Minister for Finance and Public Expenditure and Reform Paschal Donohoe presented the second Budget of the Minority Government Fine Gael-Independent Coalition. Minister Donohoe announced that the total Budget package of €1.2bn favours expenditure increases over revenue reductions reflecting the Government’s commitment to invest in key areas such as education, health, childcare and housing. The Minister also announced additional capital expenditure of €4.3bn over the next 4 years.
Tax Increases
The revenue raising measures announced in the Budget include;
Excise duty on a packet of 20 cigarettes is to increase by 50c, with a pro-rata increase on other tobacco products. An additional 25c will apply on roll your own tobacco
As expected, a new tax on sugar sweetened beverages is to apply from 1 April 2018. Tax of 30c per litre will apply to drinks with over 8 grams of sugar per 100ml, while a 20c rate will apply to drinks with between 5 and 8 grams of sugar per 100ml
Stamp duty on commercial property is to increase from 2% to 6% with effect from Budget night. However, a stamp duty refund scheme will apply for commercial land purchased for housing development provided development commences within 30 months of the land purchase and other conditions are satisfied
The current 3% vacant site levy is to increase to 7% in the second and subsequent years in a measure aimed at encouraging further development activity
The Minister also announced that employer contributions to the National Training Fund levy (in respect of Class A and Class H employments ) are to increase from 0.7% to 0.8% from January 2018. He also signalled that the levy will rise to 0.9 per cent in 2019 and 1.0 per cent in 2020.
Personal Tax Matters
There will be no change to income tax rates, personal tax credits or PRSI for 2018. However there are some changes around the tax bands and the Universal Social Charge (“USC” ). The income tax standard rate tax band will increase by €750, from €33,800 to €34,550 for single individuals, and from €42,800 to €43,550 for married one earner couples.
The 2018 USC rates and bands have changed as follows:
The USC on PAYE income in excess of €100,000 remains at 8%
The USC on self-employed income in excess of €100,000 remains at 11%
These USC changes will reduce the marginal rate of tax to 48.75% for all earners under €70,044
The top rate of USC for all medical card holders and those over 70 years of age earning less than €60,000 has been reduced from 2.5% to 2%
Home Carer Tax Credit has been increased from €1,100 to €1,200
The Earned Income Credit has been increased from €950 to €1,150 for the self-employed and those not eligible for the PAYE Tax Credit
Mortgage Interest Relief for property owners who took out qualifying loans between 2004 and 2012 which was originally scheduled to cease at the end of 2017, has been extended. 75% relief will apply in 2018, 50% in 2019 and 25% in 2020, with relief ceasing in 2021
In an effort to incentivise the supply of additional rental properties, a new tax deduction is to be introduced for pre-letting expenses of a revenue nature incurred on a property that has been vacant for 12 months or more. Relief is to be capped at €5,000 per property and will be subject to claw back if the property is withdrawn from the rental market within 4 years. Relief will apply for qualifying expenses incurred up to the end of 2021
A 0% benefit-in-kind (BIK ) rate is to be introduced for electric vehicles for a 1 year period, while a comprehensive review of BIK on motor vehicles is undertaken in advance of the next Budget. In addition, electricity used in the work place for charging vehicles will also be exempt from BIK
Prescription charges for all medical card holders under 70 will be reduced from €2.50 per item to €2 per item with a subsequent reduction in the monthly cap from €25 to €20. The threshold for the Drugs Payment Scheme is to also reduce from €144 to €134.
Business Matters
A new Key Employee Engagement Programme (KEEP ) is to be introduced. This will be in the form of a share based remuneration incentive to support unquoted small and medium enterprises (SMEs ) in attracting and retaining key employees. Gains arising to employees on KEEP share options will be liable to Capital Gains Tax (CGT ) on disposal of the shares instead of the current liability to income tax, USC and PRSI on exercise. This new incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023
The Minister announced that the deduction for capital allowances on intangible assets, and any related interest expense, is to be limited to 80% of the relevant income arising from the intangible asset in an accounting period, with the ability to carry any excess relief forward. This will apply to expenditure incurred by companies on intangible assets from Budget night
The accelerated capital allowances available on energy efficient equipment which was due to cease at the end of 2017 is to be extended to the end of 2020. This is a measure aimed at incentivising companies to invest in energy efficient equipment
The 9% VAT rate for the tourism and hospitality sector remains unchanged
A new Brexit Loan Scheme of up to €300m is to be made available at a competitive rate to SMEs to help with their short-term working capital needs.
Agriculture
In addition to the Brexit Loan Scheme, a further €25m has been allocated to a Brexit Response Loan Scheme for the agrifood sector. This scheme will be developed in cooperation with the Strategic Banking Corporation of Ireland and other financial institutions
It was also announced that Consanguinity stamp duty relief is to be maintained at 1% for inter-family farm transfers for a further 3 years.
Capital Taxes
The CGT exemption available in respect of certain property purchased between 7 December 2011 and 31 December 2014, requires that the property is held for more than 7 years. The Minister announced that this holding period for full CGT relief is to be reduced to 4 years, in a measure aimed at assisting the supply of development land available for sale.
The leasing of agricultural land for solar panels is to be classified as qualifying agricultural activity for the purposes of Capital Acquisitions Tax (CAT ) agricultural relief and CGT retirement relief, subject to the panels covering no more than 50% of the total farm.
Pensions and Social Welfare Payments
The State pension payments are to increase by €5 per week from the last week in March 2018. A €5 per week increase will also apply from the same date to all weekly social welfare payments including carers’ allowance, disability allowance and jobseekers’ benefit and allowance. A Christmas bonus of 85% will apply for all social welfare recipients in 2017.
The Minister also announced an increase in the earnings disregard for the one Parent Family Payment and the Job Seekers Transitional scheme by €20 per week, an increase in the threshold for the Family Income Supplement by €10 per week for families with up to three children and an increase in the weekly rate of the qualified child payment by €2 per week. Increases were also announced to the free Travel scheme and the Fuel Allowance, with a new Telephone Support Allowance of €2.50 per week to be introduced for those in receipt of both the Living Alone Allowance and the Fuel Allowance.
Other Matters
The Government has announced an extension of the free Pre-School programme to a full 2 years with effect from September 2018
A scheme of relief is to be introduced to compensate charities for the VAT they incur on their inputs. The scheme is to be introduced in 2019 in respect of VAT expenses incurred in 2018 with charities being entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive
In line with the Government’s National Cancer Strategy, the VAT rate on sunbed services is to increase to 23% with effect from 1 January 2018
The Minister also confirmed that a review of carbon tax will be conducted, with a view to bringing forward proposals in Budget 2019 around the role of the tax in driving changes to behaviour in households and business. He also outlined his intention to establish a working group to plan the process of amalgamating USC and PRSI over the medium term.
This article was compiled by Paul Macken, Leah Kerr and the KPMG Galway Tax Team, Dockgate, Dock Road, Galway. Tel: 091-534600.
