Relationship Breakdown: Tax Implications/in News, Press Publications/by circulo
Ireland has seen been both dramatic and welcome changes to the landscape of formalising and dissolving relationships over the last two decades. Among other things, we have seen a historical shift in modernising our tax code and moving it towards equality for all couples. We started the journey in 1995, with the divorce referendum passing by an incredibly tight 0.3% margin. The resultant Family Law (Divorce) Act 1996 allows a court to grant a decree of divorce where it feels confident that all of the applicants are aware of the alternatives to divorce and that there is no possibility of reconciliation. The tight margin was arguably due to a perceived worry that the “floodgates” would open and divorce rates would skyrocket. However, these fears have not yet been reflected in the statistics.
Accounting for undistributed income/in News, Press Publications/by circulo
A recent tax appeal case has highlighted the issues that the close service company surcharge can create for incorporated accountancy practices
Irish tax legislation provides for a surcharge on the undistributed income of certain professional service companies that are ‘close companies’ – that is, a company that is under the control of five or fewer participators.
The recent Tax Appeal Commission Determination (108 TACD 2020) concerns the application of the close service company surcharge to a company (‘the firm’) carrying on an accountancy practice.
The case centred on whether the principal part of the firm’s income was derived from professional or non-professional services.
Domicile: what does it mean?/in Press Publications/by circulo
It is mandatory for taxpayers to include details of their residence, ordinary residence and domicile status as part of their personal details when filing their annual income tax return. The requirement to return domicile status was introduced in 2017. A taxpayer’s domicile can be a determining factor in whether an individual is liable to Irish taxes such as income tax, capital gains tax and capital acquisitions tax.
Mark and John examine the concept of domicile and relevant case law on the matter and write about how an individual can determine their domicile status in their feature article.
Amanda-Jayne Comyn joins the firm/in Press Publications/by circulo
Amanda-Jayne Comyn has joined the team at Circulo Tax Advisors. Amanda is a Barrister-at-law and a Chartered Tax Advisor (CTA). She has extensive experience in the field of tax having worked in leading legal firms and large accountancy practices, mostly recently as a tax partner with Philip Lee and prior to that as tax director with Grant Thornton.
Principal Private Residence relief/in Press Publications/by circulo
Mark and John write on the decision from the Tax Appeals Commission (TAC) on principal private residence relief. Of particular interest in this appeal is the quantum and sources of evidence provided by Revenue in support of its position and the analysis by the TAC in reaching its decision to deny the relief. The detail of the submissions presented by Revenue in this case provide careful food for thought and identify the key areas that should be considered. It is clear that Revenue are taking keen interest in claims for PPR relief given the generous nature the relief.
Read the article which featured in the January 2019 issue of tax.point.
Job Vacancy/in Press Publications/by circulo
Circulo are an ambitious boutique tax practise providing innovative tax solutions and advise to clients. Due to our continued growth and future plans we are currently seeking a tax manager. This is an excellent opportunity for the right person to develop their career through expanding their technical knowledge and opportunities for promotion.
• Researching and presenting on technical tax matters to support our tax advisory services
• Corresponding with clients, Revenue and intermediaries on all aspects of the client’s affairs
• Project managing tax assignments to provide an excellent service to our growing client base of corporate and high net worth individuals.
• Contributing to the development and growth of the practise.
• ACA/ ACCA qualified
• Tax qualified with a minimum of 1 year’s post qualification experience
• Strong technical knowledge with an emphasis on capital taxes
• Strong organisational and communication skills
• Self-motivated and a keen interest in developing their technical knowledge and ability to communicate with clients and intermediaries
Apply: Please send your CV to us at firstname.lastname@example.org
Budget 2018 Key Tax Measures/in Press Publications/by circulo
The Minister for Finance Paschal Donohoe delivered Budget 2018 on Tuesday 10 October. The key tax measures in Budget 2018 include the much publicised reductions in the tax burden for low and middle income earners and tweaks to other taxes, the big surprise was the 4 percent stamp duty increase on commercial transactions and the absence of any improvements to entrepreneurs relief and the gift and inheritance tax group thresholds.
If you would like a summary of the key tax measures, read below.
A reduction in the rates and an increase in the income threshold was announced as follows:
• €12,012 – €19,372 @ 2 percent
This is a reduction from 2.5 percent and the income threshold increased from €18,772.
• €19,372 – €70,044 @ 4.75 percent
This is a reduction in the rate from 5 percent.
The top rate for income from €70,045 remains at 8 percent. There was no change to the entry rate of 0.5 percent for income up to €12,012. The income exemption limit of €13,000 per year remains.
