There were two amendments made to the Capital Acquisitions Tax Dwelling House Exemption by Finance Act 2017, in such cases where the recipient of the dwelling house is a dependent relative of the disponer.

A ‘dependent relative’ is defined as a relative who is permanently and totally incapacitated due to mental or physical infirmity from maintaining himself or herself, or who is of the age of 65 years or over at the date of gift or inheritance.

The position following the amendments is as follows:

  1. In the case of a gift or an inheritance of a dwelling house taken by a dependent relative, the dwelling house is not required to have been the only or main residence of the disponer.
  2. A gift of a dwelling house that becomes an inheritance as a result of the disponer dying within two years of making the gift can qualify for the dwelling house exemption, where the beneficiary is a dependent relative.

All other provisions to the exemption remain unchanged.

The amendments to the Dwelling House Exemption take effect from the date of passing of the Finance Act 2017, 25 December 2017.

Should you require any further details on the above, please contact a member of our Tax Department.

What is PAYE Modernisation?

With effect from 1 January 2019, employers will be required to notify Revenue with details of the amount of the emoluments and the tax due for each employee on/ before the payment date on a real time basis. This means that each time an employee receives a payment or benefit from their employer, the PAYE due and remitted to Revenue must be 100% accurate.

This real time reporting (RTR) process abolishes the requirement to file P30’s, P35’s, P45’s, P46’s and employers will no longer have to produce P60’s at the end of each tax year.

A Revenue Payroll Notification (RPN) will replace the current Tax Deduction Card (P2C) and from the 1 January 2019 all employers will be required to:

  • Obtain the most up to date RPN before making any payments to employees
  • Report employee payments (amount of pay, payment date, amount of PAYE, USC and PRSI deductions) to Revenue in real-time, and
  • Reconcile Revenue’s response to the payroll submission

At the end of each month, employers will receive a statement from Revenue with payroll submission totals. Employers must either:

  • Accept the statement as their monthly return, or
  • Correct payroll data if the statement is incorrect

The statement issued by Revenue will be deemed to be the return if no amendments or corrections are made before the return due date i.e. 14 days after the end of the month (23 days for ROS users who file and pay online).

The legislation governing the new regime, provides that a failure by an employer to correctly operate PAYE on a payment/ benefit to an employee, may result in the employer being liable for the payment of income tax on a grossed up basis. In addition, the existing €4,000 penalty for non-operation of PAYE may be enforced more readily.

Employers should take the time now to review their employee data, payroll processes, policies and systems to ensure that they are ready to comply with their RTR requirements on 1 January 2019.

Should you require any further details on PAYE modernisation or real time reporting (RTR), please contact Anne Comber, Manager of Payroll Services.

What is a salary sacrifice arrangement?  

The term salary sacrifice is generally understood to mean an arrangement between the employer and employee under which the employee forgoes the right to receive any part of his or her remuneration due under the term of  his/her contract of employment and in return their employer provides a benefit of a corresponding amount to the employee.

Where an employee forgoes salary payable under an existing contract of employment in exchange for a benefit, the employee remains taxable on the “gross” income payable. The salary sacrificed will be an application of income earned by the employee, not an expense incurred by the employer.

Exceptions

However, there are Revenue approved salary sacrifice arrangements which are exempt from the tax treatment outlined above. These include the following scenarios where the employee’s gross salary is reduced in return for:

  • bus, rail or ferry travel passes through a travel pass scheme
  • exempt shares appropriated to employees under approved profit sharing schemes, provided certain conditions are met
  • the provision of bicycles and safety equipment through the cycle to work scheme

Contact Michelle Mangan, Manager of Tax Services, if you have any questions about salary sacrifice arrangements or other employee benefit queries.

Many companies operate share option schemes for their employees.  Please see below a summary of the tax treatment and reporting requirements in relation to Unapproved Share Option Schemes.

