Employee Share Incentive Schemes

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Employee Share Incentive Schemes

Employee share incentive schemes can serve as an effective alternative to bonuses. They not only offer tax savings for employees, but also promote greater participation and loyalty within the company. There is also a tax saving of employer PRSI for the employer where remuneration is by way of equity participation when compared to cash or other benefits.

Depending on the type of scheme, employees might need to hold onto the shares for several years before they can enjoy the tax benefits.

One of the key considerations when implementing a share plan is the valuation of the shares. Accurate valuation from the outset is crucial to ensure the proper taxation of the awards, such as growth shares and restricted shares.

In this article we consider the following type of employee share incentive schemes:

  1. Share option schemes
  2. Restricted Stock Units (RSUs)
  3. ‘KEEP’ share option schemes
  4. Growth/Flowering Shares
  5. Restricted Shares

1. Share Options

This is an option granted by a company to its employees to subscribe for shares at a pre-determined price at some point in the future.  The option must be exercised in order for the employee to get beneficial ownership of the share. Prior to exercise, the employee does not have any rights relating to the shares. The employee pays taxes on any profit made when they eventually exercise the shares. There’s a deadline to exercise this option (usually 7 years) to avoid tax issues on granting. The burden for withholding tax is now placed on the employer for all options exercised on or after the 1st of January 2024. CGT is chargeable on any subsequent disposal of the shares.

2. Restricted Stock Units (RSU’s)

This scheme awards free shares to employees, and usually vest after a set period (can be time-based or performance-based). Employees are taxed on the market value of the shares at vesting, similar to a salary, and the employer withholds the tax. There are no tax implications at the grant. Conditions outlined in a plan document must be met before shares are issued.

3. Key Employee Engagement Programme (KEEP)

This is a tax advantageous share option scheme introduced specifically for certain qualifying SME companies for their employee or directors. Employees do not pay taxes when they exercise the option to buy shares. Instead, they pay capital gains tax (33%) when they eventually sell the shares. There are several conditions to be satisfied which can make KEEP challenging, including that options must be granted at market value. However, due to the tax benefits, KEEP is worth considering when deciding on what plan to utilise.

4. Growth/Flowering Shares

Growth shares are a special class of ordinary shares that generally have a low or nil value until a certain target or hurdle is reached by the business. The growth share is subject to income tax, USC and PRSI on award and must be valued for tax purposes. This type of share award can be attractive where the owners wish to share in future growth in the value of the company. CGT will be payable on any growth in value.

5. Restricted Shares

 Restricted shares are subject to income tax, USC and PRSI at the date of award. There is an abatement on the taxable value available under Section 128D which reduces the taxable value by 10% per year of restriction up to a maximum of 60%. There is a claw back of income tax if restrictions lifted or varied before the end of the restricted period. CGT will be payable on any growth in value.

If you are considering implementing an employee share incentive scheme and require advice on choosing the right plan to implement, please do not hesitate to contact us.

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Budget 2025 Highlights

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Budget 2025 Highlights

Minister for Finance, Jack Chambers delivered the final Budget today, 1 October 2023. Below we outline the highlights of Budget 2025.

Personal Tax

  • Income Tax Standard Rate Bands increase by €2,000 to €44,000 (single person), with the married single earner band increasing to €53,000, and the married dual income band increasing to €88,000.
  • Personal, PAYE, Earned Tax Credits to increase by €125 to €2,000.
  • Home Carer and Single Person Child Carer Tax Credits will increase by €150 to €1,950 and €1,900 respectively.
  • Incapacitated Child and Blind Person’s Tax Credits will increase by €300 to €3,800 and €1,950 respectively.
  • Small change to the second rate-band of Universal Social Charge which will increase from €25,760 to €27,382. The 4% rate is reducing to 3% from 1 January 2025.
  • Alignment to the tax treatment of Automatic Enrolment Retirement Savings Schemes so that they are similar to that of PRSAs. Employer contributions are tax relieved. Funds grow tax free and a tax-free lump sum can be taken on draw down of the fund up to a maximum of €200,000.