For the self-employed with income over €100,000, there was no change to the 3% surcharge.
The standard rate band will increase by €750. This means that the entry point to the 40% rate of income tax will be €34,550 for all single earners and €43,550 for married couples with one income earner.
This change from 1 January next will mean a tax reduction of €150 per year for individuals paying tax at the top rate.
The Earned Income Credit for the self-employed and proprietary directors will increase by €200 to €1,150 from 1 January 2018. The PAYE credit remains at €1,650.
The Home Carer Credit will increase by €100 to bring it up to €1,200 from 1 January next.
Mortgage Interest Relief
For owner occupiers who took out qualifying mortgages between 2004 and 2012, mortgage interest relief was expected to end on 31 December 2017. The Minister announced an extension to the relief for these homeowners until 2020. The relief available in 2017 will be restricted to 75% in 2018, 50% in 2019 and 25% in 2020. The relief will cease in 2021.
Employee motor vehicle
In an effort to tackle climate change a new 0 percent BIK rate on electric motor vehicles provided in the workplace will be in place for one year. A review on the general BIK system for motor vehicles was indicated.
Share based incentive
A new share-based remuneration incentive called the Key Employee Engagement Programme or “KEEP” is to be introduced from 1 January next which will aim to assist unquoted SME companies to attract and retain employees. According to the Budget documents, the employee will be subject to capital gains tax on the disposal of the shares in place of the current income tax, USC and PRSI liabilities on exercise.
An increase in the National Training Fund Levy was announced. This is set to increase by 0.1% per annum over the next three years, bringing the Levy from 0.7% to 1%. This is an addition cost for employers as the levy is a component part of the Employer PRSI charge. Therefore, the employers’ PRSI will increase from the current rate of 10.75% to 11.05% by 2020.
A working group will be established to plan over the next year the amalgamation of PRSI and USC over the medium term.
Rental deduction for pre-letting expenses
To encourage supply in the residential rental sector, a new measure will allow pre-letting expenses otherwise not allowable, such as painting, minor repairs and cleaning, to be deducted against rental income. In order to qualify, the property has to have been vacant for at least 12 months; expenses have to be revenue in nature and cannot exceed €5,000 per property. If the property is taken off the rental market within four years, any relief given will be clawed back. The relief is to be available for expenditure incurred up to the end of 2021.
Capital gains tax (CGT)
It was disappointing that there were no improvements announced to entrepreneurs’ relief, particularly an increase to the lifetime threshold limit of €1 million.
The seven year CGT relief is to be amended to allow the owners of qualifying land or buildings to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy relief from CGT on chargeable gains.
Capital acquisitions tax (CAT)
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 percent of the total farm acreage. This will apply for the purposes of both CAT agricultural relief and CGT retirement relief
Stamp duty reliefs
Stamp duty relief for inter-family farm transfers is extended for a further three years. This relief applies to transfers of farm land by specific individuals.
Tax relief for intangible assets
The deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80 percent of the relevant income arising from the intangible asset in an accounting period. This seems to be a return to the old regime pre Finance Act 2014.
Accelerated Capital Allowances for energy-efficient equipment
This is an incentive to encourage investment in energy efficient equipment for use in a company’s trade. The scheme was due to expire by 31 December 2017 but will now continue until the end of 2020.
The rate of stamp duty on non-residential property increased from 2 percent to 6 percent with effect from midnight on Budget night. The rate was as high as 9 percent between 2002 and 2008.
No change was announced to the second reduced rate of VAT of 9% which mainly applies to the tourism and hospitality sectors.
Charities are exempt from VAT under the EU VAT Directive and as a result cannot recover VAT incurred on goods and services that they purchase. Around €5 million is being made available to a Charities VAT Compensation Scheme in 2019. The scheme is set enable charities claim a refund of a proportion of their 2018 VAT costs, based on the level of non-public funding they receive.
A sugar sweetened drinks (SSD) tax is due to be introduced next April. The tax will be either 20c or 30c per litre on drinks with a sugar content beginning at over 5 grams per 100 millilitres.
The tax looks similar to the regime to be introduced in the UK, also from 1 April next. The sugar tax will be at a rate of 30 cent per litre on non-alcoholic, water based and juice based drinks which have 8 grams and above of sugar per 100 millilitres. A reduced rate of 20 cent per litre will apply on such drinks with between 5 and 8 grams of sugar per 100 millilitres.
Brexit loan scheme
To support SMEs to trade beyond the UK and enter new markets a Brexit Loan Scheme of over €300 million will be made available at competitive rates to businesses to sustain short term working capital needs. The Minister highlighted that this scheme will be available to food businesses given their unique exposure to the UK market.
