Commenting on the tax changes in the Budget, Ronan McGivern, Tax Partner, RBK said that "this is Minister Paschal Donohoe’s first budget as Minister for Finance and Public Expenditure and Reform. The Minister in his Budget speech has highlighted the need to “build on progress” and to “rise to the challenges”. With these sentiments in mind the overriding approach of the Minister appears to have been to adopt the position of don’t rock the boat with a little bit for everyone but leaving no particular sector fully satisfied.
The Minister again highlighted the housing crisis which shows no signs of going away. He has correctly highlighted that the real way to tackle homelessness and make housing more affordable is to increase housing supply. Whilst his proposals are welcome the provisions will unlikely immediately assist anyone that is currently desperately trying to get on the property ladder whether as a renter or a first time buyer.
Specific measures introduced in the budget include:
- A new deduction is being introduced for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more. A cap on allowable expenses of €5,000 per property will apply, and the relief will be subject to clawback if the property is withdrawn from the rental market within 4 years.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.
- An amendment will be made to the existing 7-year CGT relief introduced by Michael Noonan as Minister for Finance. The amendment will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy a full relief from CGT on any chargeable gains.
- The rate of Stamp Duty on Non-Residential Property is being increased from 2% to 6% with effect from midnight tonight. In relation to commercial land purchased for the development of housing a stamp duty refund scheme will apply. The refund will be subject to certain conditions, including a requirement that developers will have to commence the relevant development within 30 months of the land purchase.
- The current vacant site levy of 3 per cent that applies in the first year is to be increased to 7 per cent in the second and subsequent years.
- Tapered extension of mortgage interest relief for remaining recipients – owner occupiers who took out qualifying mortgages between 2004 and 2012.
- Reducing the 2.5% and 5% rates of USC to 2% and 4.75%. Increase in the income ceiling for the 2% band by €600 to €18,772. The net effect of the above is that the marginal tax rates on income up to €70,044 is reduced from 49% to 48.75%.
- Increase in the Home Carer Credit from €1,100 to €1,200
- Increase of €750 in the income tax standard rate band for all earners, from €33,800 to €34,550 for single individuals and from €42,800 to €43,550 for married one earner couples
Corporation tax and international taxation
- Reiteration of the commitment to the 12.5% rate
- The deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from the intangible asset in an accounting period. Full details of this measure will be contained in the Finance Bill.
- The existing scheme of accelerated Capital Allowances for Energy Efficient Equipment is being extended to the end of 2020.
- Following on from the consultation programme undertaken last year a new share-based remuneration incentive (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 between 1 January 2018 and 31 December 2023.
- Increase in the Earned Income Credit from €950 to €1,150.
- Retention of the 9% VAT rate on tourism activities.
Other provisions that the Minister announced include the following:
- Introduction of a tax on sugar sweetened drinks on 1 April 2018. The tax will apply to sugar sweetened drinks with a sugar content between 5 grams and 8 grams per 100ml at a rate of 20c per litre. A second rate will apply for drinks with a sugar content of 8 grams or above at 30c per litre. This is aligned with the introduction of the UK equivalent sugar tax
- Increase in excise duty for a packet of 20 cigarettes by 50 cents (including VAT) and pro-rata increases on other tobacco products
- A 0% benefit-in-kind (BIK) rate is being introduced for electric vehicles for a period of 1 year. A comprehensive review of the existing rules in relation to benefit in kind on vehicles will also be undertaken with proposals to be included in the next Budget
- Electricity used in the workplace for charging vehicles will also be exempt from benefit in kind
- For the purpose of CAT agricultural relief and CGT retirement relief, agricultural land placed under solar infrastructure will continue to be classified as agricultural land (formerly it would no-longer have been deemed agricultural land), but with a condition restricting the amount of the farmland that can be used for solar infrastructure to 50 per cent of the total farm acreage
- Increase in the VAT rate on sunbeds from 13.5% to 23%
- A VAT refund scheme is being introduced to compensate charities for the VAT they occur on their inputs. The scheme will be introduced in 2019 in respect of VAT expenses incurred in 2018. Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive. An amount of €5m will be available to the scheme in 2019
- A focus by the Revenue on employer PAYE compliance requiring a range of compliance interventions as well as a compliance project aimed a tackling risks identified by e-commerce and online businesses.
Overall according to Mr. McGivern, "The Minister identified three priorities (1) safeguard our national finances and help rebalance our economy; (2) promote fairness and provide for sustained improvements in people’s lives and (3) make sensible and long-term investments to benefit us now and into the future. This budget is very much framed in the context of these three priorities. This budget is safe and conservative and will probably leave many people wanting more. Some risks or new initiatives would have been welcome, especially for entrepreneurs. A lot of the major commitments and promises appear to have been kicked down the road to later years. However in the context of the Confidence and Supply Agreement perhaps a steady as she goes approach is as good as we can hope for ”.