Today, the Minister for Finance Michael Noonan T.D. delivered Budget 2017.
Until the Brexit negotiations begin, it is impossible to know the impact for Ireland. However today’s budget gave Minister Noonan the opportunity to affirm the stability of Ireland’s tax policies while at the same time introducing measures to promote economic growth.
The overall Budget package was €1.3 billion; of which just over €300 million was set aside for tax adjustments.
Unless otherwise stated, the following tax changes will take effect from 1st January 2017:
1) USC Reductions
There will be a half per cent reduction to the first three USC rates of 1%, 3% and 5.5% to 0.5%, 2.5% and 5% respectively. While this will benefit all taxpayers, it is aimed at easing the tax burden on low and middle income earners earning up to €70,044 per year.
There will also be an increase in the entry point to the 5% band from €18,668 to €18,772.
There has been no change to the 8% or 11% USC rates.
While the reduction in USC rates is a welcome reduction in the overall tax burden, the top marginal rate for employed individuals with earnings over €70,044 is still 52% and 55% for self-employed individuals with income in excess of €100,000.
2) Home Carer Credit
The Home Carer Tax Credit is being increased by €100 to €1,100 for 2017.
The Home Carer Tax Credit may be claimed where an individual cares for one or more dependent persons. These include children, an elderly person, an incapacitated individual, etc.
It can be claimed by a jointly-assessed couple in a marriage/civil partnership where one spouse/civil partner cares for one or more dependant individuals.
3) Earned Income Tax Credit
The Earned Income Credit has increased from €550 to €950.
The tax credit is expected to increase to €1,650 in 2018 which will see self-employed individuals being on a par with employees who are currently entitled to a PAYE tax credit of €1,650.
An Earned Income Tax Credit of €550 was introduced in Budget 2016 for self-employed individuals, including proprietary directors, with earned income who were not otherwise entitled to the PAYE Tax Credit.
4) Deposit Interest Retention Tax (“DIRT”)
The rate of DIRT has been reduced from 41% to 39%.
In his Budget speech, Minister Noonan also committed to reducing the DIRT rate by a further 2% in the next three years until it reaches 33%.
5) Fisherman’s Income Tax Credit
A new income tax credit of up to €1,270 can be claimed by fishermen who spend at least 80 days in the tax year fishing for wild fish or shellfish.
The Group A tax-free threshold, which applies primarily to gifts and inheritances from parents to their children, is being increased from €280,000 to €310,000.
The Group B threshold, which applies primarily to gifts and inheritances to parents, brothers, sisters, nieces, nephews, grandchildren, etc., is being increased from €30,150 to €32,500.
The Group C threshold, which applies to all relationships other than Group A or B, is being increased from €15,075 to €16,250.
1) Help to Buy Scheme
Minister Noonan announced the new “Help to Buy” scheme for First Time Buyers of newly-built houses today. This new tax incentive is aimed at assisting first time buyers in meeting the acquisition deposit limits set by the Central Bank.
Under this scheme, first-time buyers will receive a rebate of income tax of the previous four years, of up to 5% of the value of a newly constructed home, up to a maximum value of €400,000.
A full rebate (which will be calculated on a maximum of €400,000) will apply to houses valued between €400,000 and €600,000 i.e. where the new house is valued between €400,000 and €600,000 the rebate will still apply but it will be capped at €20,000.
No rebate can be claimed on house purchases in excess of €600,000.
The scheme will be back-dated to cover new houses acquired between 19th July 2016 and December 2019.
A number of conditions must be met as follows:
- The property must be a new build or a self-build which was either purchased or built as the First Time Buyer’s main or primary residence.
- Second-hand properties will not qualify for this relief.
- The First Time Buyer must take out a mortgage of at least 80% of the purchase price.
2) Interest on rental properties
For landlords of residential property, 100% relief for mortgage interest incurred on the acquisition or development of residential rental properties will be restored on a phased basis over the next five years.
The Relief will increase by 5% per annum, beginning with 80% interest relief in 2017. This change will apply to both new and existing mortgages.
Under this new measure, the relief will be increased by 5% every year over the next five years, which will ultimately bring the relief in line with that currently available to landlords of commercial property.
3) Rent-a-Room relief
The annual tax free income limit for Rent-a-Room Relief is being increased by €2,000 from €12,000 to €14,000 per annum for 2017 and subsequent years.
4) Home Renovation Incentive
The Home Renovation Incentive which offers a tax incentive of up to approximately €4,000 for homeowners wishing to renovate a property has been extended for another two years until the end of 2018.
It was originally introduced in Finance Act 2013 and was due to expire at the end of 2016 but Minister Noonan announced today that this will now be extended to the end of 2018. This is seen as of great benefit to the Irish construction industry.
The rate of credit and the expenditure thresholds remain unchanged.
5) Living City Initiative
This Initiative provides tax relief on the refurbishment of properties in designated areas in Ireland’s six cities.
