Sasha Kerins and Bridget Doherty of Grant Thornton review the main taxation changes

BUDGET 2018, while being Minister Paschal Donohoe’s first budget, is the second unveiled post Brexit.

It is difficult to disagree with those observers who note that it is cautionary in its approach. However, the over-arching tenor is that of conservative tax incentivisation combined with a willingness to steadily enhance Ireland’s position as a growth-focused economy with each progressive budget.

Minster Donohoe’s speech on October 10th saw the introduction of a number of enhanced measures to assist with both personal and corporate wealth circulation.

The detailed legislation behind the budget was published in the Finance Bill which will now make its way through a number of stages before enactment.

KEY INCENTIVISING

INITIATIVES

Among Minister Donohoe’s key initiatives were:

Capital Gains Tax: For the seven-year CGT Relief, the seven-year holding period has been reduced to four years.

Capital Acquisitions Tax: Agricultural land leased for solar farming to benefit from agricultural relief from capital acquisitions tax and retirement relief from capital gains tax.

Stamp Duty:

  • Extension of consanguinity relief from stamp duty and the removal of the age limit restriction in respect of the transfer or; Transitional measures introduced to allow those with binding contracts in place pre-October 11th 2017 to avail of the 2% rate on transfers taken before January 1st, 2018.
  • Stamp Duty refund scheme for development land where development commences within 30 months of purchase.

    • Income Tax:

  • Widening of the tax band.
  • Reduction in some USC rates.
  • Increase in the self-employed and home carer credits.

    • 1. Capital Gains Tax

    The seven-year CGT relief provides full relief from capital gains tax on disposals of property purchased between December 7th, 2011 and December 31st, 2014.

    A number of conditions must be met for the relief to be available with the main condition being that the property must have been held for seven years from the date of purchase to qualify for relief from capital gains tax in full.

    The relief applies to residential and commercial property alike and is available on disposals of qualifying property, whether, held by an individual or a company.

    Budget 2018 has provided relief in reducing the holding period from seven years to four years.

    Full relief from capital gains tax is now available when the property is disposed off anytime from the end of year four to the end of year seven.

    It is important to note that this reduced holding period applies to disposals made from January 1st, 2018 and now means that qualifying properties can be brought to market a full three years earlier.

    EXAMPLE OF

    COMMERCIAL

    PROPERTY CGT CHANGE

    Jack buys a commercial property on January 1st, 2013. Previously, this property could not have been sold until January 1st, 2020 to avail of capital gains tax relief. This property can now be brought to market on January 1st, 2018.

    This incentivises sales of commercial and residential property alike by virtue of rendering the sale effectively tax-free for the vendor and increasing the supply of much needed residential and commercial property to the market place.

    2. Stamp Duty

    Budget 2018 has had a significant impact on Ireland’s stamp duty landscape.

    It has been well publicised that the rate of stamp duty on non-residential property has jumped from 2% to 6%. This new rate of stamp duty is effective from October 11th, 2017.

    One area where the impact of this hike immediately shines the spotlight is on farmers/land owners and the purchase or inter-generational transfer of farm land.

    One must also be aware that this new 6% rate will apply to the transfer of a site (unless it is transferred in connection with a building agreement- in which case the residential stamp duty rate of 1% applies to the first €1 million, with the excess value subject to the 2% rate of stamp duty).

    EXAMPLE: IMPACT OF THE NEW 6% STAMP DUTY RATE

    A contract is signed on October 11th 2017 for the sale of 100 acres of land valued at €1 million.

    The stamp duty cost is €60,000 compared to a stamp duty cost of €20,000 pre-Budget.

    TRANSITIONAL MEASURES

    Fortunately, the Finance Bill 2017 contains a transitional measure to ease the move to the 6% rate of stamp duty.

    Purchasers who have signed a binding contract by midnight on October 10th and who enter into a Deed of Transfer before January 1st, 2018 can continue to avail of the 2% stamp duty rate in respect of that particular purchase.

    SPECIFIC RELIEF FOR TRAINERS

    It is clear that Minister Donohue has given detailed thought to ensuring that inter-generational transfer of farm land is not adversely impacted by the new 6% rate of stamp duty.

    The lifting of the age limit restriction of 67 years, in terms of the availability of consanguinity relief, makes this particularly evident.

    Consanguinity relief currently reduces the rate of stamp duty by half, on transfers of land, to relatives who are active farmers.

    The Finance Bill 2017 has ensured that that this rate will be set at 1% from the date the Bill becomes law.

    THE WORKER REWARDS

    Budget 2018 did introduce a number of personal tax initiatives including the widening of the tax band, reductions in the Universal Social Charge, increases in the self-employed and home carer tax credits.

    INCOME TAX BAND

    The threshold at which people start paying the higher rate of tax of 40% has been increased, such that individuals can now earn €34,550 before they start paying the higher rate of tax, while the threshold will rise from €42,800 to €43,550 for married one-earner couples.

    It is estimated that this will cost the exchequer €132 million on an annual basis.

    3. Universal Social Charge

    There have been cuts to the 5% and 2% rates of USC:

  • The main 5% USC rate, which applies to incomes between €18,772 and €70,044, is to be cut by 0.25% to 4.75%
  • The lower 2.5% rate is to be cut to 2% and the band of income to which this applies is widened from €18,772 to €19,372.

    • The headline comment from the Minister is that the marginal rate of tax for people earning up to €70,044 is now 48.75%. Contrary to this, is that those earning above this amount will still be subject to marginal rates of 52-55%.

    SELF-EMPLOYED

    January 1st, 2018 will see the introduction of a €200 increase in the earned income credit for the self-employed. This will bring the credit to €1,150 in 2018.

    KEY EMPLOYEE ENGAGEMENT PROGRAMME (KEEP)

    Budget 2018 has announced plans for the introduction of an incentive to facilitate the attractiveness of the use of share options as a method of attracting and retaining key employees in small and medium companies.

    When the KEEP scheme becomes available, gains arising to the employees on the exercise of these share options will not be liable to income tax. Going forward, instead, they will only be subject to capital gains tax on the uplift on disposal of the shares.

    CONCLUSION

    While continuing the cautionary legacy of Budget 2017, it can be said that Budget 2018 has produced a number of certainties.

  • What we know for sure:
  • Wealth transfer and circulation are still a matter of timing.
  • The gap in income tax treatment between the self-employed and the employed has narrowed somewhat again in this Budget.
  • Budget 2018 has overseen a total of €1.2 billion in new spending and tax cuts, split on roughly a 2:1 basis in favour of spending.

    • Should you wish to discuss any of the budget changes and their impact on your business or personal financial outlook, please do not hesitate to contact Sasha Kerins or Bridget Doherty.

    •sasha.kerins@ie.gt.com

    •bridget.doherty@ie.gt.com