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

When a company grants a share option to an employee, they are given the right to acquire a pre-determined number of shares at a pre-determined price for a predetermined period. Such option schemes are commonly referred to as “unapproved share option schemes”.

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

Where a company grants a share option to an employee, it will generally issue documentation covering the following:

  • the number of shares that the employee can acquire
  • the price that the employee has to pay for the shares (“Option Price”)
  • the dates from which, and by which the employee may exercise his or her option (“Exercise Period”), and
  • the conditions regarding the right to exercise the option

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.

What are the tax consequences if I exercise a share option?

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. RTSO is payable within 30 days of an option being exercised.

Will my employer look after the payment of tax when I exercise a share option?

No. RTSO is payable within 30 days of an option being exercised and as it is outside the PAYE collection system the employee is responsible for making this payment to the Collector General.

What forms must I file with the Revenue Commissioners if I exercise a share option?

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. 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).

Employees liable to pay RTSO must then submit the usual self-assessment 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.

What happens if I decide to sell the 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.

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.

Please contact Michelle Mangan, Manager of Tax Services, if you require assistance with the above.

Up to recently, landlords were not entitled to a tax deduction for pre-letting expenses such as mortgage interest, insurance and repairs incurred before the date a property was first let out.

To encourage owners of vacant residential properties to offer those properties for rent, Finance Act 2017 has introduced a new tax deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months or more.

The pre-letting expenses are now given as a deduction against rental income from that property in the first year it is let out.

Conditions

The property in question must have been vacant for a period of at least 12 months prior to its first letting during the period 25 December 2017 and 31 December 2021.

The expenditure must have been incurred in the 12 months before the property was let out and a cap of €5,000 per vacant property applies.

Claw Back

Where the landlord

  • ceases to let the property as residential premises or
  • sells the property

within 4 years of the first letting, this tax deduction will be clawed back in the year the property ceases to be let by the landlord.

If you have any questions about pre-letting expenses or other rented residential property queries, please contact Eddie Murphy, Partner and Head of Tax Services.

The Finance Bill 2017 has introduced a tax efficient share option scheme for employees of SMEs. The Finance Bill provides that from 1 January 2018, SMEs in Ireland will be able to grant KEEP (Key Employee Engagement Programme) share options to their employees.

The change in a tax treatment of these share options means an employee may exercise a “qualifying” share option without incurring the liability to income tax, PRSI and USC that he would have under the current rules. Currently, gains arising on the exercise of a share option at a discount on market value are subject to income tax, PRSI and USC. However, KEEP provides that tax on such shares will be deferred until the shares are disposed of and the employee will pay only capital gains tax at 33% on his profit when the shares are sold.

The KEEP Scheme was introduced to facilitate the use of share-based remuneration to attract and retain key employees in unquoted companies.

A number of conditions must be satisfied in order to avail this tax advantageous KEEP Share Option incentive, which are briefly set out below:

Qualifying share options

  • Shares must be new, ordinary fully paid up with no preferential, current or future rights to dividends or assets on a winding up or redemption
  • Share options must have an exercise price that is not less than the market value of the underlying shares on the date the option is granted
  • There must be a written contract in place setting out number and type of shares, option price and exercise period
  • Share options cannot be exercised within 12 months of grant other than in limited circumstances and options cannot be exercised more than 10 years after date of grant
  • Share options must be granted for bona fide commercial purposes the main purpose of which is to recruit or retain employees in the company and not part of a tax avoidance scheme or arrangement.

Qualifying company

  • For the purpose of the relief the company must be a “qualifying” company i.e. must have been Ireland/EEA incorporated and Irish resident or carrying on a business in Ireland through a branch or agency
  • Qualifying company must be carrying on trading activities with the exception of certain excluded activities set out in legislation. The most notable of these excluded activities include professional service companies, companies dealing in or developing land, financial activities and the building and construction industry
  • The company must be unquoted and remain within the definition of an SME i.e. a company with less than 250 employees and with turnover less than €50m or less than €43m balance sheet
  • The company can only have a maximum of €3m value of share options in issue and unexercised at any one time.