 Enterprise/SMEs

  • Ireland is the only country in the EU which taxes dividends from foreign subsidiaries. It is proposed to introduce a participation exemption for Foreign Dividends to simplify the double taxation relief provisions. Companies will have an option to claim the exemption or continue to use the existing tax and credit relief by way of an election on the company’s annual Corporation Tax return. The exemption will apply for distributions received on or after the 1 January 2025.
  • Capital Gains Tax Relief for Angel Investment to encourage investment in innovative start-ups is to commence shortly. Qualifying investments will be certified by Enterprise Ireland with a minimum investment in new shares of at least €10,000. Relief will apply if shares are held for at least 3 years. A reduced rate of Capital Gains Tax of 16% will apply on a gain of up to twice the initial investment. A lifetime limit of €10m will apply to the relief.
  • A 12-year clawback period for Retirement Relief on disposals to children on businesses valued at over €10m.
  • The various reliefs for Investment in Corporate Trades are being extended for a further two years to 31 December 2025. The €500,000 investor limit on EII investment is being increased to €1m, while it is being increased to €980,000 for SURE investments.
  • The first-year payment threshold for the Research & Development Tax Credit is being increased to €75,000. The first-year payment threshold, which allows for a claim to be repaid in full rather than spread over 3 years.
  • The Section 486C Start Up Relief is currently calculated by reference to the amount of employer PRSI paid – up to €5,000 per employee. It is proposed that amounts paid under Class S will also be considered, subject to a maximum of €1,000 per individual.
  • New relief for up to €1m of expenses incurred on companies on their first listing on a recognised stock exchange in Ireland or the EU/EEA area. The relief is to support companies in the scale up phase of their growth and development.
  • The cumulative tax-free limit for small benefit exemption is being increased to €1,500 and the number of times an employer can provide a benefit is being increased from two to five per annum.
  • An exemption from taxable benefit in kind on the provision of EV home chargers.
  • The CO2 thresholds for claiming capital allowances on business cars is being revised downwards from 2027. An expenditure of €24,000 will be allowable for cars with CO2 emissions of 0-120g/km, a reduced €12,000 for vehicles with emissions of 121-140g/km and no zero for vehicles with CO2 emissions greater than 141g/km.

Agri-Food Sector

  • CAT Agricultural Relief will now require that the donor must meet a 6-year Active Farmer test.
  • The measures for Stock Relief which were due to expire at the end of 2024 are being extended to the end of 2027.
  • 50% Accelerated capital allowances for farm safety equipment.
  • Farmer’s Flat Rate VAT compensation being increased to 5.1%.

 Housing/Cost of Living Measures

  • The Rent Tax Credit is being increased by €250.
  • The deduction for pre-letting expenditure from rental income will be extended for a further three years, to the end of 2027. The deduction is capped at €10,000 per property.
  • The Help to Buy (HTB) scheme is being extended to the end of 2029.
  • The Stamp Duty rate applied where 10 or more residential properties are acquired in any 12-month period is being increased from 2 October 2024 from 10% to 15%. In addition, a 6% rate will apply to residential properties valued excess of €1.5m.
  • A temporary one-year Mortgage Interest Tax Relief introduced last year is being extended for a further year. Relief will be available for the increased mortgage interest paid in 2024 over 2022. The relief is capped at €1,250 per property and applies to mortgages outstanding of between €80,000 and €500,000 on the 31 December 2022 and fully LPT compliant. Relief is at the standard rate.
  • The rate of the Vacant Homes Tax is again increased with effect from 1 November 2024 to 7 times the property’s existing LPT liability.
  • The 9% VAT rate for Gas and Electricity supplies is extended to 30 April 2025.

 VAT

  • The registration thresholds are being slightly increased to €42,500 for the supply of services and €85,000 for the supply of goods from 1 January 2025.
  • The supply and installation of heat pumps is reduced from 23% to 9%.
  • The Farming VAT Flat Rate is being reduced to 5.1% from 1 January 2025.