Finance Bill 2017
The Finance Bill which will legislate for the Budget measures and will also likely include additional measures will be published on 19 October. According to the Department of Finance timetable, the Bill will move to debate at Committee Stage on 7 November and is due at Report Stage on 21 November. The Bill is expected to pass to the Seanad on 28 November.
Entrepreneurs relief, retirement relief and dwelling house exemption/in Press Publications/by circulo
Paula presented on the CGT entrepreneurs relief, retirement relief and the CAT dwelling house exemption for Chartered Accountants Ireland in September 2017. Her presentation is Entreprenuers relief for you to read. If you have any queries on Paula’s presentation please contact us.
Entrepreneurs relief: A Real Incentive for Business in Ireland/in Press Publications/by circulo
Mark takes a look at entrepreneurs relief and recent enhancements to the relief designed to make it more attractive as an incentive to do business in Ireland.
Following the reduction in the rate of Capital Gains Tax CGT for entrepreneurs relief (“the relief”) from 20 percent to 10 percent by Finance Act 2016, this relief is coming to the fore in terms of its importance for business in Ireland. The Minister for Finance, in Budget 2017, signaled further enhancements to the relief; it is expected that the current cap on the relief of €1m will be increased to make Ireland a more attractive location for entrepreneurs to set up business; the cap on the equivalent relief in the UK is £10m.
This article examines on a high-level basis the main conditions attaching to entrepreneurs relief and illustrates the operation of the relief through examples. Guidance from Revenue and interaction of the relief with CGT retirement relief is also considered.
Conditions for the relief
Entrepreneurs relief can apply to unincorporated businesses (e.g. sole traders and farmers) and to shares in qualifying companies. The relief applies only to a ‘qualifying business’, a qualifying business is a business other than—
- the holding of securities or other assets as investments,
- the holding of development land, or
- the development or letting of land.
In order for an individual who carries on a qualifying business (in an unincorporated fashion) to qualify for entrepreneurs relief on the disposal of a qualifying asset:
- The business carried on by the individual must be a qualifying business;
- The asset (which can include goodwill) must have been used by the individual for the purposes of the qualifying business; and
- The asset must have been beneficially owned by the individual making the disposal for a continuous period of at least 3 years out of the last 5 years up to the date of disposal.
Bill carries on the business of an engineer. In 2017, Bill sells his practice premises and goodwill to another engineer for €700,000. Bill bought his practice premises for €300,000 in 2013 and commenced his practice at that time. Bill should be in a position to claim entrepreneurs relief on the sale of the practice premises and goodwill, his CGT position is calculated as follows:
(premises and goodwill) €700,000
Base cost €300,000
Chargeable gain €400,000
Less annual exemption €1,270
CGT @ 10% €39,873
Jim is a farmer; he farms 80 acres of land that he acquired for €400,000 in 2008. The land is located at the edge of a major town. Jim is approached by a builder who offers him €5m for the land. The market value of the land if it was to be used only for agricultural purposes would be €800,000. If Jim sold the land in this example he would not qualify for entrepreneurs relief as the land is development land.
In order for shares in a company to qualify for entrepreneurs relief the following conditions must be satisfied:
- The holding must be of ordinary shares;
- The individual disposing of the shares must have held the shares beneficially for at least 3 consecutive years out of the last 5 years up to the date of disposal;
- The company must be a company whose business consists wholly or mainly of carrying on a qualifying business or a holding company of a qualifying group;
- The individual must own not less than 5% of the ordinary share capital of the company; and
- the individual must be a qualifying person in respect of the company or group (i.e. the working time requirement must be satisfied).
With regard to the working time requirement, where shares in a company are sold the individual making the disposal must have been either an employee or director and have spent not less than 50 percent of their working time in the service of the company (or companies in a group situation) in a managerial or technical capacity for a continuous period of 3 years in the 5 years prior to the disposal of the shares.
Paul holds 15 percent of the ordinary share capital of Globe Ltd, a company carrying on a business of a plumbing wholesaler. Paul acquired his shareholding in the company for €200,000 in 2012 and he has worked on a full time basis as a director of the company since then. Paul sells his shareholding for €600,000 in 2017. Paul should be in a position to claim entrepreneurs relief on the sale of the shares as:
He holds more than 5 percent of the ordinary share capital;
He has owned the shares for a continuous period of more than 3 years in the last 5 years;
He satisfies the working time requirement;
The company is carrying on a qualifying business.
