In this article we examine the help to buy scheme and how it can assist buyers in getting that all important deposit. We also examine the significant changes to the PAYE system which will take place in 2019 with the implementation of PAYE modernisation. We also provide an overview of the earned income credit and how this has helped to level the playing field between the self-employed and employees. Finally, we look at the rent a room relief scheme which helps individuals to earn additional income free of tax.
Help to Buy scheme
The Help to Buy scheme is designed to assist first time buyers in buying or building a new house or apartment. It does this by giving taxpayers a refund of income tax paid in the last 4 years which they can then use as a deposit towards the purchase of the property. The refund amount cannot exceed more than 5% of the value of the property and the maximum refund is restricted to €20,000.
In order to qualify for the scheme, a number of conditions must be met as set out by the Revenue Commissioners. As first-time buyers can now borrow up to 90% of the value of a property, it means that most first-time buyers will only need a deposit of 5% to purchase their new home and this can prove helpful in getting them over the line.
If you believe you qualify for the scheme, applications can still be made as the scheme is set to run until December 2019.
PAYE Modernisation
PAYE modernisation is being introduced from 1st January 2019 and is the most significant reform of the PAYE system since its introduction in 1960.
What is PAYE modernisation? It is a new process whereby payroll information will be reported to Revenue in “real time” which should ultimately improve accuracy and transparency of the PAYE system for all stakeholders.
For those employers who use payroll software, the work required in order to comply with this new process will be minimal as software providers will have updated their software to take account of the changes. Employers who do not use payroll software can be rest assured that they will not be left behind as the Revenue Commissioners will provide an online data capture mechanism to allow those employers to report payments as required.
Quintas provide an outsourced payroll service for business owners which includes all reporting obligations. Further information can be obtained from Paul O’Connell at 021 4641400 or by email at poconnell@quintas.ie
Earned Income Credit
The credit was first introduced in January 2016 and has increased year on year with a credit of €950 being available in 2017. This was subsequently increased to €1,150 for the 2018 year of assessment. It applies to earned income only which is trading income or pay earned by owner directors. Therefore those in receipt of rental income or deposit interest income will not qualify for the credit.
It is important to note that the maximum credit which can be claimed is the lower of:
- €1,150 or
- 20% of your qualifying earned income
It may be the case that you also qualify for the employee tax credit and in that scenario the combined value of both credits cannot exceed the maximum value of the employee tax credit of €1,650.
Although the credit is still lagging behind the employee credit in terms of its value, its introduction was nonetheless a move in the right direction and a trend that will likely continue into the future.
Rent a room relief
As the ever-increasing demand for accommodation shows no sign of abating, many home owners are seeing an opportunity to earn additional income by renting out rooms in their principal private residence. The income generated from this letting can be earned free of tax provided the income is below the exemption limit.
For 2017 and subsequent years, this limit is set at €14,000 per annum but it is important to bear in mind that this figure also takes account of any additional charges which you may be asking for from your tenants, whether that is for food or for electricity charges. If indeed the gross annual income from the letting is below the limit, you do not have to pay income tax, PRSI or USC. If it exceeds the limit, the total amount of income is subject to tax.
Taxpayers in receipt of income under this scheme are required to declare the income on their annual tax return, regardless of the fact the income qualifies for tax exemption.
Revenue have provided guidance notes on the scheme and have stated that a basement flat or converted garage can qualify for the scheme, but this must be attached to the property.
With students and professionals currently on the lookout for accommodation, the rent a room relief scheme is food for thought for those wondering what to do with their spare room!
Further information on any of the above items can be obtained from Ciaran Mullan at 021 4641400 or by email at cmullan@quintas.ie