Other Measures

  • The universal relief of €10,000 to the OMV for vehicles in Category A-D is extended for a further year to end 2025.
  • The Capital Acquisitions Tax thresholds are being increased as follows.
    • Category A threshold €400,000
    • Category B threshold €40,000
    • Category C threshold €20,000
  • Two new audio-visual incentives are being introduced. Both require European Commission approval.
    • A Corporation Tax credit for expenditure on unscripted productions. The credit will be granted at 20% of the expenditure up to a limit of €15m per project.
    • Scéal Uplift for film production up to a maximum expenditure of €20m. This incentive will form part of section 481 Film Relief.

Read our tax team’s analysis of Budget 2025.

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

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Close Relative Loans – New Capital Acquisitions Tax (CAT) Reporting Requirements

With effect from 1 January 2024, a new mandatory Capital Acquisitions Tax (CAT) reporting obligation is imposed on the recipients of certain loans from close relatives. This applies irrespective of whether any tax is due or not and is applicable to both new loans made from 1 January as well as existing loans.

This new requirement aims to provide Revenue with greater visibility of loans made between close relatives where the loans are either interest free or are provided for below market interest rates.

Who is a Close Relative?

A close relative is a person within either the Group A or Group B CAT tax free threshold category which includes:

  • a parent of the person,
  • the spouse/ civil partner of a parent of the person,
  • a lineal ancestor of the person,
  • a lineal descendant of the person,
  • a brother or sister of the person,
  • an aunt or uncle of the person, or
  • an aunt or uncle of the spouse/ civil partner of a parent of the person.

There are certain “look through” provisions that must be applied to loans made by or to private companies, including where the shares in the company are held via a trust, to determine if the loan is ultimately being made to a recipient by a close relative. The holding of any shares in a private company is sufficient for the look through provisions to apply.

What Loans must be Reported?

A loan is any loan, advance or form of credit and need not be in writing. The recipient of a loan will be required to file a CAT return where:

  • A loan has been made directly or indirectly between close relatives,
  • No interest has been paid on the loan within 6 months of the end of the calendar year, and
  • The total balance outstanding on the loan exceeds €335,000 on at least 1 day in a calendar.

All specified loans must be aggregated so if a person has more than one loan from different close relatives the amount outstanding on each loan in the relevant period must be added together for the purposes of determining if the threshold amount to €335,000 has been exceeded or not.

What Information must be Reported?

The CAT return must include the following information in respect of reportable loan balances:

  • The name, address and tax reference number of the person who made the loan,
  • The balance outstanding on the loan, and
  • Any other information which the Revenue Commissioners may reasonably require.

Case Study

A father and mother provide an interest-free loan of €400,000 to their son on the 31 March 2024. The son made no repayments on the loan in 2024.

On the receipt of an interest free loan of €400,000, the son is deemed to receive an annual gift of the free use of this money on the 31 December 2024. Irish Revenue value the annual gift at the highest rate of return the funds would generate if they were invested on deposit. Based on current interest rates applicable to a standard demand deposit account, one of the highest rates of return for a deposit account is 1.5%. As such, the value of the annual gift of notional interest is approximately €6,000 per year. After applying the annual small gift exemption of €3,000 per parent (€6,000 in total), the son is exempt from paying CAT on the notional annual gift in respect of this loan.

However, as the balance of the loan on 31 December 2024 exceeds the tax-free threshold of €335,000, the son is still required to file a CAT return under the new reporting provisions irrespective of the fact that no CAT is payable. The CAT return must be filed with Revenue no later than 31 October 2025.

Should you require any assistance in this area, please contact us.

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

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Family Partnerships – Tax Efficient Estate Planning Structure for the Benefit of Family Members

Family partnerships have become a tax efficient estate planning structure that allows parents to gift assets to their children while still retaining control, through their function as managing partner, of the investment of those assets.

The transfer of assets to the partnership is subject to tax for both the parents (Capital Gains Tax – CGT) and the children (Capital Acquisitions Tax – CAT). Stamp Duty also needs to be considered. However, the tax may be minimised, where assets of current low value, but with an expectation that they will grow over time, are transferred.

