Budget 2018 11 October 2017 FIONA MURPHY TAX PARTNER RBK Tax - - PowerPoint PPT Presentation

Budget 2018

FIONA MURPHY TAX PARTNER RBK

11 October 2017

Tax Backdrop

> Brexit > EU Developments > US Tax and Trade Reforms

Domestic Challenges

> Housing Crisis > Demand for Public Services

International Uncertainty

BUDGET 2018

BUDGET 2018

Budget 2018

BUDGET 2018

Property Measures

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

BUDGET 2018

> 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

Vacant Site Levy

BUDGET 2018

> To encourage early development of lands > Increased rate of 7% from 1 January 2019 > Summary > If undeveloped in 2018 and 2019 – effective 10% rate > Continues to be undeveloped – further 7% for each subsequent year

Undeveloped Land – Year of Ownership Year Payable Rate 2018 2019 3% 2019 2020 7% Subsequent years 7%

CGT Relief – Certain Disposals

BUDGET 2018

> 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 4th anniversary of acquisition

Mortgage Interest Relief

BUDGET 2018

> Scheduled to cease on 31st December 2017 > Extended on a tapered basis to 2020

 2018 – 75% of existing relief  2019 – 50%  2020 – 25%

Pre-Letting Expenses

BUDGET 2018

> 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 Clawback if property withdrawn from rental market within 4 years 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

Home Building Finance Ireland

BUDGET 2018

> 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

Other

BUDGET 2018

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

Income Tax

Income Tax Changes

BUDGET 2018

Marginal Tax Rate 40% No change Standard Rate Tax Band €34,550 Increased by €750 (from €33,800) USC Rates Reduced, Bands Increased Tax Credits Earned Income, Home Carer’s

Total tax rate for individuals earning less than €70,044 reduced to 48.75%

USC Rates & Bands

BUDGET 2018

Income Range Current Rate Income Range (Income < €13,000 exempt) New 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%

USC

BUDGET 2018

> 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

Amalgamating PRSI & USC

BUDGET 2018

> Working group being established to plan amalgamation of PRSI and USC looking to introduce a “European Style” social insurance system in Ireland

Tax Credits

BUDGET 2018

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

Income Tax - DIRT

BUDGET 2018

> 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

Business Taxes

Corporation Tax

BUDGET 2018

> 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

Corporation Tax

BUDGET 2018

Start up Exemption

> No changes > Due to expire on 31st December 2018 > Reduced rate of CT

 0% CT on profits of €320k and minimum 8 employees

Corporation Tax

BUDGET 2018

> 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

Corporation Tax

BUDGET 2018

> 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)

Preparing for Brexit

BUDGET 2018

> 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

Share Based Remuneration

BUDGET 2018

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

Share Based Remuneration

BUDGET 2018

KEEP Example > 1st May 2018 Grant of Option

 10,000 shares  MV of shares = €1 @ date of grant

> 1st May 2021 Exercise of Option

 Employee purchases 10,000 shares for €1 each  MV of shares = €3 @ date of exercise  Discount = €20,000

> 1st May 2024 Disposal of Shares

 MV of shares = €4 @ date of disposal  Proceeds €40,000

KEEP Example

BUDGET 2018

Tax Treatment Share Options Non KEEP Options € KEEP Options €

1. 01/05/2018 Grant of Option No Tax Liability Share Option @ MV 2. 01/05/2021 Exercise of Option Discount €20,000 Income Tax @ 40% USC @ 4.75% Employee PRSI @ 4% Income Tax Liability 8,000 950 800 9,750 3. 01/05/2024 Disposal of Shares Proceeds Less: Consideration at Exercise Less: Discount subject to Income Tax Chargeable Gain CGT @ 33% 40,000 (10,000) (20,000) 10,000 3,300 40,000 (10,000)

• 30,000

9,900 Tax Summary Income Tax CGT Total Difference Saving 9,750 3,300 13,050

• 9,900

9.900 3,150

Share Based Remuneration

BUDGET 2018

> 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?

National Training Levy

BUDGET 2018

> 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

Farming

Agri Sector

Renewable Energy

BUDGET 2018

> 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

Agri Sector

Stamp Duty

BUDGET 2018

> 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

Capital Taxes

Capital Taxes

BUDGET 2018

> 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

Entrepreneur Relief

BUDGET 2018

> 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

Indirect Taxes

Value Added Tax

BUDGET 2018

> Tourism Rate 9% maintained > Construction sector – no change > VAT rate on sunbed services – increased to 23% > Charities VAT Refund Scheme

 W.e.f. 1/1/2018  refund for certain input VAT suffered  To be paid one year in arrears i.e. 2018 VAT to be paid in 2019  Recoverability based on % of non-public funding  Capped fund of €5m  €500 de-minimus claim threshold

Customs & Excise

BUDGET 2018

> Cigarettes

 50c on pack of 20 cigarettes  25c on roll your own tobacco  Effective midnight

> Sugar Tax

 Applies to drinks with added sugar content of 5 grams per 100ml  Rates:

• Less than 5 grams  no tax
• 5 grams – 8 grams  20c per litre
• > 8 grams  30c per litre

 Effective from April 2018 (in line with UK implementation)  Subject to State Aid Approval

BUDGET 2018

Other Measures

Social Welfare

BUDGET 2018

> Increases in Social Welfare rates – deferred to March 2018 > Increased spending > Additional frontline resources

Revenue Powers / Resources

BUDGET 2018

> Additional funds available to Revenue - part of on- going strategy > Increase technical capacity > Increased PAYE compliance interventions

BUDGET 2018

What’s Next?

What’s Next

BUDGET 2018

> To Commence - Consultation

 Coffey Report  Stamp Duty on transfer of shares – consultation process  Amalgamation of PRSI / USC – working group  Carbon tax

> Still Ongoing!

 Mileage and subsistence  Personal Service Companies  Working Group – Rental Accommodation Providers / Landlords

Conclusion

BUDGET 2018

> Creating a roadmap for the years ahead > Little bit extra for everyone > Supporting Charities, SME’s in a Brexit context, housing sector > Various “Consultation” Processes – onus on businesses to take responsibility > Continued focus required in terms of the entrepreneur agenda / burden of marginal income tax rates “We have achieved so much and we can, and will, achieve more”

@RBK @RBKCA @RBK www.rbk.ie

Thank you

Fiona Murphy Tax Partner T: +353 9064 80600 E: fmurphy@rbk.ie

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