Budget 2018 Key Tax Measures

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.
Rate bands
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.
Tax credits
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.
Stamp duty
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.