By transferring assets into the partnership, any future gains on those assets can be shared among family members. The ability to strategically distribute gains can lead to substantial tax advantages when considering the long-term growth of family assets. Family partnerships serve as an effective vehicle for succession planning, ensuring a smooth transition of assets and wealth to the next generation while potentially minimizing inheritance tax liabilities.

The partners are liable to tax on income/capital gains arising from the partnership. One of the most notable tax advantages offered in this structure is the ability to distribute income among family members in a tax-efficient manner. By strategically structuring the partnership, income can be allocated to family members who fall into lower tax brackets, effectively reducing the overall tax liability.

A partnership agreement should be prepared setting out the terms of the partnership, typically each partner’s contributed capital determines their partnership share. This is typically 90% for the children and 10% for the parents. The Agreement appoints a managing partner. By agreement between the partners, the managing partner decides on the investment strategy for the funds and the distribution policy of the partnership. By having one or both parents as managing partner, they retain control of the assets.

The partnership can be either a limited or general partnership. In a Limited Partnership, the liability for all bar at least one partner is limited to the amount they have contributed. Therefore their liability to debts is capped. A General Partnership is less administratively burdensome but all partners are liable for the debts of the partnership without limit.

Family partnerships are a useful vehicle for preserving wealth, optimising taxes, and ensuring a smooth transition of assets within a family unit.

Please contact us if you have any queries in relation to Family Partnerships.

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Changes to CGT Retirement Relief for Individuals

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CGT Retirement Relief

Retirement Relief provides relief from CGT on the disposal of trading assets or shares in trading companies. To qualify for this relief, the main conditions are that the individual must be aged 55 or over and must be disposing of or transferring qualifying business assets. In addition, the individual must have been a working director of the company for 10 years and a fulltime working director for at least 5 of the years prior to the transfer.

The latter condition can be a stumbling block for many individuals seeking to claim this relief. For example, an individual may be a director of more than one company and therefore may not meet the full-time working director requirement.

The Finance Bill 2023 introduced changes on the restrictions that apply on retirement relief. These changes will come into effect from 1 January 2025.

Disposals to Children

At present, if the individual disposing of the qualifying assets is aged between 55 and 65 years of age and the disposal is to a child, full relief may be claimed.  From 66 onwards the relief is restricted to €3 million. The changes will now restrict relief available for individuals between 55 and 69 to €10 million. From 70 onwards the relief will be restricted to €3 million.

Disposals to Persons other than a Child

Under the current rules, there is full relief on disposals of qualifying assets up to a value of €750,000 where the disposal is made between ages of 55 and 65. From 66 onwards the cap is reduced to €500,000. The new rules will extend the €750,000 relief up to the age of 69. Similarly the €500,000 cap will be from the age 70 and onwards.

The table below summarises the new rules:

Disposal to: Current Rules: Changes – effective 1 January 2025:
Child
  • Unrestricted relief up to 65 years
  • From 66 years onwards relief restricted to €3m
  • Up to 69 years relief restricted to €10m
  • From 70 years onwards relief restricted to €3m
Person other than a child
  • Full relief on disposal of qualifying assets of up to €750k up to the age of 65
  • From 66 years onwards the cap is reduced to €500k
  • €750k is extended to 69 years
  • From 70 years onwards cap is reduced to €500k

Please contact us if you have any queries in relation to the changes to CGT Retirement Relief for Individuals.

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Share Options: New PAYE Withholding Requirements from 1 January 2024 – How does this Impact Employees?

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Share Options: New PAYE Withholding Requirements from 1 January 2024 – How does this Impact Employees?The shift of share options from the Irish self-assessment system to PAYE withholding from 1 January 2024 is a significant change arising from Finance (No. 2) Bill 2023. Prior to this, employees were required to report and remit taxes within 30 days of exercising an option on Form RTSO1.  Additionally, they were required to file an income tax return for the relevant year.

The changes set out in the Finance Bill outline that under the new system, employers are now required to report and make withholdings under the PAYE system on any gains arising after 1 January 2024 on the exercise, assignment or release of share options by employees.

What do employees need to be aware of?