Qualifying individual

  • Must be a fulltime employee/director working at least 30 hours per week
  • The employment held must be capable of being held for at least a further 12 months from the date the option is granted
  • The employee must not acquire or be connected to a person who controls more than 15% of the ordinary share capital of the company during option period
  • Market value of all shares which can be granted in any year of assessment to an employee cannot exceed €100k in any one tax year, €250k in any three consecutive years or 50% of the employee’s annual emoluments for the year in which the option is granted.

KEEP will be available for qualifying share options granted between 1 January 2018 and 31 December 2023. As State Aid approval will be required to introduce this scheme, the scheme is subject to a Ministerial Order.

Contact our Tax Department if you have any questions about KEEP share options or other employee share scheme matters.

 

Personal Tax

  • Cuts to the two middle rates of Universal Social Charge – 2.5% rate cut to 2%; 5% rate cut to 4.75%.

  Incomes of €13,000 or less are exempt from the USC. Otherwise, rates are as follows:

Income €                      Rate

0- 12,012                          0.5%

12,012 – 19,372               2%

19,372 – 70,044               4.75%

70,044 +                            8%

Self-employed income in excess of €100,000 at 3%.
The USC relief for medical card holders is being extended fro another two years. Medical card holders and individuals aged 70 years and over whose aggregate income does  not exceed €60,000 will now pay maximum rate of USC of 2%.
Marginal tax rates on incomes up to €70,044 reduced from 49% to 48.75%.

  • Income Tax Bands – the threshold which an individual will pay tax at the 40% rate of income tax will rise from its current level of €33,800 by €750 to €34,550.
  • The Home Carer Tax Credit will increase from €1,100 to €1,200.
  • The Earned Income Credit will increase from €950 to €1,150.
  • There will be a tapered extension to mortgage interest relief for remaining recipients – owner occupiers who took out qualifying mortgages between 2004-2012. 75% of the existing relief will be continued into 2018, 50% in 2019 and 25% in 2020. The relief will cease entirely from 2021.
  • A new deduction for pre-letting expenses of a revenue nature incurred on a property that has been vacant for a period of 12 months is being introduced. The cap on the expenditure is €5,000 per property and the relief will be subject to a clawback if the property is withdrawn from the rental market within 4 years. The relief is available for qualifying expenses incurred up to the end of 2021.
  • A share based remuneration incentive – Key Employee Engagement Programme (KEEP) is being introduced to facilitate the use of share based remuneration by unquoted small to medium enterprises to retain key employees. Gains arising to employees on the exercise of KEEP shares will be subject to capital gains tax as opposed to the current liability to income tax, USC and PRSI on exercise. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.

VAT

  • Standard rate of VAT will remain at 23%.
  • The reduced 9% rate of VAT for the tourism and hospitality sector, introduced in 2011, will remain.
  • The rate of VAT on sun-bed services is being increased from 13.5% to 23% from 1 January 2018 in line with the government national cancer strategy.
  • A charities VAT compensation scheme is being introduced in 2019 in respect of VAT expenses incurred in 2018. Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive.

Stamp Duty

  • The rate of stamp duty on non-residential property will increase from 2% to 6%.
  • In relation to commercial land purchased for the development of housing, there will be the introduction of a stamp duty refund scheme. The refund will be subject to conditions, including a requirement that developers will have to commence the relevant development within 30 months of the land purchase.
  • Consanguinity stamp duty relief at 1% for inter-family farm transfers is extended for a further three years.
  • The exemption for young trained farmers from stamp duty on agricultural land transactions continues.
  • The vacant site levy will increase from 3% to 7% in the second and subsequent years. In practical terms, the owner of a vacant site on the register who does not develop their land in 2018 will pay the levy of 3% in 2019 and then become liable to the increased rate of 7% from 1 January 2019.