The conditions of the Living City Initiative are being amended as follows:
- Landlords can qualify for the relief where they let qualifying residential property.
- The current cap on the maximum floor space of a residential property has being removed.
There were a number of welcome changes for business owners in today’s budget:
1) Revised Entrepreneur Relief
Minister Noonan announced a reduction in the preferential Capital Gains Tax rate, from 20% to 10%, for those qualifying for Entrepreneur Relief on the disposal of certain business assets, including shares, provided conditions are met.
There was no change to the €1m lifetime limit on chargeable gains.
2) Foreign Earnings Deduction (“FED”)
This scheme which was due to expire in December 2017 has been extended until the end of 2020.
The minimum number of qualifying days spent abroad for Foreign Earnings Deduction Relief has been reduced from 40 days to 30 days.
The list of qualifying countries has been extended to include two additional countries: Colombia and Pakistan.
3) Share-based remuneration regime for SMEs
The Minister signalled his intention to develop a SME focused, share based incentive scheme which would be introduced in Budget 2018.
The Minister noted that any new regime would have to satisfy EU State Aid rules.
4) Start Your Own Business scheme
The Start Your Own Business relief, which was due to expire on 31st December 2016, has been extended for a further two years.
The cap on eligible expenditure is being increased from €50 million to €70 million, subject to State Aid approval.
The following changes were introduced for individuals operating in the Agri sector in light of the challenges posed from Brexit:
- The flat-rate addition for VAT unregistered farmers is being increased from 5.2% to 5.4% from 1st January 2017.
- The extension of the scheme of accelerated capital allowances for energy efficient equipment to sole traders and non-corporates. Previously this scheme only applied to companies who could claim relief for expenditure on qualifying plant and equipment.
- A new income tax payment option for farmers was introduced whereby farmers can opt to ‘step out’ of income averaging to allow for “unexpectedly poor income” and pay tax based on their actual profits in that year. The tax deferred must be paid in subsequent years however the period over which the deferred tax must be paid is as yet unclear. Therefore this is a tax deferral scheme and not an actual tax saving. Farmers can opt to avail of this “step out” in 2016.
- A new low cost loan fund is to be established for farmers, with an interest rate of less than 3% per annum. These loans will enable farmers to improve their cashflow management and reduce the cost of their short term borrowings.
- The CGT relief for farm restructuring was introduced to facilitate sales, purchases and swaps of land parcels and to ensure more efficient farm structures. Although the terms of the relief remain unchanged, this relief, which was due to expire on 31st December 2016, has been extended to 31st December 2019.
- Payments under the raised bog restoration incentive scheme will be exempt from Capital Gains Tax.
Special Assignee Relief Programme (“SARP”)
The SARP regime, which was due to expire at the end of 2017, has been extended for a further three years until the end of 2020.
This Relief exempts 30% of the income of between €75,000 and €500,000 of employees assigned to work in Ireland for a minimum of twelve month provided certain conditions are satisfied.
No other changes were announced in relation to SARP.
Tackling offshore tax evasion
The Irish Revenue will be carrying out a comprehensive programme of targeted compliance interventions which will be focused on offshore tax evasion.
Attention will be given to the information Revenue receives under FATCA, EU and OECD information exchange initiatives etc.
The legislative changes contain measures to deny individuals involved in illegal offshore tax planning the opportunity to make qualifying voluntary disclosures from 1st May 2017.
Also, a new strict liability offence will also be introduced for failure to return details of offshore assets/accounts.
Consultation on modernising PAYE
Minister Noonan announced a Revenue consultation regarding the proposed modernisation of the PAYE system to take effect from 1st January 2019.
The consultation process will begin today regarding the implementation of a real time PAYE / Tax reporting regime for employers similar to that which currently operates in the UK.
– There was no change to the VAT rates with the 9% VAT rate applying to tourism related activities remaining unchanged.
– The Minister intends to extend mortgage interest relief to 2020. The details of the extension will be set out in Budget 2018.
– A tax on sugar-sweetened drinks will be introduced in 2018 which will coincide with a similar regime in the UK. A public consultation on the form and implementation of the tax was released today by the Department of Finance and will run until 3rd January 2017.
– The excise duty on a packet of twenty cigarettes will increase by 50c (VAT inclusive) from midnight tonight. A corresponding pro-rata increase will also apply to other categories of tobacco products including smoking tobacco, cigars, etc.
– There is no change to the excise duty on alcohol or fuel.
– The qualifying limit on excise duty for Microbreweries was extended which will reduce the standard rate of tax (alcohol products tax) by 50% on beers produced in Microbreweries where the output is 40,000 hectolitres or less per year. Previously the limit was 30,000 hectolitres.
– VRT relief on the purchase of electric vehicles is extended by five years and hybrid vehicles is to be extended by two years.
– Relief from carbon tax is being introduced to promote the use of “green fuels” i.e. solid fuels that include a biomass element.