  • The self-assessment regime continues to apply to gains arising on or before 31 December 2023, as does the obligation to register for Relevant Tax on Share Options (RTSO).
  • Share option gains is an area of focus for Revenue, therefore employees should ensure that their tax filings (Form RTSO1 and Income Tax returns) and payments in relation to relevant tax on share option exercises are up to date.
  • Failure to submit an income tax return in any year will result in a surcharge being applied by Irish Revenue. The surcharge is as follows:
    • 5% of the tax due up to a maximum of €12,695 where the income tax return is made within 2 months of the return filing date, or
    • 10% of the tax due up to a maximum of €63,485 where the return is made more than 2 months after the return filing date.

How can Crowleys DFK help?

Our tax team can support employees with preparing and filing income tax returns and RTSO1 returns in respect of share options exercised. Please contact us for assistance.

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Preliminary Tax Obligations for Income Tax & Corporation Tax

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Preliminary Tax Obligations for Income Tax & Corporation Tax

Individuals who file income tax returns and companies who file corporation tax returns have an obligation to pay preliminary tax:

1. Individuals

Preliminary tax is your estimate of the Income Tax, PRSI and USC that you expect to pay for a tax year. You must pay this by 31 October of the tax year in question.

The amount of preliminary tax for a year must be equal to, or more than, the lowest amount of the following:

  • 100% of the tax due for the immediately previous tax year
  • 90% of the tax due for the current tax year

It is necessary that you make a sufficient preliminary tax payment based on the above rules, as we have seen Revenue impose interest on underpayments.

As income tax returns are filed a year in arrears, i.e. your 2023 tax return will be due in October 2024, it is important to note that if you do not make a preliminary tax payment for the year in question, interest at a rate of 0.0219% will be incurred from the date that the payment was due.

For example, your 2023 tax return is due for filing on 31 October 2024. Your preliminary tax payment would have been due for payment on 31 October 2023. If you did not make the payment on 31 October 2023, Revenue may impose interest from 31 October 2023 when you file your return in 2024.

2. Companies

Irish resident companies and non-resident companies must pay Corporation Tax on taxable profits if:

  • a resident company trades in Ireland
  • a non-resident company trades in Ireland through a branch or agency
  • from 1 January 2022, a non-resident company is in receipt of profits or gains in respect of rental property in Ireland.

The rules of when a company should make their preliminary tax payment depends on whether they are classified as a Small Company or Large Company.

Small Companies

A small company is a company whose CT liability is not above €200,000 in the previous accounting period.

Small companies can base their preliminary tax for an accounting period on:

  • 100% of their CT liability for the previous accounting period
  • 90% of their CT liability for the current period (and there is provision for a top up payment to be made).

This must be paid on the 23rd of the eleventh month after the accounting period ended. For example, if the company’s year end is 31 December 2024, preliminary tax is due by 23 November 2024.

Large Companies

Large companies can pay their preliminary CT in two instalments when their accounting period is longer than seven months. The first instalment is due on the 23rd of the sixth month of the accounting period. The amount due is either:

  • 50% of the CT liability for the previous accounting period
  • 45% of the CT liability for the current accounting period.

The second instalment is due on the 23rd of the eleventh month. This will bring the preliminary tax up to 90% of the final tax due for the current accounting period.

For example, if the company’s year end is 31 December 2024, and they are a large company, the first instalment of preliminary tax is due on the 23rd of June and the 2nd instalment is due on the 23rd of November.

If preliminary tax isn’t paid by the above dates, interest is due at a daily rate of 0.0219% on late payments or payments that are not made in full. The interest is calculated by multiplying together the:

  • amount of tax underpaid
  • number of days the tax is late
  • interest rate.

If you have any queries about your preliminary tax obligations, please contact us.

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Non-Resident Landlord Withholding Tax (NLWT) System

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Non-resident landlords may have received a letter from Revenue advising of upcoming changes to the administration of withholding tax for non-resident landlords. Up to now, non-resident landlords had two options to report rental profits to Revenue:

  1. Non-resident landlords asked their tenant to withhold 20% of the rent and to pay this to Revenue on their tenant’s personal income tax return. The tenant should have given the non-resident landlord a Form R185 (certificate of income tax deducted) so that a credit could be claimed for the tax deducted when submitting a personal income tax return.
  2. Non-resident landlords appointed a Collection Agent, who registered for Income Tax on their behalf using a Collection Agent Income Tax Registration Form. Their Collection Agent was responsible for reporting the non-resident landlord’s rental profit for the year by filing an income tax return and paying any liability to Revenue on behalf of the non-resident landlord.