Capital Gains Tax and Capital Acquisitions Tax

  • There is a change to the 7-year CGT relief that will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy full relief from CGT on any chargeable gains.
  • The leasing of agricultural land for solar panels is to be classified as qualifying agricultural activity for the purposes of CAT agricultural relief and CGT retirement relief. This initiative is subject to the panels no more than covering 50% of the total farm holding.
  • The life time thresholds for capital acquisitions tax remain unchanged.

Corporation Tax

  • Confirmation of the 12.5% rate of tax.
  • The deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from intangible assets in an accounting period.
  • Accelerated capital allowances for energy efficient equipment is being extended until the end of 2020.

Other Measures

  • The excise duty on a packet of 20 cigarettes is being increased by 50 cents with a pro-rate increase on other tobacco products, and an additional 25c on roll your own tobacco. This will take effect from midnight on 10 October 2017.
  • A sugar tax is to be introduced on the 1 April 2018. A tax of 30c will apply to drinks with a sugar content of 8 grams or more per 100ml. A tax of 20c will apply to drinks with a sugar content of between 5 grams and 8 grams per 100ml. These levels are consistent with the rates being introduced in the UK in April 2018 and Ireland’s sugar tax will commence at the same time as the UK.
  • A 0% benefit-in-kind (BIK) is being introduced for electric vehicles for a period of one year. Electricity used in the workplace for charging vehicles will also be exempt from benefit in kind.
  • State Pension will rise by €5 per week with effect from the last week in March 2018.
  • All other weekly social welfare payments to increase by €5 per week, including the carer’s allowance, disability allowance and jobseeker’s benefit and allowance.
  • Prescription charges are to be reduced for everyone with a medical card under the age of 70 from €2.50 to €2 per item and the monthly cap for prescription charges decreased from €25 to €20.
  • There will be a reduction in the threshold for the Drugs Payment Scheme from €144 to €134.
  • In order to assist small and medium businesses prepare for Brexit, a Brexit Loan Scheme will be introduced. A loan scheme of €300m, will be available at competitive rates to SMEs, to assist them with short term working capital requirements.

If you would like further information, please contact our Tax Team.


View our Budget 2018 Analysis

Download a PDF of the key highlights from Budget 2018

 

 

 

Budget 2018 was delivered by Minister Donohoe in the continuing context of an Irish economy in good shape and with strong and sustainable future growth predicted.  However, with potential Brexit headwinds forecast and being mindful of not returning to the days of giveaway budgets (remember them?), he delivered a constructed ‘balancing act’ that didn’t significantly affect many.

So how does this budget affect your disposable income?

The reductions in the rates of the USC will benefit everyone with particular focus on middle incomes. The point at which the marginal tax rate kicks in was increased by €750 to €34,550. For the self-employed, the earned income credit increases from €950 to €1,150.

Pensioners and those in receipt of social welfare payments will also benefit with an increase of €5 from March 2018. The Christmas bonus for social welfare recipients has remained at 85%.

Prescription charges are further reduced to €2 and this charge now applies to medical card holders of all ages.

However, if you are partial to a cigarette whilst sipping your fizzy drink, then prepare from tomorrow to pay an extra 50c on a pack of 20 cigarettes and to start paying Sugar Tax of 20c/30c per litre from April 2018.

Housing and other matters

With the Minister noting the “corrosive impact of homelessness” on the State in his speech, he announced an allocation of €1.8 billion for housing next year, which he said would help to fund the building of 3,800 new social homes next year.

Other measures to increase the supply of housing/land, include the tax deductibility of pre-letting expenses, the reduction of the CGT ‘hold period’ from 7 years to 4 years and the increase vacant site tax rate from 3% to 7%.

However, the rationale of raising the Stamp Duty rate three-fold to 6% on commercial property, apart from funding many other tax cuts/spending increases, appears to fly in the face of the residential property ‘supply measures’.