Paul’s CGT position is calculated as follows:
Sale proceeds €600,000
Base cost €200,000
Chargeable gain €400,000
Less annual exemption €1,270
CGT @ 10% €39,873
If in the above example Paul received €2m for the sale of his shares his CGT position would be as follows:
Sale proceeds €2,000,000
Base cost €200,000
Chargeable gain €1,800,000
Less annual exemption €1,270
First €1m @ 10% €100,000
Balance @ 33% €263,580
Total CGT €363,580
Mary holds 100 percent of the share capital of ABC Ltd; she inherited the shares from her father in 2011 when the company was valued at €1m and she has worked on full time basis since she acquired the shares. Mary has received an offer for her shares of €2m. ABC Ltd is the holding company of XYZ Ltd and QWE Ltd. XYZ Ltd carries on a manufacturing trade, the property from which the company trades is held by QWE Ltd. QWE Ltd does not carry on a trade and its only asset is the property that is used by XYZ Ltd.
If Mary sells her shareholding in ABC Ltd she will not qualify for entrepreneurs relief, this is because each subsidiary company in the ABC Group is not a trading company (QWE Ltd is a rental company).
Mary could consider reorganising the ABC Group such that the property be transferred from QWE Ltd to XYZ Ltd followed by the removal of QWE Ltd from the group (perhaps by way of liquidation). This reorganisation should allow Mary to be in a position to qualify for entrepreneurs relief if she sold her shares in ABC Ltd in the future.
Revenue e-Brief 83/2016
Revenue published e-Brief 83/2016 which clarified the practical operation of entrepreneurs relief and also offered a number of welcome concessions. The main points to note are as follows:
- Periods of ownership of assets transferred between spouses cannot be aggregated for the purposes of the relief.
- Periods of ownership of assets before and after the incorporation of a business cannot aggregate for the purposes of the relief.
- Capital gains arising on share buybacks can qualify for the relief.
- Assets held personally and used by a company do not qualify for the relief.
- Capital gains on the disposal of partnership assets and interests can qualify for the relief.
- The relief can apply on the liquidation of a qualifying company provided that the liquidation is completed within 2 years of the trade ceasing and the company traded up to the appointment of the liquidator.
- Double holding company structures can potentially qualify for the relief.
- Any period during which an individual owned shares in or was a director or employee of a company that qualified for relief under section 586 or 587 TCA 1997 will be taken into account for the purpose of the 3 year continuous ownership requirement and for determining whether an individual was a director or employee of a company for the relevant period.
Interaction With Retirement Relief
Entrepreneurs relief and CGT retirement relief can both apply to the disposal of the same asset. As both reliefs are subject to lifetime limits it is possible that both reliefs could be exhausted on the disposal of the same asset, clearly this is not tax efficient for an individual who may have a number of assets that may qualify for either relief. Where possible the disposal of assets should be planned such that both entrepreneurs relief and retirement relief can be maximised. This can be illustrated by way of an example.
Mary acquired shares in Plug Ltd for €200,000 in 2004. She receives an offer of €900,000 for her shares in 2017. In this regard a chargeable gain of €700,000 would arise for Mary. All of the conditions for retirement relief and entrepreneurs relief are satisfied. Mary’s CGT position on a sale would be as follows:
Proceeds of sale €900,000
CGT arising if no
CGT arising under
(€900K – €750K)*50% €75,000
CGT arsing with
The actual CGT liability for Mary in this case would be €70,000.
Retirement relief and entrepreneurs relief would both apply to the sale of shares by Mary as the conditions for both are met. In this case Mary would have utilised her entire retirement relief threshold on disposals to third parties (€750,000) and €700,000 of her €1m entrepreneurs relief threshold. It is not a matter of Mary choosing which relief applies, both reliefs will apply and do not require a claim to be made.
Accountants should be cognisant of entrepreneurs relief when advising clients who are likely to dispose of their business in the future. Existing group structures may need to be revised to eliminate non-trading or dormant companies from the group to allow entrepreneurs relief to apply.
Entrepreneurs relief in the UK is currently significantly more generous than the Irish relief, it is hoped that future enhancements to the relief here will level the playing field and help attract entrepreneurs to Ireland.
 Land includes any buildings situated on that land
 The asset cannot be development land
 Care is needed where a group is in question, the presence of dormant or non-trading companies in a group can prevent relief applying.
 ‘working time’ means any time that an employee or director is—
(a) at his or her place of work or, in the case of an employee, at his or her employer’s disposal, and
(b) carrying on or performing the activities or duties of his or her work.
This article featured in the June issue of tax.point, the monthly tax journal from Chartered Accountants Ireland
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