What are the upcoming changes?

A new Non-Resident Landlord Withholding Tax system is expected to go live from 1 July 2023 which will see changes to the obligations of tenants, collection agents and non-resident landlords.

  1. Tenants will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform. They will not be responsible for paying the 20% tax deducted on their personal income tax return.
  2. Collection Agents will no longer be responsible for filing an income tax return. A Collection Agent will be required to withhold and pay to Revenue 20% of the rent by making a rental notification through the new withholding tax platform.
  3. Non-Resident Landlords will be responsible for filing their personal income tax returns. A credit will be allowed for the tax withheld in the new system.

What actions are required by non-resident landlords?

If you are a non-resident landlord whose tenants already withhold 20% of the rent or if you have appointed a Collection Agent, there are no actions required by you at this time.  Further information will be released by Revenue shortly and a new Tax and Duty Manual will be published in due course.

All other non-resident landlords must now decide whether they want their tenants or a collection agent to withhold and pay to Revenue 20% of the rent under the new Non-Resident Landlord Withholding Tax system and take action accordingly.

Please contact us if you have further queries on this.

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Tax Treatment of Unapproved Share Option Schemes

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tax treatment of unapproved share option schemes

Employee share incentive schemes can be an effective way of offering tax savings to employees in addition to encouraging employee participation and loyalty. One type of share incentive scheme is an unapproved Share Option Scheme. We have set out below some frequently asked questions on the tax treatment of unapproved Share Option Schemes:

What do I receive when I am granted a share option by my employer?

When your employer grants you a share option, you receive the right to acquire shares in the company at a future specified date at a pre-determined price.  You must actually exercise the option in order to take beneficial ownership of the shares.

What information will I get from my employer when I am granted a share option?

Your employer will generally issue documentation covering:

  • The number of shares that you can acquire,
  • The price that you have to pay for the shares (“Option Price”),
  • The dates from which, and by which you can exercise your option (“Exercise Period”), and
  • The conditions regarding the right to exercise the option, which may include good leaver and/or bad leaver provisions.

What is meant by “date of exercise”?

The “date of exercise” is the date at which the employee takes up their right to acquire shares.

Must I pay to acquire the shares under a share option?

The shares may be at no cost to the employee (nil option) or at a predetermined price that the employer has set. In some cases, the employee will have to pay something for the option itself.

Are there different types of unapproved share option schemes?

There are two types of share options for tax purposes:

(a) a ‘short option’ – which must be exercised within seven years from the date it is granted; and

(b) a ‘long option’ – which can be exercised more than seven years from the date it is granted.

There are tax implications for employees participating in unapproved share option schemes and reporting obligations for both employers and employees:

Tax Implications for Employees

Date of grant

There is no tax or reporting obligations due at the grant of short options. Where a share option is a long option, a charge to income tax may arise on both:

  1. The grant of the share option (where the option price is less than the market value of the shares) and
  2. The exercise, assignment or release of the share option.

Credit is given for any income tax charged on the grant of the share option against the income tax due on the exercise, assignment or release of the share option.

Date of exercise

When an employee exercises his/her right to the share options and acquires the shares at the pre-determined price, the difference between the price paid to acquire the shares (the exercise price) and the market value of the shares at the date of exercise of the option is called the share option gain. The share option gain can be reduced by any payment made by the employee for the initial grant of the option.

Where an employee exercises a share option he or she must pay what is referred to as “Relevant Tax on Share Options” (RTSO) in respect of any income tax due on any gain realised on the exercise of the share option.  The relevant tax at 40% is calculated on the share option gain as well as universal social charge (USC) at 8% and PRSI at 4% (unless you have advance approval from Revenue to pay at a lower rate).  RTSO is payable within 30 days of an option being exercised.

