Ensures increased investment in our national

10 October 2017 saw the unveiling of the second Budget of the 32nd Dáil.  Delivering his first Budget, Minister Donohoe said the Budget “achieves sustainable and affordable tax reform, delivers improvements in services and ensures increased investment in our national infrastructure”. Thomas Sheerin, Tax Director at KPMG in Ireland, outlines some of the elements affecting SMEs.

1. Income Tax, Earned Income Tax Credit for Self-employed and USC Changes

The point at which an individual attracts the higher 40% income tax rate has increased by €750.  Therefore, for a single person the first €34,550 of income will be taxable at the 20% rate.  The first €43,550 will be taxable at the 20% rate in the case of a married person (one earner).

The Minister announced an increase of €200 in the Earned Income Tax Credit to €1,150 for 2018.  This credit is available to self-employed individuals who cannot benefit from the PAYE tax credit of €1,650 that is available to employees.

The entry point for the USC remains at €13,000.  However, the 2.5% rate is to reduce to 2% and the ceiling for this new rate is increased from €18,772 to €19,273.  This change ensures that full-time workers on the minimum wage do not pay the upper USC rates.  The 5% USC rate is also to reduce to 4.75% thereby reducing the top marginal rate of tax on income up to €70,044 to 48.75%.

2. Share-based remuneration

Following a public consultation and review of share-based remuneration that took place last year, a new incentive called Key Employee Engagement Programme (KEEP) is being introduced.  KEEP is to facilitate the use of share-based remuneration by unquoted SME companies to attract and retain key employees.  Gains arising to employees on the exercise of KEEP share options will be liable to Capital Gains Tax on the disposal of the shares.  At present, such gains on the exercise of options are subject to income tax, USC and PRSI.  This incentive will be available for qualifying share options granted after 1 January 2018.

3. Retailers and Tourism

The Minister confirmed that the reduced 9% VAT rate for tourism and related activities will continue to apply.

The old reliable excise duty on tobacco is to increase by 50 cents on a pack of 20 cigarettes with a pro-rata increase on other tobacco products.

4. Construction and Property

The rate of stamp duty on commercial property transactions is to increase from 2% to 6% with effect from midnight tonight.  However, a stamp duty refund scheme will be introduced for commercial land purchased for the development of housing, provided the relevant development commences within 30 months of the land purchase – further details to follow in the Finance Bill.

Funds of €750 million are to be made available to a new vehicle, Home Building Finance Ireland for commercial investment in housing finance.  This vehicle will increase the availability of debt on market terms to commercially viable residential development projects whose land owners want to build homes.

The holding period to qualify for the exemption from Capital Gains Tax for certain land and buildings will be reduced from 7 years to 4 years.  The exemption is available on the disposal of certain land and buildings that were acquired between 7 December 2011 and 31 December 2014.  Further details to follow in the Finance Bill which should be examined clearly.

The Minister announced an increase from 3% to 7% in the vacant site levy that applies to the second and subsequent years.  An owner of a vacant site on the register who does not develop the land in 2018 will pay the 3% levy in 2018 and the increased 7% levy from 1 January 2019.

Finance Act 2016 introduced the Help to Buy scheme for first time buyers of new houses that take out a mortgage of at least 80% of the purchase price.  No changes to this scheme were announced in the Budget.