasing of agri lands used for solar panels eligible for capital taxes reliefs CAT Agricultural Relief CGT Retirement Relief > Eligible if less than 50% of total lands used for solar panels BUDGET 2018
Agri Sector Stamp Duty > Consanguinity Relief at 1% extended for a 3 years 1% Stamp Duty applying to inter-family farm transfers > Exemption for young trained farmers extended > Renewable Heat Incentive introduced Initial budget of €17m BUDGET 2018
BUDGET 2018 Capital Taxes
Capital Taxes > 33% rate of CGT and CAT remain > No increase to CAT thresholds - €310,000 > No changes to CAT Business Property Relief or CGT Retirement Relief > Application of the 66 year age threshold for unlimited relief on family transfers – outdated and counter productive BUDGET 2018
Entrepreneur Relief > Rate 10% on first €1m of chargeable gains > Lifetime limit – opportunity missed? > Existing limitations Interaction with CGT retirement relief Existence of dormant companies in group Where group is party to joint venture Where group / company holds investments Where group / company leases out part of premises BUDGET 2018
BUDGET 2018 Indirect Taxes
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