Budget 2018 Insights

We have set out below some of the key highlights from today’s budget.

Business Taxation

The Government reaffirms its commitment to 12.5% Corporation Tax – “the 12.5% tax rate is, and will remain, a core part of our offering”. In response to the recommendations contained in the Coffey report last month, a public consultation process has been launched as part of the Update on the International Tax Strategy.

Intangible Assets and Energy Efficient Equipment
An 80% cap on the amount of capital allowances, and related interest, that can be claimed each year against related income is to be reintroduced for intangible assets acquired from midnight tonight.

Acceleration of capital allowances for energy efficient equipment was due to expire at end of 2017 but will be extended to 2020. This relief grants 100% tax deduction for qualifying assets in the year of purchase.

Employee Reward Scheme
A share-based remuneration incentive called the Key Employee Engagement Programme or “KEEP” is being introduced to support small and medium enterprises in their efforts to attract and retain 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 scheme which levies an income tax, USC and PRSI on exercise. Further details on this scheme will be set out in the Finance Bill.

Company Cars
A 0% benefit in kind rate for staff provided with electric company cars is to be introduced for a period of one year. A review of the impact will be undertaken in advance of next year’s budget. Electricity used in the workplace for charging such vehicles will also be exempt from benefit in kind.

Entrepreneur Relief
An announcement on the expansion of the Entrepreneurs Relief for capital gains tax was expected. This was not addressed so the existing limit of €1 million that is subject to the 10% tax rate would appear set to continue in place for 2018 unless this is addressed in the Finance Bill.

National Training Fund Levy
National Training Fund Levy payable by employers on Classes A&H will increase from 0.7% to 0.8% from 1 January 2018.  It will increase to 0.9% in 2019 and 1% in 2020. 

Personal Taxation

Income Tax bands and credits were increased as follows:
* Standard rate band increased by €750 to €34,550
* Home Carer Credit up to €1,200 from €1,100
* Earned Income Tax Credit increased by €200 to €1,150 but is still €500 less than the employee’s PAYE credit of   €1,650.  

The following reductions were made to the USC rate and bands: 

Stamp duty

Stamp duty on commercial property, including agricultural lands, increases from 2% to 6% from midnight. No change to the rate for residential property, 1% up to €1 million and 2% for residential over €1 million.

Stamp duty refund scheme is to be introduced for commercial land purchased for housing development if the development commences within 30 months of the purchase.

 Property

Vacant site levy increases from 3% to 7% on designated vacant sites. The increased rate will first apply from 1 January 2019 and is payable in 2020.

The Government is to provide a loan facility of €750M on market terms to be made available for commercial investment in housing finance in the Home Building Finance Ireland fund (HBFI).

A deduction is to be allowed for expenditure of up to €5,000 per property on pre-letting expenses up to 2021 for properties vacant for more than 12 months. Clawback provisions will apply if the property is taken off the rental market within 4 years.

Mortgage interest relief which was due to expire in 2017 has been extended to 2020 but on reducing scale of 25% per year.

Capital Gains Tax

Holding period for CGT relief on disposals of land and buildings acquired between 7 December 2011 and 31 December 2014 reduced from 7 to 4 years.

Agricultural Taxation

Agricultural land used for solar panels will qualify as agricultural land for the purposes of CGT retirement relief and CAT agricultural relief.  Previously agricultural land diverted to use as a solar farm would not qualify for these reliefs.  The amount of land capable of being used for solar infrastructure is restricted to 50% of the total farm holding.  

Indirect Taxation

The Minister acknowledged that the tourism and hospitality sector in our capital city is thriving, however, he has a duty to the sector outside the cities where recovery has not been as buoyant and he has committed to retain the 9% VAT rate for this sector.

In line with the Government’s National Cancer Strategy, VAT rates on sunbeds are to rise from 13.5% to the standard VAT rate of 23%.

Following on from the announcement in Budget 2017, a sugar tax is to come into effect from April 2018 which coincides with the UK’s introduction of the sugar tax.  30 cent will be added to a litre of a sugar sweetened beverage containing more that 8grams/100ml. For similar drinks containing 5-8grams/100ml, 20 cent per litre will apply.

50 cent is to be added to a pack of 20 cigarettes with a pro-rata increase on other tobacco products. This will bring the average price of 20 cigarettes to €12 per pack.

No excise increases on the old reliables of alcohol, petrol or diesel.

Capital Acquisition Tax

There were no changes announced to group threshold or tax rates.

Charities

In recognition of the works undertaken by charities, the Minister announced the introduction of a VAT Compensation Refund Scheme to compensate charities for the VAT they incur on their inputs. The scheme will come into operation on 1 January 2018 but will be paid one year in arrears to allow Revenue put systems in place to facilitate repayments.

Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive. For example, where a charity is 40% public funded, they may claim 60%, being the non-public share of their VAT input costs for the year. 

Qualifying Charities must be registered with the Charities Regulator, hold a tax clearance and provided a set of audited accounts for the year in which the claim is being submitted. VAT refunds valued below €500 will not qualify.