The Budget also continues the commitment to repair the State’s public services with increases in the number of teachers and guards, and significant additional funding being made available for education and health. The litmus test will be whether anyone will experience a notable improvement in services during 2018.

The tourism sector will continue to benefit from the reduced rate of VAT at 9%. The agri-food sector, in particular, will benefit from the introduction of a Brexit Loan Scheme.

Foreign Direct Investment

The Minister took the opportunity to reaffirm Ireland’s corporation tax rate at 12.5%. This is and will remain the central plank of Ireland’s FDI offering. However, restricting the deduction for capital allowance and interest on Intangible Assets to 80% of relevant income is a backwards step.

Overall, Budget 2018 is the final (Balancing) Act in Ireland achieving a projected deficit by end of 2018 at near 0% of GDP.

It may take you until then though to have worked out if this was a good Budget for you or your business!

Edward Murphy
Partner and Head of Tax Services
edward.murphy@crowleysdk.ie

 

 

 

If you would like further information, please contact our Tax Team.


View the key highlights from Budget 2018

Download a PDF of our Budget 2018 Analysis

 

 

 

 

 

 

Are you aware of the rent a room relief? If you let a room in your home, the income you receive may be exempt from tax.

If your gross rental income does not exceed the exemption limit below, you do not pay Income Tax, Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) on the rent you receive.

If it does exceed the limit, then you are liable to income tax, PRSI and USC on the profit from renting the room. This relief can only be claimed by individual taxpayers. It cannot be claimed by companies.

Annual exemption limit for Rent a Room Relief
Year Income amount exempt
2013 €10,000
2014 €10,000
2015 €12,000
2016 €12,000
2017 €14,000

What type of residence qualifies?

Sole or main residence

Your main residence is your home for most of the year and where friends would expect to find you. You do not have to own the property to claim relief.
The room or rooms must be in a residential property that is located in Ireland. You must use it as your main residence during the tax year.

Self-contained unit

The rented room or rooms can be a self-contained unit within the house, such as a basement flat or a converted garage. If this unit is not attached to the property it cannot qualify for the relief.

Business use or guest accommodation

Your tenants must use the room on a long-term basis. You cannot claim relief on rooms that are used for business purposes. Short-term stays provided through bed and breakfasts, a guesthouse or online booking sites do not qualify for relief.

You cannot claim the relief against income received for the use of the room(s) from:

• your child or civil partner
• an employer
• an employee
• short-term guests, including those who book accommodation through online booking sites.

There is a four-year time limit to claim relief. This is important if you have been paying tax on rental income which should have been exempt.

Please Michelle Mangan, Manager of Tax Services, if you require assistance with the above.

Finance Act 2016 introduced an income tax exemption in respect of certain expenses of travel and subsistence of an Irish resident non-executive director of a company.

The expenses must be incurred solely for the purpose of attendance by a non-executive director, in his or her capacity as a director, at a “relevant meeting”.

The exemption applies to expenses incurred on or after 1 January 2017.

Payments to which the exemption applies may not exceed the Civil Service approved rates for mileage and subsistence as set down by the Minister for Public Expenditure and Reform. See details of the current Civil Service Rates for Travel and Subsistence.

Payments which come within the term of the exemption are also exempt from USC and PRSI.

Definitions

Relevant director”, in relation to a company, means a person holding office as a non-executive director of that company –

  1. who is resident in the State, and
  2. whose annualised amount of emoluments from the office for the year of assessment 2017 and for each subsequent year in which the person is a director of the company does not exceed €5,000.

Relevant meeting” means a meeting in the State attended by a relevant director in his or her capacity as a director for the purposes of the conduct of the affairs of the company.

Travel” means travel by car, motorcycle, bus, rail or aircraft.

For more information please contact Michelle Mangan, Manager of Tax Services.