Example

Stock Option Exercise
Exercise of Shares
Market Price @ date of purchase $100
Purchase price $85
$15
Number of shares 10 shares
Total exercise price $150
FX rate at date of purchase 1.1014
Share Option Gain €136
Tax on exercise
Gross Gain €136
Income tax @ 4% €54
USC @ 8% €11
PRSI @ 4% €5
Total liability €71
Net Gain €65

 Sale of Shares

An employee who acquires shares by the exercise of a share option is chargeable to capital gains tax (CGT) on any chargeable gain realised on the subsequent disposal of those shares.

Where due, CGT must be paid to Revenue within the following deadlines:

Date of Disposal Payment Due
1 January – 30 November By 15 December the tax year
1 December – 31 December By 31 January in the following tax year

An individual must file a return by 31 October in the year after the date of disposal. A return is required even if no tax is due because of reliefs or losses. An individual must file a Form CG1 if not usually required to submit annual tax returns; Form 12 if a PAYE worker or a Form 11 if considered a chargeable person for tax purposes.

Reporting obligations for Employees

The employee must submit a Form RTSO 1 within 30 days from the date of exercise of the share option. A payment of Relevant Tax on Share Options must also accompany the submission.

Employees liable to pay RTSO must then submit an income tax return, containing details of all share option gains in a tax year, by 31 October following the year in which the gains are realised. The income tax return must be filed for the relevant year in addition to the form RTSO1.

Reporting obligations for Employers

The employer will have to complete and file a Form RSS1 by 31 March following the year of exercise.

Please contact us if you require assistance with the above.

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Vacant Homes Tax & Pre-Letting Expenses

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Vacant Homes Tax

A new Vacant Homes Tax (VHT) was introduced in Budget 2023. The primary objective of this is to increase the availability of housing, but landlords need to be aware of the restrictions on allowable pre-letting expenses when calculating their rental profits.

Vacant Homes Tax (VHT)

VHT applies to residential properties which have been occupied for less than 30 days in a chargeable period.

VHT is calculated at three times the residential property’s local property tax (LPT) liability.

The following will be exempt from the VHT:

  • Properties recently sold or listed for sale or rent.
  • Properties vacant due to illness or long-term care of the occupier.
  • Properties which were the principal residence of a deceased chargeable person in either the chargeable period or in the 12-month period prior to the commencement of the chargeable period.
  • Properties which were the principal residence of a deceased chargeable person where a grant to administer the estate issues in the chargeable period and for any chargeable period following such a grant, where the administration of the estate has not yet completed.
  • Properties which are vacant due to significant refurbishment work.

The first chargeable period runs from 1 November 2022 to 31 October 2023.

A VHT return will be due by 7 November 2023, with the tax payable by 1 January 2024.

Pre-Letting Expenses

In determining the taxable rental profits from the letting of residential property, a landlord may claim a deduction for the following expenses:

  • Private Residential Tenancies Board (PRTB) registration.
  • Insurance premiums.
  • Maintenance & repairs – e.g., cleaning, painting and decorating, general property maintenance.
  • Property fees – e.g., management fees, letting advertising, legal or accountancy fees.
  • Costs not repaid by tenant – e.g., light & heat costs.
  • Capital allowances on qualifying capital items – e.g., furniture, white goods.

However, with the exception of property-related fees such as letting or legal fees incurred on the first letting, a deduction is not permitted for expenses incurred prior to the first letting of the property.

The Finance Act 2017 sought to address the above and introduced an allowable deduction of up to €5,000 for certain pre-letting expenses incurred on vacant residential properties. From 1 January 2023, this cap on the authorised deduction has been increased to €10,000 and the specified period for which the property was vacant has been reduced from twelve to six months. The landlord must incur the expenditure during the twelve months prior to first letting the property.

If the landlord ceases to let the property within four years, the deduction for the pre-letting expenses will be clawed back in the year in which the property ceases to be let as a residential property. Importantly, a clawback will be triggered if there is a change of use from residential or if the property is sold.

If you need any assistance with VHT or Pre-Letting Expenses, please contact Niall Grant, Partner in our Tax Services’ Department.

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